Wednesday, January 4, 2012

Rick Rule: How to Make 50 to 100 Times Your Money in 2012

from King World News:

Today King World News interviewed reached out to New Zealand to speak with one of the most street smart pros in the resource sector, Rick Rule, Founder of Global Resource Investments. KWN wanted to find out from Rule how investors and speculators could make huge returns in 2012. Here is what Rule had to say: “We are having a big up-day but it really doesn’t matter, it’s irrelevant. It’s background noise. I’m looking for a move in gold from current levels to $2,200. There are $7 trillion in sovereign debt refinancings this year and at the same time there is continued weakness in the banking sector.”

Rick Rule continues: Read More @

Biggest Silver Surge In Over 3 Years

Presented with little comment - Silver - having (like Gold) retraced all of last week's losses is seeing a record-breaking move today. This jump of 6.6% is the largest since 11/24/08 - over three years ago.

Bob Farrell’s Ten Rules for Investing


Wall Street “gurus” come and go, but in the case of Bob Farrell legendary status was achieved. He spent several decades as chief stock market analyst at Merrill Lynch & Co. and had a front-row seat at the go-go markets of the late 1960s, mid-1980s and late 1990s, the brutal bear market of 1973-74, and October 1987 crash.

Farrell retired in 1992, but his famous “10 Market Rules to Remember” have lived on and are summarized below, courtesy of The Big Picture and MarketWatch (June 2008). The words of wisdom are timeless and are especially appropriate at the start of a new year as investors grapple with the difficult juncture at which stock markets find themselves at this stage.

1. Markets tend to return to the mean over time
When stocks go too far in one direction, they come back. Euphoria and pessimism can cloud people’s heads. It’s easy to get caught up in the heat of the moment and lose perspective.

2. Excesses in one direction will lead to an excess in the opposite direction
Think of the market baseline as attached to a rubber string. Any action too far in one direction not only brings you back to the baseline, but leads to an overshoot in the opposite direction.

3. There are no new eras – excesses are never permanent
Whatever the latest hot sector is, it eventually overheats, mean reverts, and then overshoots.

As the fever builds, a chorus of “this time it’s different” will be heard, even if those exact words are never used. And of course, it – human nature – is never different.

4. Exponential rapidly rising or falling markets usually go further than you think, but they do not correct by going sideways
Regardless of how hot a sector is, don’t expect a plateau to work off the excesses. Profits are locked in by selling, and that invariably leads to a significant correction eventually.

5. The public buys the most at the top and the least at the bottom
That’s why contrarian-minded investors can make good money if they follow the sentiment indicators and have good timing. Watch Investors Intelligence (measuring the mood of more than 100 investment newsletter writers) and the American Association of Individual Investors Survey.

6. Fear and greed are stronger than long-term resolve
Investors can be their own worst enemy, particularly when emotions take hold. Gains “make us exuberant; they enhance well-being and promote optimism”, says Santa Clara University finance professor Meir Statman. His studies of investor behavior show that “losses bring sadness, disgust, fear, regret. Fear increases the sense of risk and some react by shunning stocks.”

7. Markets are strongest when they are broad and weakest when they narrow to a handful of blue-chip names
This is why breadth and volume are so important. Think of it as strength in numbers. Broad momentum is hard to stop, Farrell observes. Watch for when momentum channels into a small number of stocks.

8. Bear markets have three stages – sharp down, reflexive rebound and a drawn-out fundamental downtrend

9. When all the experts and forecasts agree – something else is going to happen
As Sam Stovall, the S&P investment strategist, puts it: “If everybody’s optimistic, who is left to buy? If everybody’s pessimistic, who’s left to sell?”

Going against the herd as Farrell repeatedly suggests can be very profitable, especially for patient buyers who raise cash from frothy markets and reinvest it when sentiment is darkest.

10. Bull markets are more fun than bear markets
Especially if you are long only or mandated to be fully invested. Those with more flexible charters might squeak out a smile or two here and there.

