TOTALINVESTOR

Is Volatility Coming Back?

2012-02-02T00:06:00.001-05:00

Via Peter Tchir of TF Market Advisors,

VIX continues to remain low, but intraday (or intranight) volatility appears to be making a comeback. That is volatility in the true sense of moves up and down (I’m not sure when volatility came to mean ‘stocks went down’).

Chinese PMI is supposedly one of the reasons that futures are up, yet, that seems to be a bad explanation, since futures went from an Amazon induced low of 1306, up to 1311 on the PMI news, but then drifted lower and were at 1304 by the time Europe got up and running. It has been a relentless march higher since then as it went to 1320. It’s not quite like last year where multiple 10 point moves were the norm, but we have had a few 0.5% moves up and down overnight already. Yesterday we hit a high of 1315 while Europe was in charge, hit 1302 once the US data was revealed, and clawed back to 1310 for a variety of reasons (month end, amazon and psi expectations chief among them). Again, nothing like last year?s intraday vol, but starting to provide some significant moves that will make risk management a challenge again.

Main isn’t really volatile, it just goes tighter every day. There was a brief attempt to open it wider this morning, as some courageous (or poorly informed) traders made it 143 bid. It has been hit like a piñata since then and got as tight 139 offered. It is giving back a touch as the US opens (the opposite trend of last year). It has almost gotten to the point I’m scared to answer the phone since it will be my mother asking if I’m long Main yet? For the record, by the time she knows what the obvious trade is, it’s over.

The correlation of stocks and Euro hasn’t been as strong as it was last year, though it seems to be returning. In any case, the intraday vol there is also picking up.

This isn’t as wild as last year, but a grind to 1.32 followed by a drop to 1.30 followed by a spike back to 1.32 isn’t exactly quiet and tame.

These moves are occurring on fairly light volume. So as hedge funds and other asset managers get themselves positioned, volatility is increasing. Volumes remain low. Street liquidity remains very low. I don’t see any reason for this trend to reverse itself, and think higher levels of intraday volatility are on the way. Is it time to buy some options to capture this?

Long or short, it looks like trading some options could make sense as some timely ‘delta’ rebalancing could be very effective and the implied volatility you are paying seems reasonable. Longer dated vol has not dropped as much as short dated vol, so another reason to look at this trade.

Stocks On Fire In 2012: IBN, LYB, RBS, SLT, SPY

2012-02-02T00:06:00.000-05:00

Overall, stocks have been pushing higher in early 2012, with the S&P 500 SPDR (NYSE:SPY) ETF up 3% from $127.50 to $131.32. Yet, some stocks have been exploding. The following foreign stocks, all listed on the NYSE, have been on fire in 2012, up more than 25% so far.

Royal Bank of Scotland (NYSE:RBS) is up 27.38% this year, from $6.61 to $8.42. The stocks has been recovering after hitting a multi-year low at $5.36 in November of 2011. Since January 19, 2012 the stock has been trading between $8 and $9, unable to reach either level. A breakout from this range it likely to be a significant factor in the long-term direction of the stock. Overhead resistance is at $9.15 - the October 2011 high. If the price pushes through that resistance level there is little resistance until $10 followed by $11. On-balance volume is rising which is a positive and should continue to rise if the price moves higher. A drop below $8 on the other hand is a warning signal that the stocks could slide back to lower levels.

Sterlite Industries (NYSE:SLT) is up 26.56% in 2012, from $7.23 to $9.15. Like RBS the stock hit a multi-year low in 2011 at $6.64 and has been recovering since. The recent recovery has broken the downtrend which was in place since mid-2011, but the stock is struggling to break through resistance at $10. If $10 is broken to the upside the target is $11.50. $8.50 to $8 is the support area based on a gap up which occurred on January 17, 2012. A drop back into that support area - especially below $8 - is bearish, but if the stock can hold support and push through resistance the stock could recover much of its 2011 losses. On-balance volume is rising, and is a positive for the stock price.

Lyondellbassell Industries (NYSE:LYB) is up 28.77% this year, from $33.47 to $43.10. The move higher has already cleared many of the resistance levels in its path. Still overhead though is $45 followed by the 2011 high at $48.12 (on an dividend adjusted basis the stock has already cleared these levels). While the stock is currently in over-bought territory, on-balance volume is moving aggressively higher confirming that buyers are willing to put their money on the line. With the stock recently breaking through resistance at $42 it now likely the high at $48.12 will be tested. A move through there should test the psychologically important $50 level. Support has developed just above $38.50 and a drop below this level is an early warning signal. There is also upward sloping trendline support at $37, drop below this level warns of a potential reversal.

