Tuesday, May 1, 2012

We Are in Age of ‘Late Great Depression’: Shiller

The world is in a state of “late Great Depression,” well-known economist and author Robert Shiller told CNBC Monday.

 The Yale economics professor, who helped devise the Case-Shiller index for housing market trends, and famously called the dotcom bubble of the early 2000s and the housing market bubble later in the decade, told “Squawk Box Europe” that the world is in a “new age of austerity.”

“Our whole economy has been affected by variations in confidence. Central banks are sort of trusted, but the actions they have often affect people’s confidence by appearance rather than substance. We’re not in the most trusting mood now,” Shiller said.

Many economists believe that the embattled euro zone has already entered the second part of a double-dip recession , with official figures due out this week expected to confirm as much. (more)

Stocks Are the "Most Attractive in Over a Half-Century"

"Equities relative to interest rates are the most attractive in over half a century in my analysis," Professor Jeremy Siegel told CNBC yesterday morning.

Siegel specifically said stocks are cheap "relative to interest rates." I agree with him...

In December, I wrote a DailyWealth essay called "Why the Entire Stock Market [2] Could Soar Over 100% from Here," based on the same idea...

Stocks are already up 14% in the four months since I wrote that.

And it's still true.

This simple principle is that investors are being forced into stocks because interest rates – returns – are so low in everything else...

Interest rates are zero percent at the bank and less than 2% on government bonds [3]. Meanwhile, the "earnings yield [4]" of stocks is closer to 8%.

"Earnings yield" might sound fancy – but it's just the price-to-earnings (P/E) ratio flipped over... Instead of the P/E ratio, earnings yield is the E/P ratio. And right now, the gap between the earnings yield on stocks and the return on everything else is too wide. It has to close.

Jeremy Siegel fully understands this... He explained it earlier in the month on CNBC. Stocks are "fairly cheap on an absolute basis," he said. "They're extraordinarily cheap on a relative basis."

On an absolute basis, stocks are fairly cheap at a P/E of about 13 today. On a relative basis – relative to bonds and just about everything else – stocks are dirt-cheap.

You can see it in the chart below. Stocks offer [5] the best relative value we've seen in 30 years.

Earlier this year, Siegel told Barron's magazine there's a 50/50 chance the Dow stock index [6] will hit 17,000 or higher before the end of 2013. That's about 4,000 points higher than it is today.

Siegel bases his optimism on the earnings yield and on his study of stock market cycles [7] going back to the 1800s. But he made a simple observation as well...

When you start at a 13 price-earnings ratio [where we are today], get back in history, the future is much, much brighter. We've never had bad stock returns over the next three, five, 10 years when you start with a 13 P/E ratio.

Interestingly, Siegel is making these predictions without expecting companies to grow their earnings [8]. He told CNBC... "We don't need corporate profits to grow for stocks to be great buys. Any growth in earnings is an extra bonus to the stock investment."

Stocks are the most attractive in a half-century, Jeremy Siegel says.

I agree with him.

He predicts the Dow could rise by 4,000 points between now and the end of 2013.

I'm usually not as bold as Siegel is in putting hard predictions down like that. But I think he'll turn out to be right...

Investors Are Loading Up on This Hated Tech Stock: RIMM

One of the world's most hated tech stocks is showing up in a few "guru" portfolios...

This company is one of the best-known companies in the world. It produces one of the most popular mobile devices ever made.
This stock lost 75% of its value in 2011. At its low, it was down by another 12.5% this year.

The market [2] hates this stock. So why are several world-class investors betting hundreds of millions of dollars on a turnaround [3]?

I'm talking about Research In Motion (RIMM), maker of the BlackBerry smartphone.#-ad_banner-#

In 2007, RIMM's share of the smartphone market was 44%. Then Apple came out with the iPhone and devastated RIMM's sales. Its share of the smartphone market is now just 16%.

Back when RIMM dominated the smartphone industry, its total market capitalization [4] was over $60 billion. Now, the market values RIMM at $7 billion. The stock is now down 90% from the peak.

Not everyone is fleeing the stock, though. Over the last nine months or so, several major asset [5] managers have been buying hundreds of millions of dollars of RIMM stock.

One of RIMM's buyers is Prem Watsa. Watsa is "Canada's Warren Buffett." He's chairman of insurance company Fairfax Financial. Under Watsa, Fairfax has generated annual returns of 23.5% since 1985 versus 10.4% for the S&P 500 over that time. Fairfax owns 12.8 million shares [6] of RIMM, about 2.4% of the company. That's worth $185 million. Watsa also just joined the company's board of directors.