AC2011 Session 1.2 Come Undone: Kyle Bass

Jay Taylor: Turning Hard Times Into Good Times

1/3/2012: Macro and Micro Discovery Investing

Five ETFs to Buy in 2012: EWM, XOP, VCIT, XBI, FCA

As we start 2012, the economic outlook for the year remains clouded across the globe. European woes continue to dominate the headlines while concerns over a slowdown in China and the U.S. are likely to weigh on the markets unless more positive data hits the wires. Beyond these issues, politics are also looking to play a key role in 2012 as elections in the U.S. and Russia, as well as tensions with Iran, could spook the markets at any time.

Despite these worries, some are cautiously optimistic about the New Year and the market going forward. These predictions could be accurate if inflation remains under control in emerging markets, there aren’t any geopolitical flare ups, and if the U.S. economy can continue to grow at its modest pace, helping to buoy the global economy. In fact, the ISM in the U.S. has risen to a six-month high in the most recent reading, suggesting that European concerns are still not really being felt by many U.S. businesses and that we could skirt a double dip recession

In light of the uncertainty, more ‘tactical’ as opposed to ‘broad based’ picks may be the way to go in this environment as they could help investors to be more nimble in this rocky year. Furthermore, these tactical choices could be better targeted at the true growth corners of the economy or sections that may have lower levels of risk in this volatile atmosphere. With this in mind, we have selected five surgical allocations that investors may want to make in 2012 over their more broad based counterparts, especially if the status quo in the market continues throughout the year:

MSCI Malaysia Index Fund (NYSEArca:EWM - News) over MSCI Emerging Markets ETF (NYSEArca:VWO - News)

With broad emerging markets facing a host of issues to start the year, many investors are worried about putting large amounts of capital to work in these surging nations. This could be especially true if the Chinese real estate bubble bursts, tensions heat up in Korea, or a slump in commodity prices hurts Brazil. All three of these issues could heavily impact VWO in 2012 as the fund allocates close to 50% of its assets to these three countries suggesting that it could be particularly impacted by these concerns .

Instead, investors may be better off considering a smaller nation such as Malaysia and its main ETF EWM which continues to fly under the radar. In addition to being a major export market for a variety of goods both basic and high tech, the country is a major center for Islamic banking as well. This sector could continue to grow and help the Malaysian economy as oil rich Arab states push more capital into the nation as a safe way to diversify portfolios into another Islamic nation. EWM has close to 30% of its assets in financials, and the next three biggest sectors are industrials, consumer staples and consumer discretionary, suggesting that the fund is pretty well diversified and could be a solid pick no matter what happens this year in the other emerging Asian markets.

S&P Oil & Gas Exploration & Production Fund (NYSEArca:XOP - News) over Energy Select Sector SPDR (NYSEArca:XLE - News)

The energy market certainly picked up steam in the final few months of the year helping to push XLE to a gain of 3.1% in 2011 on a 25.4% surge in the fourth quarter. This run could continue in 2012 especially if there is more turmoil in the Arab world or if tensions with Iran continue to remain high. Unfortunately, many large Western oil companies are frozen out of emerging markets thanks to the rise of state owned or state backed oil firms such as Petrobras, Petronas and Sinopec. Thanks to this, extra supplies in growing markets could be hard to come by for ‘big oil’ this year (read Time To Consider The Small Cap Oil ETF).

As a result, many investors may want to consider looking at firms that are engaged in exploration activities instead as these firms could play a very crucial role for firms looking to boost production in the face of high crude prices. In fact, this has already been the case over the past few months as XOP has outperformed XLE in the fourth quarter, gaining 35.7% in the period. Should oil prices remain high this segment could continue to outperform this year and be a solid pick for investors seeking more exposure to crude oil in equity form.

Intermediate Corporate Bond Index Fund (NasdaqGM:VCIT - News) over Extended Duration Treasury Index ETF (NYSEArca:EDV - News)

Long-term bonds had an incredible run over the course of 2011 as one of the longest duration ETFs, EDV, gained nearly 45.6% on the year with virtually all of the gains coming between August and September. Yet after that period, EDV slumped heavily as the fund lost about 7.8% over the last three months of the year as investors sought higher yielding bonds or equities. Given that Treasury bonds are still approaching all-time lows and that a 30 year bond only offers a 3% yield, one has to believe that this trend out of Treasury bonds could continue this year as well.