Icici Bank (NYSE:IBN) lost more than half its value between July and December of 2011, but is up 28.63% from $28.15 to $36.21 in 2012. Heavy resistance lies overhead at $40, which is the level to watch. A rise above $40 could trigger buying into $45. The stock traded in a range between $45 and $50 in mid-2011 which should now act as resistance...at least initially. The rally higher this year has been aggressive but the stock put in a recent low at $33.85 (hammer candle) on January 30. If the price continues to push higher in early February, threating to break the $40 level, this low can be used as a stop loss level. The stock remains in an uptrend as long as the price stays above $32.75, a drop below signals a potential reversal.

The Bottom Line
As the overall market has pushed slightly higher in 2012, some stocks have exploded. RBS, SLT, LYB and IBN are all up more than 25% year-to-date. The on-balance volume indicator shows strong buying interest in these stocks, and if resistance is broken these stocks could continue to make big gains. There is resistance overhead though, and risk should be properly managed. With the aggressive run-ups these stocks have seen pullbacks are always a possibility so support levels and trendlines can be used to control risk and set stop levels.

Alf Field Predicts $ 158 as Next Target for Silver

2012-02-02T00:05:00.002-05:00

by Alf Field, GoldSwitzerland.com

WHAT ABOUT SILVER?

I have received numerous emails asking about silver. This article was prompted by a question enquiring what the silver price might be if my gold forecast of $4,500 proved to be correct. As I own some silver bullion and a number of silver mining shares, the question caused me to pause and take a closer look at silver.

The reason why I have written very little about silver in the past was because the beautiful Elliott Wave (EW) symmetry and predictable relationships visible in gold were not to be found in silver. I first wrote about silver in December 2003 in an article titled “US Dollar Implosion – Part II”. The link to this article is at: http://www.gold-eagle.com/editorials_03/field120503.html. The brief piece on silver was tacked onto the end of that article. In view of its brevity, the 2003 silver piece is reproduced in full below:

Read More @ GoldSwitzerland.com

Junior Gold Stocks Rebound from Lows

2012-02-02T00:05:00.001-05:00

The junior sector had a very difficult year in 2011 but has led the recent recovery (at least statistically) in the precious metals sector. Two of our favorite exchange traded funds, GDXJ and ZJG.to are up 30% and 25% respectively. That exceeds GDX (large caps) which has rebounded 15%. These are significant gains but barely put a dent in the low valuations for the sector. Ratio analysis shows us how undervalued the smaller gold stocks are yet an examination of history shows this is not out of the ordinary at this point in a bull market.

First lets take a technical look at the juniors. We show ZJG.to and GDXJ in the chart below. ZJG.to is a Canadian junior ETF which is comprised of entirely gold companies while three of the top ten companies in GDXJ are silver companies. ZJG is nearing resistance at 20-21 while GDXJ is nearing resistance at 31-33. More importantly, both markets have broken out of their downtrends against Gold.

Next we show a plot of our junior gold index (call it JGI), GLD and a ratio of JGI against GLD. Note that the ratio, which peaked at 0.7 in 2007, is currently at 0.4. JGI is presently at 66. Should Gold eventually break to new highs and JGI/GLD rise back to 0.7, then junior gold stocks would gain more than 100%. With large producers reporting record cash flow and profits, it is only a matter of time before all gold equities reach higher valuations against Gold itself.

Our Junior Gold index as well as the other junior indices do not include the “true junior” companies which are of the microcap variety. The CDNX is basically an index for these types of companies. Most but not all of the companies within the CDNX are gold and silver related. Thus, in the chart below we decided to compare the CDNX to the CCI (continuous commodity index). The CCI is somewhat close to an all-time high while the ratio of the junior companies to the CCI is close to multi-year lows. With commodities not far off all time highs, one would expect the junior companies to be trading at higher levels.

Lately we’ve been writing about how gold stocks are faring in comparison to previous equity bull markets. The comparison argues that gold stocks should fare well this year and well into 2013. Even though this bull market is in its 12th year, it remains a few years away from the start of a bubble. In a bubble, valuations expand far beyond fundamentals and it continues for several years. In order for this to happen, valuations must be low prior to the start of the bubble.

From early 1992 to 1995 the price to earnings ratio (PE) on the Nasdaq fell from 50 down to 20. Over the next two years, the PE ratio climbed from 20 back to 50. Then in the second half of 1997, the PE ratio surged past 50 and never looked back.

From 1973 to 1983, the PE on the Nikkei (Japan) ranged from mostly 15 to 23. After 1983, the PE ratio surged to new highs and eventually peaked at 70.

It is clear that prior to a market bubble, valuations are compelling. Not stretched or fair, but compelling. After all, a bubble needs time to develop and then have its final blowoff stage. Prior to the start, valuations begin to move from the low side to the high side. Then as the bubble really gets going valuations break to new records and surge to extremes.

