Tuesday, December 13, 2011

The Most Consistent Trade of the Past Four Years

'Tis the season for higher interest rates.

It never fails. Interest rates move higher in December – at least, that's been the case for the past four years. Since 2008, betting on higher interest rates has been a consistently profitable trade.

Take a look at this chart of the 30-year Treasury bond yield...

The blue circles on the chart indicate the action in interest rates during the final few weeks of each year. Rates were already on the way up heading into the end of 2009 and 2010. They simply continued to trend higher in December.

But look at the action in 2008. Interest rates bottomed shortly after central banks around the globe vowed to increase liquidity to ease the 2008 financial crisis. Rates spiked higher through the holiday season.

The world's central bankers made the same promise last week. Perhaps we're in for a similar spike higher this year as well?

Here's how the iShares 20+ Treasury Bond Fund (TLT) performed over the same period...

TLT has declined in each of the past three Decembers. And it's down so far this December as well.

Of course, no trade is ever guaranteed. In fact, as soon as a trade appears to be predictable and fail-safe, it tends not to work anymore. But I haven't heard anyone else talk about this, which leads me to believe we might still have one more year to profit on this one.

If interest rates move higher, bond prices are going to move lower. You can profit off this trend by selling short shares of TLT. Or you can buy shares of the ProShares UltraShort 20+ Year Treasury Fund (TBT). This is a leveraged fund designed to return twice the inverse daily performance of TLT.

So if TLT drops by 5%, TBT should rally by 10%, and vice versa.

Either way you choose, if you're looking for a high probability trade to make this holiday season, betting on higher interest rates looks like a pretty good setup.

Jim Rogers: I’m Being Forced To Buy More Real Assets Like Gold and Silver (GLD, SLV, AGQ, ZSL, GDX, IAU)

Always looking for bargain prices in commodities markets, famed investor Jim Rogers has been patiently awaiting a significant pullback in precious metals prices before adding to his stockpile.

But that plan may change for Rogers.

The Fed’s statement released on Wednesday, in which it announced a coordinated 50-basis point cut in dollar swap rates with five other central banks, jolted Rogers into rethinking his buying strategy for precious metals and commodities, according to a GoldSeek interview with the 69-year-old commodities trader.

When GoldSeek Radio host Chris Waltzek asked Rogers whether he’s buying commodities right now, the 69-year-old commodities trader said, “Well, not at the moment, but I’m seriously considering it given what’s happening in the world . . . They [central banks] are going to loosen up even more on money. That’s not good for the world, not good at all, but that’s all they know how to do. So, I’m contemplating, being forced to buy more real assets.”

For weeks, Rogers has been peppered with the same question regarding his plans to buy more gold, and, by proxy, more silver. He’s repeatedly said that he’s been waiting for an additional pullback in the precious metals before adding to his positions and that he remains a staunch long-term bull in gold (NYSEARCA:GLD), silver (NYSEARCA:SLV) and commodities for, what he expects, the remainder of the decade—at least.

In a CNBC interview, two weeks ago, Rogers said, “I’m long commodities and currencies, because if the world gets better, the shortages in commodities will make sure I make money. If the world economy doesn’t get better, I’d rather own commodities because they’re [central banks] going to print money,” adding that he’d become excited if gold reached the $1,200 level.

However, Wednesday’s rate cut within the dollar swaps market showed that the Fed is committed to temporarily backstop Europe’s liquidity freeze in the Eurozone while a more permanent solution to the liquidity (solvency?) crisis there is drafted by the leaders of the EC on Dec. 9. It appears that the Fed and ECB are poised to print more money.

In addition to Wednesday’s pre-market shocker by the Fed, a more recent overture from Chicago Fed governor Charles Evans, who said on Dec. 5, “further monetary stimulus is needed” to steer clear of another U.S. debt trap, has upped the rhetoric for more money printing by the Fed, possibly slated for the Jan. 23-24 FOMC meeting.

In the meantime, the ECB decides whether to lower rates on Thursday, Dec. 8. Another rate cut in addition to ECB’s new chief Mario Draghi may send precious metals soaring once again.

All of these events trouble Rogers, who sounded disappointed that he may not get his wish for lower gold and silver prices. It appears that recent events may have altered his expectations.

So, is Rogers buying gold now?

“I would have said ‘no’ before yesterday; now, as I say, I’m reconsidering,” he stated. “I was hoping we’d have a large correction, a continuing correction. It [gold] has been correcting for three months now, but that’s not much in the context of the 11 years [bull market], so I’m trying to figure out what to do. I might buy more, given what happened yesterday. I’m trying to figure out exactly how extensive this is going to be.”