Primecap Management is another big RIMM investor. Primecap is the world's best asset manager specializing in growth stocks. It manages the Vanguard Primecap mutual fund [7], which is up 954% over the last 22 years. Compare that to 256% for the S&P 500. As of the end of 2011, Primecap owned 5.4% of RIMM, valued at $412 million.

Donald Yacktman is also betting on RIMM. He began the Yacktman Fund in 1992. Since then, his fund is up 350%, nearly double the S&P's 189% rise. Yacktman owns 9.6 million shares of RIMM, about 1.8% of the company. His position is worth $140 million.

You'll find smaller stakes in RIMM owned by other big-name investors, including David Einhorn and Leon Cooperman.

Why are these brilliant investors buying shares in a company that's been locked in a downtrend for 12 months... whose business is getting destroyed by Apple?

For one thing, RIMM has $1.5 billion in cash, more than 20% of the market value [8]. It has negligible debt. So there's no bankruptcy risk. And for all its troubles, 77 million people still use RIMM's devices. In short, RIMM still makes money...

In the 12 months that ended March 2012, RIMM made $1.2 billion and generated $2.9 billion in operating cash flow [9]. Service revenue is 22% of the company's sales. That grew 28% last year.

RIMM also owns a large patent portfolio, which could be worth hundreds of millions – if not billions – of dollars. It's pursuing growth in India, Indonesia, and the Middle East where it's still No. 1 in market share [10]. And it's making its software compatible with competitors' phones, so it can keep its customers happy.

If RIMM's efforts to turn its business around succeed, its stock is going to go up. Even if it just holds steady and starts using some cash to buy back shares, investors could see a big return. 

There are lots of ways to win with the stock. If you want to join Watsa, PrimeCap, and Yacktman, take a look at RIMM.

Market Astrology: Solar Eclipse

The following is an except from this weeks premium newsletter by Karen Starich, who uses astrology to forecast events in the financial markets. Learn how Astrology Traders can give you an unparalleled edge in trading.

The path of the eclipse will transit over the Northern Pacific Ocean and cross the Western United States and end over Lubbock TX.  The eclipse will peak in a conjunction to the star Alcyone ( the brightest star in the Pleiades) at 0 degree Gemini (an eclipse at 0 degree of any sign is very serious).  In my view, the eclipse in conjunction to Alcyone is not favorable and could portend more economic distress, demonstrations, and general social confusion.  My greatest concern however, and a very serious warning to my subscribers, is a possible pandemic type of influenza or strange virus that is difficult to treat.  The virus could be triggered by atmospheric changes that could contribute to it’s rapid spread, passing form nation to nation, and city to city.  In 1918 there was such a virus that triggered a hyperactive immune response that contributed to the lethal nature of an influenza virus.

A deadly virus could be the result of a rare phenomenon with Venus making a rare transit across the face of the Sun (Suns Northern hemisphere) The interaction of Venus with the solar winds could cause a release of the ionized and electrically charged plasma in the tail of Venus (see image below).  Astrobiologist’s speculate that the Venus tail of ions could carry microbes from the planet to earth.  NASA has discovered what they call “stringy things” in the plasma tail of Venus.  Some scientists are suggesting that potentially deadly viruses are caused by these planetary microbes that are hurled into near planet space by storms, and then propelled by radiation pressure.  (Read more)

Venus will move retrograde from 23 degree Gemini on May 15th (Venus retrogrades occur approx. every 1 1/2 years) and will square the U.S. Neptune (diseases that are hard to treat) for 3 weeks in what would normally be a transit that would last only 2-3 days.  There are other transits that are suggesting to me there is a potential for such a pandemic.  My advice is to take extra care in building a strong immune system with diet and other natural products.  Maybe not a coincidence, children in my area (including one of my own children) have been infected with a virus that brings on a temperature that takes in some cases weeks to get over.

Sprott Fund Manager: “Gold Stocks Are the Cheapest I’ve Ever Seen”

BIG GOLD‘s Jeff Clark recently caught up with Charles Oliver, the senior portfolio manager of the Sprott Gold and Precious Minerals Fund (SPR003, Series A; unavailable in the US). He made a splash with a gold-price prediction four years ago that didn’t quite come true, with consequences that have created a new legend for the man, as you can see below.

That amusing episode now behind us, we have to say that we like and respect Charles, so Jeff interviewed him to learn what he sees coming next. Charles also discussed the lag in gold stocks and what may turn them around, the possibility of companies hedging their production, why he’s bullish on silver, and more.

Jeff: It sounds like you see some explosive potential with silver.