Months ago we wrote about how the PE for large cap gold stocks was near a 10 year low. Now we see that the speculative side of the precious metals sector, (the juniors), is trading at near basement valuations. This is 12 years into a bull market. Not five or eight. It will take time for valuations of precious metals companies to move back to the high end of the range. Companies that grow their business and add value could perform fantastically thanks to a likely increase in the valuation of the sector.

Jordan Roy-Byrne, CMT

This Must-Buy Big Name Is on Sale Stanley Black & Decker is solid, growing strongly -- and a bargain

2012-02-02T00:05:00.000-05:00

Some of the world’s greatest investments are often sitting right under your nose. While rummaging through my garage the other day, I came across a hammer. I know what you’re thinking: I’m going to talk about Home Depot (NYSE:HD). Nope, I’m going one better. Home Depot has to shell out a lot of money to build and maintain these stores.

Instead, I’m going to talk about a company whose name requires Home Depot to stock its products. That name is Stanley Black & Decker (NYSE:SWK).

The company offers products and services across hand tools, power tools and accessories, construction tools of all kinds, industrial and automotive repair gear, engineered fastening systems, infrastructure solutions, mechanical security systems and even health care. Chances are you’ve got a Black & Decker something in your house somewhere.

This is exactly the kind of company that’s easy to overlook when thinking of investments. Yet it makes things that are essential to everyday life and that you can find on store shelves around the world.

I expected Stanley Black & Decker to be in the stalwart category — an 8% to 10% earnings per share grower, with a solid balance sheet and a little dividend. Turns out it’s a serious growth stock, which also has a solid balance sheet and a little dividend. Analysts see 15% earnings growth in 2012, and 14% next year, with an 18% annualized rate over the next five years. This is a gigantic leap in earnings following a 50% pop in fiscal 2011, which came on the heels of consecutive years of declining net income. Can you say “economically sensitive”?

But that’s also what’s so great about hopping into companies like this as the economy turns. Although growing at an 18% clip going forward, it trades at only 12x fiscal 2012 earnings. That gives it a price-earnings to growth (PEG) ratio of 0.66, making it also a serious value play (a PEG of 1.0 is considered fairly valued).

And yes, the balance sheet looks good: $851 million in cash offset by $2.74 billion in debt, which is costing the company only about 5% annually in interest expense. Free cash flow was $560 million over the trailing 12 months, which is about twice what Stanley Black & Decker needed to pay the 2.3% dividend. The company said it expects to double that in fiscal 2012.

It’s also instructive to take apart last week’s earnings report. Total revenues were up 17% in Q4, much of it from acquisitions, but there was 7% organic growth in the industrial segment. Asia grew 12% for the quarter and 18% for the year. All this provides yet more evidence that cyclicals are coming back. I just wrote about railroads[3], which are seeing an uptick in shipments of raw and finished goods.

Now’s the time to keep an eye out for stocks in this sector. You want to be in on cyclicals at the start of the new economic cycle, but also be aware that unexpected headwinds could slow growth.

Greece Warns It Will Soon Be In “Condition Of Absolute Poverty”

2012-02-02T00:04:00.005-05:00

from ZeroHedge:

And while the bankers (on both sides of the table) haggle about how to best leech Greece even dryer (with a solution due any hour, day, week now), the actual people are starting to wave the white flag of surrender. Because the opportunity cost of every additional coupon payment is having a direct, immediate and increasingly more dire impact on virtually every aspect of the economy. Kathimerini reports that “about 160,000 jobs will be lost this year in the commerce sector, according to the National Confederation of Greek Commerce (ESEE) as the constant decline in disposable income has led to a sharp drop in turnover and a steep rise in the number of enterprises shutting down.” Indicatively, the latest Greek employment figures per the IMF, show that 4.156MM people are employed. So commerce alone is about to lead to a 4% drop in total jobs. As the chart below shows, net of just this sector, Greek jobs are about to go back to 2010 levels. What this means for the Greek unemployment rate, and for GDP we leave to our readers, although the ESEE does a good job of summarizing what to expect: the “ESEE warns that soon Greece will be in a condition of absolute poverty.” And that, ladies and gents, is how Europe slowly but surely reentered the Feudal age, and what every other country in the European periphery that has a massive debt load, and no surplus (actually make that every country in the world), has to look forward to: absolute poverty, aka debt slavery.