And for Rogers’ take on the silver price, he repeated his preference for buying silver because of the large discounted price to its all-time high and inflation-adjusted high of approximately $150 per ounce.

“Certainly silver could go to three digits if you adjust it for inflation, you get to U.S. dollars, a $100 per ounce some time during the course of the bull market,” Rogers said of the bull market potential for the price of silver. “Yes, I’m sure that will happen.”

Given a choice between buying only one of the two monetary metals, gold and silver, Rogers said, “If I buy either today, I’d probably buy silver, just because it’s cheaper on an historic basis. They more or less move together, certainly not always. I would probably buy silver, if I decide to buy precious metals.”

Then, the conversation turned to the U.S. economy.

Rogers expects utter calamity during the next economic downturn in America, suggesting that each downturn in the U.S. economy creates an increasingly more difficult job for the Fed to raise growth again due to the swelling drag of accumulated debt created by the central bank in the series of ‘prime the pump’ responses to all previous downturns. See Kondratiev-wave cycles.

“At some time by the end of 2011, 2012 or 2013, we’re overdue for another economic slowdown and that it will be worse than last time because there has been so much staggering amounts of debt created,” Rogers explained.

“You know we had a slowdown in 2002; it was bad; 2008 was worse because the debt was so much higher. You know 2012, 2013, whenever it comes it’s going to be worse still because the debt now is up so much,” he added. “The U.S., when taking into account all the off-balance sheet guarantees such as Fannie Mae’s derivatives positions the debt has more than quadrupled from last time. They cannot do that again. The market’s not going to let them print staggering amounts of money anymore.

“My only point [was] the next time around, when it comes, and it is going to come, anybody that tells you that it’s not going to come, you should not bother with them, but when it comes the next one’s going to be worse than the last one.”

Related: ProShares Ultra Silver (NYSEARCA:AGQ), SPDR Gold Trust (NYSEARCA:GLD), ProShares UltraShort Silver (NYSEARCA:ZSL), iShares Silver Trust (NYSEARCA:SLV), Market Vectors Gold Miners ETF (NYSEARCA:GDX), iShares Gold ETF (NYSEARCA:IAU).

Chart of the Day - Nike (NKE)

The "Chart of the Day" is Nike (NKE), which showed up on Friday's Barchart "All Time High" list. Nike on Friday posted a new all-time high of $98.25 and closed up 2.63%. TrendSpotter has been Long since Nov 38 at $96.18. In recent news on the stock, Citigroup added Nike to its Top Picks Live list, reiterating its Buy rating and raising its price target to $113 from $101 on expectations that Nike on Dec 20 will report revenue upside and higher gross margin guidance. Nike on Nov 17 raised its quarterly dividend to 36 cents from 31 cents. Nike, with a market cap of $44 billion, sells footwear, apparel, equipment, and accessory products.


Avoid Serious Losses By Knowing When to Sell

Investors are buying with both hands right now… that’s why it’s crucial to know when to sell.

In the last five trading days, the S&P 500 has rallied nearly 9%, prompting investors to call out the “all clear” signal as stocks ratchet another 1.4% higher this morning. But investors who pile into stocks this week must have short memories — after all, just two weeks ago, stock had their worst Thanksgiving week since 1932.

That doesn’t mean that you should be running from the market this week — instead, it means that you need to enter your next position with an exit plan in mind…

Whether you’re a buy-and-hold investor or a daytrader, an exit strategy should be something you think about before you ever hit the “buy” button on your trading platform. Not only will a sound exit strategy help you skirt serious losses, it’ll also help you to lock in gains on positions that are already in the green.

It all comes down to one major tool: the stop loss.

Basically, a stop loss (or stop, or stop order, etc) is an order with your broker to sell your shares in a particular stock automatically when its price hits a specific level. While there are several different types of stop losses, these three major types are worth knowing about:

1. Stop Order: Triggers once your stock reaches a specific target price, the stop price.

2. Trailing Stop: Triggers at a specific change in price, measured by either percentage points or dollar value.

3. Stop Limit Order: Similar to the stop order, except for the fact that a limit order is triggered once your stock reaches a specific target price. (i.e. sell high, and re-buy low)

Which order to choose depends on what you’re trying to do. Clearly, the biggest benefit of placing stop losses is the fact that you won’t have to lose sleep over your open positions — if the stocks you own take a big dive, your positions will sell off before any major damage is done. That’s a pretty compelling case for using stops.