Charles: Absolutely. I would also point out that if you go back to 1980, the silver price briefly touched $50 and gold hit about $850, so for a small period of time we did get close to that 16:1 ratio.
Read More @ CaseyResearch.com

Today's Big Stock Trade: TER

Teradyne, Inc. is a global supplier of automatic test equipment. The company designs, develops, manufactures and sells automatic test systems and solutions used to test complex electronics in the consumer electronics, automotive, computing, telecommunications, wireless, and aerospace and defense industries. Teradyne’s automatic test equipment products and services include semiconductor test systems, military/aerospace test instrumentation and systems, storage test systems, and circuit-board test and inspection systems (collectively these products represent Systems Test Group), and wireless test systems.

To review Teradyne’s stock, please take a look at the 1-year chart of TER (Teradyne, Inc.) below with my added notations:
TER has created a couple of short-term price levels over the last 3 months. First, TER has formed a clear resistance at $17.50 (blue). In addition, the stock has been climbing higher on an up-trending support level [2] (red) during that same period of time. These two levels combined had TER stuck within a common chart pattern known as an Ascending Triangle [3]. Eventually, TER will have to break one of those (2) levels.

The Tale of the Tape: A long trade could be made on TER if the stock breaks out through the $17.50 level, with a stop placed under that level. A pullback to the trend line support could also provide a long trade. However, a break of that support line would be an opportunity to enter a short trade on the stock.

Before making any trading decision, decide which side of the trade you believe gives you the highest probability of success. Do you prefer the short side of the market [4], long side, or do you want to be in the market at all? If you haven’t thought about it, review the overall indices themselves. For example, take a look at the S&P 500. Is it trending higher or lower? Has it recently broken through a key resistance or support level? Making these decisions ahead of time will help you decide which side of the trade you believe gives you the best opportunities.

No matter what your strategy or when you decide to enter, always remember to use protective stops and you’ll be around for the next trade.  Capital preservation is always key!

The Illusion of an Economic Recovery

By Greg Hunter’s USAWatchdog.com 
Last Friday, the government reported the gross domestic product (GDP) number for the first quarter, and it was 2.2%.  That was .8% lower than the 4th quarter’s 3% growth rate.  It was a big disappointment because most economists were expecting growth numbers closer to the 3% range.  The New York Times reported the economy thwarting numbers with a political bent that said, “The economic recovery slowed more than expected early this year, raising fears of a spring slowdown for the third year in a row and giving Republicans a fresh opportunity to criticize President Obama’s policies. . . . “When you look at the report in the totality, I think it shows that the private sector is continuing to heal from the financial crisis,” said Alan Krueger, chairman of the president’s Council of Economic Advisers. . . . Representative Kevin Brady, a Republican from Texas and vice chairman of the Joint Economic Committee, called the numbers “beyond disappointing.”  (Click here to read the complete NYT report.) 

The real story here is not the political football the economy has become, but the lack of solid numbers to tell what’s really going on.  This happens because the government does not adjust the so-called growth of the nation’s economy for inflation.  If inflation was accounted for, there would be almost no recovery according to economist John Williams of Shadowstats.com.  Friday, Williams said, “Indeed, the “recovery” is an illusion that has been created as a direct result of methodological changes in government inflation reporting of recent decades. . . . the faux growth problem is in the use of understated inflation estimates in deflating a number of economic series.” (Click here to go to the homepage of Shadowstats.com.) 

To prove his point, Williams put together two graphs of GDP.  The first does NOT account for inflation.  Look how the economy falters in 2008 and 2009, and then the economy is up, up and away again in 2010, 2011 and 2012.  Looking at the non-inflation adjusted graph (Headline Real GDP–1st graph,) you would think the economy is definitely heading in the right direction.  
When you look at the nation’s GDP and factor in the effects of inflation (Inflation-Corrected–2nd graph,) you get a totally different picture.  Look at the big drop-off in 2008 and 2009.  Then, look at the almost nonexistent so-called “recovery.”  There is simply not much of a recovery.  Williams repeatedly says the economy is “bottom bouncing.”   I think the “Inflation-Corrected” graph below demonstrates this description.  (more)

Chart of the Day - Valspar Corp (VAL)

The "Chart of the Day" is Valspar Corp (VAL), which showed up on Friday's Barchart "All-Time High" list. Valspar on Friday posted a new all-time high of $52.12 and closed up +2.40%. TrendSpotter has been Long since April 16 at $50.23. TrendSpotter was in a neutral mode in the second week of April after taking a 31% profit on a long trade held from late November to early April. In recent news on the stock, Valspar on Feb 14 reported Q1 EPS of 58 cents, above the consensus of 48 cents. Gabelli on Feb 28 initiated coverage on Valspar with a Buy due to the potential housing recovery and Valspar's debt reduction and margin improvement efforts. Valspar, with a market cap of $4.7 billion, is a global leader in the paint and coatings industry, with a broad range of products including industrial, architectural, packaging, automotive refinish and floor coatings, and specialty polymers and colorants.