If one believes this to be the case, a closer look at VCIT could be warranted. Not only does the fund pay out a higher yield than its Treasury counterpart—3.8% to 3.0%-- but the fund has a far lower level of duration risk. In fact, the average duration is just 6.2 years for VCIT while it is close to four times that figure for EDV. This suggests that if interest rates trend higher, VCIT will be far less impacted than its long-dated counterpart from a negative perspective. This means that while the fund has underperformed EDV in 2011, if interest rates trend modestly higher towards historical levels, we could see VCIT be the winner instead this year.

S&P Biotech Fund (NYSEArca:XBI - News) over Health Care Select Sector SPDR (NYSEArca:XLV - News)

Health care was another big winner in 2011 as investors trended into the safe haven as protection from further market turmoil. XLV gained close to 10.5% on the year thanks to these worries, including a 14.4% jump in the past quarter alone. Yet, despite these gains, there are some concerns over the industry this year. First, the political uncertainty in the U.S. could rock the broad health care market, especially if any large changes to ‘ObamaCare’ look likely to be pushed through Congress. Additionally, many large pharma firms are quickly running out of profitable drugs and their pipelines remain anemic to say the least, suggesting that it could be a rough period if there aren’t a few big discoveries in the near term.

In order to avoid most of these worries, a closer look at the biotech sector may be the way to go for those seeking more exposure to the health care market. Biotech firms generally have better pipelines than their pharma counterparts and have better growth prospects as well. Additionally, as big pharma gets more desperate, a push to acquire biotech firms could be made by those flush with cash in an attempt to bolster growth prospects. Thanks to these reasons, as well as the uncertainty plaguing much of the rest of the health care space, biotech could be a star performer in the space for 2012.

China AlphaDEX Fund (NYSEArca:FCA - News) over FTSE China 25 Index Fund (NYSEArca:FXI - News)

Concerns over China and a slowdown in the country could be among the most important stories in the market this year. Housing is unaffordable for many and there are some concerns over the ability of the country to transition to a more consumer and internally focused nation as opposed to its current role as an export powerhouse. Thanks to these worries, speculation is beginning to build over massive losses at banks across the country, especially if the property bubble bursts in the country at some point this year. This could be especially bad news for China ETFs such as FXI as the fund has close to 50% of its portfolio in financials and is thus heavily exposed to any broad banking crisis in the country .

Instead, a look at a slightly more ‘active’ fund could be the way to go for those seeking more China exposure in this uncertain time. FCA has a much more modest allocation to financials of just under 20% of the total assets and it uses a more methodical approach to select holdings. Instead of just allocation based on market cap as many funds do, FCA ranks eligible stocks by growth and value factors, picking the best 50 for inclusion in the fund. Thanks to this more qualitative approach and the smaller level of exposure to financials, we look for the fund to outperform FXI in 2012, although it is very possible for both to see severe weakness once again on the year.

Hershey Is a Sweet Buy for 2012

Hershey Company (NYSE:HSY) — InvestorPlace contributor, Jon Markman of Trader’s Advantage, recently wrote, “Hershey is the largest candy maker in North America, controlling 43% of all chocolate sales. It also makes cookies, snack bars, baking ingredients and beverages. Its product portfolio consists of over 80 brands, including Hershey’s, Reese’s, Kit Kat and Bubble Yum. Headquartered inPennsylvania, it’s a $13 billion international powerhouse whose products are sold in 60 countries. It generates over $5 billion in annual revenues and employs 14,000 people.”

Credit Suisse analysts have a target price of $68 based on the stock’s long-term record of increasing earnings by 6% to 8% annually and its dividend yield of 2.23%. The acquisition of Canadian private food company, Brookside Foods Ltd., is expected to benefit from the company’s patents.

The recent breakout from an eight-month trading rectangle gives a trading target of $68.

Trade of the Day – Hershey Company (NYSE:HSY)

Case for Sustained $100 Oil

By Frank Holmes, CEO and Chief Investment Officer, U.S. Global Investors

In 2011, oil was one of the top performing commodities among those we track, with Brent rising more than 13 percent. Geopolitical risk and unexpected non-OPEC supply losses caused oil to rise significantly in early 2011. By October, we saw the black gold sink to a low of $80 per barrel before rising to its current level of nearly $108 a barrel.

This year’s unrest demonstrated how major oil-producing regions can significantly affect oil prices. As I’ve previously stated, according to PIRA, the Middle East accounts for over 70 percent of OPEC oil production and, along with North Africa, more than 95 percent of the cartel’s capacity growth.