But there’s more to an effective stop loss than just that.

Using a Technical Stop Loss

For fundamental investors, a stop loss is an arbitrary level that’s set at some “maximum pain threshold”. In other words, if the biggest loss you’re willing to take on a stock is 10%, you’d set your stop order 10% below your cost price and be done with it.

Unfortunately, there’s a big problem with that mentality…

The problem with placing arbitrary stops is that there’s no logical basis for them. After all, shares could fall 11%, then reverse higher — that’s why it’s important to set your stop levels based on the market rather then on your personal thresholds.

To do that, you need to add some basic technical analysis to your investment strategy. Stops can be very useful when they’re placed under a stock’s support level (the price level that a stock has trouble falling below). That’s because to a trader, a price level below support generally means that the stock could be breaking out much lower. Essentially, you’ll want to place stops just under where you’re likely to find a glut of demand for shares.

To avoid exceeding your comfort zone on a loss, think of your “maximum pain threshold” as a dollar amount rather than a percentage. Then, size your position so that you’re stopped out before your losses exceed that level. Trailing stops, which are typically used to lock in gains, can be used a little bit more arbitrarily.

It’s tempting to follow the crowd right now and buy stocks blindly as they climb higher. But doing that would be a big mistake.

Volatility remains a major concern, and it’s very likely that the S&P 500 will see another major drawdown in 2011. Set your stops logically, and you won’t be caught unaware if that happens.

In Depth with Jim Rogers

Glenn Beck recently interviewed Jim Rogers on GBTV concerning the world’s economic conditions, social unrest and more. The three parts follow below.

Part 1:

Bloomberg Businessweek - 12 December 2011

Bloomberg Businessweek - 12 December 2011
English | 116 pages | PDF | 30 Mb

Bloomberg Businessweek Magazine: Business Week, America's leading business news magazine, makes the world of business intriguing by identifying and analyzing pivotal events, hot trends and compelling personalities. This insightful weekly magazine edifies complicated issues and conveys a sense of excitement while telling readers what they need to know, often before they need to know it.

click here

Exclusive Interview – Jim Sinclair: “MF Global is A Piece of Dynamite Sitting Underneath the Gold Price”

I had the chance recently to speak with the legendary Jim Sinclair, publisher of JSMineSet.com and CEO of Tanzanian Royalty Exploration Corp. It was an incredible interview—Jim spoke about gold, MF Global, mining shares, risks of the paper gold market and much more.

During the interview Jim commented on how truly misunderstood gold still is, as well as the market being nowhere near an ultimate top. His comments were, “The general thinking amongst the youngsters who run the hedge funds, is not a very pro-gold school, and its very much in error…Gold will ultimately be a top brought about by violence in the most spectactular manner—the idea that gold made a top in the $1900′s could only be drawn by those with no experience in the previous major moves in the gold market.”

When asked about the widening price ratio between gold and mining shares, Jim said, “Many gold shares are selling at a significant discount to the price of gold, but also at a discount to simple logic,” for reasons that, “there are significant competing investments that didn’t exist back in the 70s and 80s, such as exchange traded funds in gold and silver…The largest of these funds, if you read the prospectus, you find out you’re investing in a fund that doesn’t have even the legal obligation to deliver gold itself, and they have the absolute ability to only deal in paper equivalents.”

In regards to the recent MF Global collapse, Jim said, “When problems like this occur, and when investors question whether or not their statements means anything, assets without liabilities attached to them held physically or stored personally by the investor become very attractive.” He concluded by saying, “the MF Global situation—is a piece of dynamite sitting underneath the gold price.”

Jim is known by many as “Mr. Gold,” and his depth of knowledge on gold & the financial markets is quiet uncommon. This is another “must-listen” interview for gold and silver investors.

To listen to the interview, left click the following link and/or right click and “save target as” or “save link as” to to your desktop:

Interview with Jim Sinclair

MoneySense - December/January 2012

MoneySense - December/January 2012
English | PDF | 88 pages | 43.7MB

MoneySense is the country's most trusted source of information on investing, banking, RRSPs, insurance, financial planning, saving for education, home buying, real estate investing, car buying and much more.

read it here

Rosenberg Says U.S. May Fall Back Into Recession

(Bloomberg) — David Rosenberg, chief economist and strategist at Gluskin Sheff & Associates Inc., talks about the outlook for the U.S. and European economies. He speaks with Sara Eisen on Bloomberg Television’s “InsideTrack."

A "Must Watch" Chart for America

These days, investment optimists have to take any good news they can get. And right now, they're getting a tiny bit of good news from the XLF.

Regular readers know the big U.S. financial stock fund XLF is a permanent fixture on our "watch list." With large weightings in JPMorgan, Wells Fargo, Citigroup, Goldman Sachs, and American Express, this fund represents America's financial backbone. These are the companies that rise and fall with our ability to make money, save money, start new businesses, repay debts, and just generally "get along."

After trading in a sideways pattern for more than a year, XLF suffered a huge selloff in August and September. This selloff took XLF from $15 per share to $11.28 (a 25% loss). Shares then staged a natural "relief rally" to $13.50… and sold off again.

But as you can see from today's chart, the recent selloff ended around $12 per share. This is what traders call a "double bottom." It's where sellers attempt to push a beaten-down asset even lower... and get overwhelmed by value-focused buyers. Mind you, this bullish action is no cause for dancing in the streets... but if XLF can hold above the $11-$12 level, it's a good sign for America in general... a ray of light for the optimists. On the other hand, a break of this level means ugly things ahead.

How to Make a Fast 30%-60% Buying These Beaten-Up Stocks: TLB, PSUN

It's time to take on more risk.

At least, that's what private equity firms are doing right now. Private equity firms are investment companies that raise large amounts of capital from wealthy investors and large institutions. They use this capital to take huge, sometimes controlling stakes in companies.

And after six months of fleeing risk, which included buying U.S. Treasurys at record-low yields, these guys are beginning to go shopping.

A shopping spree makes sense, given the huge decline in small caps over the past few months. Some companies in the biotech and energy sectors are still down 40%-plus from their highs.

One sector that looks particularly attractive is specialty retailers. It includes companies like Chico's and Abercrombie & Fitch – which focus on selling one type of merchandise (clothes, pocket books, jewelry) and cater to a specific clientele.

I'm sure these two stocks won't show up on any momentum trading screens following their massive pullbacks. Even value investors may have a tough time buying these struggling retailers. But the "smart money" private equity investors are showing interest in this sector.

The chart below includes specialty retailers Talbots (TLB) and Pacific Sun (PSUN). These stocks have exploded higher in the past few days.

Talbots recently announced it received a letter from private equity firm Sycamore Partners, proposing to acquire all outstanding shares for $3. Shares jumped more than 60% on the news.

Pacific Sun announced it received a $60 million loan from Golden Gate Capital. That will give the private equity firm a 20% stake in the company. Part of the loan will be used to fund lease buyout payments on the 175-plus stores Pac Sun announced it would close. Shares jumped 35% on the news.

These aren't the only two...

Charming Shoppes, another specialty retailer, is up about 60% in two months. The firm announced it would sell its Fashion Bug label, which has more than 600 stores. Sitting on its board of directors over the past year is Michael Blitzer. He served as a principal of Portsmouth Partners, an advisory firm that provides operational and strategic services to private equity groups that focus on retail companies.

Selling its struggling Fashion Bug division will make Charming Shoppes more appealing to private equity firms. And the stock is up huge in anticipation of a possible private equity deal.

Retail stocks make for the perfect private equity investment. They can easily sell underperforming stores. Also, once these companies are private, experienced management teams can focus on growth.

After restructuring, these companies can easily be taken public again, usually making huge profits for the original acquirer. Just take a look at Dollar General, which was acquired by private equity giant KKR for $7 billion in 2007. After a huge restructuring, the company was then brought public again in 2009. Dollar General has a market cap of $13.5 billion today. KKR still owns a 30% stake.

That said, buying a stock solely on the chance it'll get taken over is not one of my favorite strategies. But one thing the two specialty retailers in the chart have in common is they were all trading at a significant discount to book value before their huge moves to the upside.

My advice is to screen for specialty retailers down at least 30% from their highs. Also, make sure they trade at a discount to book value. The book value is the theoretic amount a company would receive if it liquidated. You can find it on Yahoo Finance under "Key Statistics."

I found several companies that fit this profile, including Coldwater Creek, Christopher & Banks, Office Max, and Brown Shoe.

Buying specialty retailers under book value should provide investors with downside protection.

And if these companies report just one solid quarter – or announce a private equity agreement similar to what we've been seeing in this sector – the stock price could easily surge 30%-plus.