A disruption of the supply chain can also influence oil prices. One of the largest chokepoints along the global oil supply chain is the Strait of Hormuz, which roughly 90 percent of all Persian Gulf oil tankers—some 18 million barrels per day—pass through, according to Barclays. With Iran controlling the entire northern border of the strait, there is a significant chance for disruptions should the country fall into conflict or war.

The story will likely continue into the new year, as “sanctions against Iran, including a possible European Union oil embargo, and fear of an Israeli attack on Iran’s nuclear facilities led 2011 to close on a bullish note” for oil, said PIRA Energy Group in its new report today. Additionally, there’s new political uncertainty in Iraq that may keep oil elevated.

The chart below sums it up: With more than 40 percent of the world’s oil controlled under autocratic rule, oil supply in democratic nations likely depends on the state of autocratic nations.

Read The Many Factors Fueling a Return to $100 Oil

China Rises to Top of Energy Pyramid
Another significant development in 2011 was that China surpassed the U.S. to become the world’s largest energy consumer. BP’s Statistical Review of World Energy report calculated that China’s energy consumption rate grew 11 percent over the previous year, with the country consuming 20 percent of global energy.

Total Energy Consumption in China Surpasses U.S.

Read China is World’s Largest Energy Consumer

While coal accounts for a significant portion of China’s total energy use, the country’s need for oil should continue to rise. Its rising income levels, the government’s social housing plan, and an aggressive transportation effort to link 700 million people across more than 250 cities should continue to drive this growth. Bank of America-Merrill Lynch agrees, suggesting that “China’s oil dependency will rise as U.S. imports fall.” In the chart below, it’s projected that China’s imports of crude oil and petroleum products will surpass the U.S. in 2014. BofA-ML thinks that on a volume basis, China oil imports “will grow quite rapidly on the back of rapid per capita income growth.”

China's Oil Imports Expected to Grow

China’s demand is what makes today’s oil situation different from the end of 2007. At that time, a lack of supply increased oil prices even though the U.S. was in a recession. What’s different is that “China is likely to re-accelerate” in 2012, according to Goldman Sachs.

China, along with other emerging markets, and the European Central Bank are in the early stages of a global easing cycle, primarily by cutting interest rates to spur growth. Also, the Federal Reserve should remain stimulative. These government actions set the stage for sustained, or perhaps higher, demand for oil. As stated earlier, geopolitical threats remain on the horizon, and could also be a positive catalyst for oil.

Is The Auto Industry On The Rebound?: F, GM, NSANY, TSLA, VLKAY

It might be a whole lot of hype over something relatively insignificant, but investors who follow the auto industry are pointing to a recent announcement from Ford Motor Co. (NYSE:F) as a sign that the auto industry is recovering from what once appeared to be the beginning of the end for Detroit.

Was it Always This Bad?

In the 20th century, if you wanted a car, you bought from the Big Three. Ford, GM (NYSE:GM) and Chrysler dominated the auto industry. The automobile was the symbol of American manufacturing and everybody was proud to drive an American car. Then, in the final years of the 20th century, the auto industry began to show signs of fracture and that had people worried.

The Big Three were looking more like banks than auto makers. GM hired Rick Wagoner, who had economics degrees from prestigious schools but no experience in the automobile industry. He focused more on the financing arm of GM, allowing the quality of their cars to suffer. During that time, foreign manufacturers exported high quality vehicles to the United States, allowing the U.S. to silently lose its distinction as the most respected nation for automobile manufacturers.

GM's stock price went from $60 per share to as low as $1.45 under Wagoner's watch and Ford and Chrysler followed. A report by The Heritage Foundation concluded that in 2006, automakers were spending, on average, over $70 per hour on each employee compared to an average of $23 in the rest of the private sector workforce.

When the 2008 financial crisis hit, GM and Chrysler were unable to meet such high overhead costs and needed government support. Now, as the Big Three get back to the basics and focus on their product, the sense of pride in the American auto industry is beginning to rekindle.

On Dec. 8, 2011, Ford announced that after five years of paying no dividend, they were reinstating a dividend of 5 cents per share. While hardly a hefty payday for investors, it may signal that Ford, the one company of the big three automakers who didn't receive a government bailout, may finally be seeing bluer skies on the horizon.

Only costing Ford just under $200 million, the dividend may be largely symbolic. When the dividend was canceled in 2006, CEO Alan Mulally said, "We need to fix our balance sheet. Once that happens, we will bring the dividend back." Now, Ford is signaling to investors that the company is much more healthy than it once was. What does this say about the auto industry as a whole? Are all of the automakers seeing positive signs?

Year-Over-Year Sales
If you only look at the November sales reports, the answer is yes. In November, Chrysler's sales were up 44.5% from November of 2010. Volkswagen (OTCBB:VLKAY) was up 40.7%, Nissan (OTCBB:NSANY) saw 19.4% gain from the previous year, Ford, 13.2% and GM saw gains of 6.9%. This represents a total sales rate of $13.63 million, the highest since Cash for Clunkers in 2009.

Why such demand? According to Ford, much of the demand is coming from a slightly improving economy and pent up demand. With the average vehicle age at 10.6 years, consumers are purchasing out of necessity. Purchasing a new car when your current vehicle is only a few years may be considered luxury spending but when it becomes so old that the cost to repair it outweighs the cost to buy a new car, it becomes a necessary purchase. (For related reading, see Car Shopping: New Or Used?)

What About Electric?
While not as bad as Honda, who saw year-over-year sales decline 10.1%, GM still can't find solid footing. What they were hoping would be the future of automobiles, their hybrid Chevy Volt hasn't seen the demand that GM had hoped for. In addition, recent safety concerns have caused the $32,000 hybrid to attract negative attention at a time when GM is trying to be the auto company of tomorrow.

But this may not be a problem with Chevy. Tesla Motors (Nasdaq:TSLA), a startup that represents the future of the auto industry in the eyes of investors, has seen their stock price rise more than 10% year-to-date while the industry as a whole has seen declines of more than 30%. Recently, Tesla was downgraded by Morgan Stanley because they believe that the demand for electric vehicles will be much lower through 2025 than previously believed. Analysts predict that hybrid and natural gas vehicles will be the future of the auto industry, but for now, consumers are slow to embrace them.

The Bottom Line
When the big three automakers were nearly bankrupt, they got a lot of criticism about their lack of innovation, but as the American auto industry shows real signs of recovery, it is clear that the gas guzzling cars of yesterday are still the vehicles of choice for many. Americans don't appear to want innovation as much as previously thought.

Trading Lesson 2: Finding a Friend in the Trend

"The trend is your friend" may very well be the most common pearl of wisdom in the trading world - and for good reason...

Because trends persist for long periods, a position taken with the trend is much more likely to be successful than one taken randomly or against the trend. Trading with the trend in a bull market means buying on dips; in a bear market, selling on rallies.

First though, a quick refresher about bar charts (the two trend examples we'll see in a moment are illustrated on bar charts):

  • on a bar chart, each vertical line - or bar - connects that day's, week's, or month's high and low; and
  • the tiny, horizontal tick sticking out from the right of the bar indicates that closing price for that day, week, or month

Now, on to the trend...

An uptrend is a series of higher lows and higher highs. Uptrend lines are drawn under the lows of the market and give support. A downtrend is a series of lower lows and lower highs. Downtrend lines are drawn across the highs and give resistance to the market. The soybean chart shown below has both an uptrend line and a downtrend line.

Lows and highs vs. closes

A trendline can be drawn when two points are available. The more times a trendline is touched, the more technically significant this support or resistance line becomes.

While some chartists draw trendlines through lows and highs, others may prefer drawing lines through closes in hopes of detecting a change in trend more quickly.

Trendlines may change angles, requiring another line drawn through new high or low points. For example, the sideways trading action in March and April broke the steeper uptrend line connecting the Feb. 13 and March 20 lows. But when the uptrend resumed in early May, a more shallow uptrend line can be drawn connecting the February and late-April lows.

The most reliable trendlines are those near a 45° angle. If about four weeks have elapsed between the two connecting points, this increases the trendline's validity. However, steep trendlines that don't fit these guidelines, like the uptrend line in the early portion of the soybean chart, may be just as useful.

Often, minor uptrends or downtrends will confuse the beginner. It may seem the market has turned around. However, sharp chartists will see these minor trends as small ripples within a major wave. Remember, if the trendline isn't broken, that trend remains intact. Two closes outside the trendline are the criteria for detecting a change in trend. However, very seldom do markets go directly from uptrend to downtrend. At the end of a move, traders become less aggressive and prices may swing in a sideways pattern or consolidation period.

Many times, markets break into an uptrend or downtrend out of a sideways trading pattern or consolidation period. In the soybean chart, prices traded in a 50

Because traders need time to be convinced that they should put their money into the market, sideways patterns are more likely to occur near the bottom of a move. The beginning of a downtrend often will be sharp and sudden as investors pull money out of the market.

False breakouts

Another way beginners might be fooled is seeing false breakouts of tops and bottoms. As prices begin to make their move in switching from a downtrend to an uptrend, traders with short positions will "cover." This buying many times will cause the market to rally above the downtrend line. This short covering rally seldom holds, and prices may drop back to the breakout point. The uptrend is confirmed when prices close above the high of the short rally.

On a topping formation, long liquidation takes prices through the uptrend line on a short break. Before the downtrend begins, the market sometimes rallies back to "test" the uptrend line as shown on the soybean chart in September. As the downtrend unfolds, the second reaction rally could not top the highs of the first rally.

Channel lines are an extension of the trendline theory. The October through January downtrend on the soybean chart shows prices staying in a "channel" between the downtrend line and a line drawn parallel to it, connecting the lows. A channel line in a downtrending market helps identify where support may be found.

Speedlines are another line which show where prices may find support or resistance. Frequently, speedlines and trendlines will overlap, emphasizing that line's importance to the market.

The speedline on the soybean chart starts from the June 29 low. To find the points to connect with the low, divide the range between the low ($6.40) and the high($9.94) into thirds and subtract from the high.

Plot the point obtained by subtracting one-third of the range from the high on the day the high was made. A line drawn between this point ($8.76) and thelow established the 1/3 speedline. The 2/3 speedline is drawn through the point that is two-thirds of the range subtracted from the high ($7.58) plotted on the day the high was made.

Another way to detect a change in trend is by looking for a price from which the market reacts two or three times.

A double bottom, such as the one on the T-Bill chart, indicated the 87.10 to 87.20 area gave support to the market. Although a recovery had begun from the late-May low, prices broke the short-term uptrend in mid-June. The question then became: Will aggressive short-selling and long liquidation overwhelm the short-covering and new buying that come from support at the May low?

The soybean chart displays a triple top, where prices met resistance in approximately the same area three times before falling. Just the inverse of making the double bottom goes through traders' minds as the market makes a top: Will new buying and short-covering be able to overwhelm the new selling and long liquidation coming from the triple-top resistance area?

As with trendlines, the more time that elapses between the tests of support and resistance in double or triple tops or bottoms, the more valid the formation becomes. Also, the greater the reaction between tests of the support or resistance, the more likely the point will hold.

Though these examples are from daily bar charts, technical analysis works just as well on weekly and monthly charts. Because the longer-term charts cover more time, their trendlines are more important in identifying areas of support and resistance to the market.

How do I know?

In identifying the trend in a market, it is wise to start with the longer term charts to identify the long-term trend. The daily charts offer trends for the shorter-run.

Technical analysis is more an art than a science. The answer to your question, "How do I know where to draw the trendlines?" is, "They're your charts, draw them wherever they seem to work best for you."

And, of course, the only way to get a feel for what works best for you is to practice - let's give it a try now...

This chart depicts a few different trends - find the major uptrend and mentally draw the uptrend line and trend channel line on the chart:

Chart of the Day - Ecolab (ECL)

The "Chart of the Day" is Ecolab (ECL), which showed up on Friday's Barchart "All Time High" list. Ecolab on Friday posted a new all-time high of $58.13 and closed up 0.31%. TrendSpotter has been Long since Nov 30 at $57.02. In recent news on the stock, Ecolab on Dec 1 closed its merger with Nalco and raised its quarterly dividend to 14% to 20 cents per share. Goldman on Dec 2 resumed coverage on Ecolab with a Neutral rating. Ecolab, with a market cap of $17 billion, is the global leader in cleaning, sanitizing, food safety and infection control products and services.