Read More @ ZeroHedge.com

Outlook for Gold, Equities and Earnings, and USD – Borthwick, Merk, Gartman, Ortel

2012-02-02T00:04:00.004-05:00

Bill Gross: Investment Outlook (February 2012)

2012-02-02T00:04:00.002-05:00

Life – and Death Proposition

by William H. Gross, PIMCO

Recent central bank behavior, including that of the U.S. Fed, provides assurances that short and intermediate yields will not change, and therefore bond prices are not likely threatened on the downside.
Most short to intermediate Treasury yields are dangerously close to the zero-bound which imply limited potential room, if any, for price appreciation.
We can’t put $100 trillion of credit in a system-wide mattress, but we can move in that direction by delevering and refusing to extend maturities and duration.

Where do we go when we die?
We go back to where we came from
And where was that?
I don’t know, I can’t remember
Virginia Woolf, “The Hours”

I don’t remember much of this life, and like Virginia Woolf, nothing of the herebefore. How then, could I expect to know of the hereafter? I know at least that we all exist at and of the moment and that we make up those moments as we go along. I became a grandfather for the first time a few months ago and proud son Jeff asked for some fatherly advice as to how to go about raising his baby daughter Caroline. “We all do it in our own way, Jeff, you’ll make it up as you go along,” I said. Parenting, and life itself, is one giant experiment. From those first infant steps, to adolescent peer testing, flying from and departing the parental nest, gene replication and family building of our own, maturity and acquiescence, aging, decay and inevitable death – we experiment as best we can and make it up as we go along.

That death part though, oh where do we go after we have done all the making? There was another Jeff in our family, beloved brother-in-law Jeff Stubban who was as kind a man as there ever could be. Dying within three months of an initial diagnosis of pancreatic cancer, our family sobbed uncontrollably at his bedside as his breath, his spirit, his soul, departed almost on cue while a priest recited the rosary. Where had he gone, where is he now, what will become of him and all of us? Like many grieving families we look for signs of him and in turn for clues to our own destination. A lucky penny in the street, a random mention of his beloved New Orleans, an exterior resemblance of his shiny bald head in a mingling crowd. Where are you, Jeff? Tell us you are safe so that we might meet again.

Having now matured to trust reason more than faith I offer not so much a resolution, but an alternative to the unanswerable question of Virginia Woolf and the departed souls of Jeff Stubban and billions of others. If we don’t meet again – up there – then perhaps we’ll meet once more – down here. After all, the one thing I know for sure is that we got here once – and because we did, we could do it again. Rest easy, dear Jeff, and welcome to this world, dear Caroline. We’ll all just have to make it up as we go along.

The transition from a levering, asset-inflating secular economy to a post bubble delevering era may be as difficult for one to imagine as our departure into the hereafter. A multitude of liability structures dependent on a certain level of nominal GDP growth require just that – nominal GDP growth with a little bit of inflation, a little bit of growth which in combination justify embedded costs of debt or liability structures that minimize the haircutting of or defaulting on prior debt commitments. Global central bank monetary policy – whether explicitly communicated or not – is now geared to keeping nominal GDP close to historical levels as is fiscal deficit spending that substitutes for a delevering private sector.

Yet the imagination and management of the transition ushers forth a plethora of disparate policy solutions. Most observers, however, would agree that monetary and fiscal excesses carry with them explicit costs. Letting your pet retriever roam the woods might do wonders for his “animal spirits,” for instance, but he could come back infested with fleas, ticks, leeches or worse. Fed Chairman Ben Bernanke, dog-lover or not, preannounced an awareness of the deleterious side effects of quantitative easing several years ago in a significant speech at Jackson Hole. Ever since, he has been open and honest about the drawbacks of a zero interest rate policy, but has plowed ahead and unleashed his “QE bowser” into the wild with the understanding that the negative consequences of not doing so would be far worse. At his November 2011 post-FOMC news briefing, for instance, he noted that “we are quite aware that very low interest rates, particularly for a protracted period, do have costs for a lot of people” – savers, pension funds, insurance companies and finance-based institutions among them. He countered though that “there is a greater good here, which is the health and recovery of the U.S. economy, and for that purpose we’ve been keeping monetary policy conditions accommodative.”

My goal in this Investment Outlook is not to pick a “doggie bone” with the Chairman. He is makin’ it up as he goes along in order to softly delever a credit-based financial system which became egregiously overlevered and assumed far too much risk long before his watch began. My intent really is to alert you, the reader, to the significant costs that may be ahead for a global economy and financial marketplace still functioning under the assumption that cheap and abundant central bank credit is always a positive dynamic. When interest rates approach the zero bound they may transition from historically stimulative to potentially destimulative/regressive influences. Much like the laws of physics change from the world of Newtonian large objects to the world of quantum Einsteinian dynamics, so too might low interest rates at the zero-bound reorient previously held models that justified the stimulative effects of lower and lower yields on asset prices and the real economy.

It is instructive to mention that this is not necessarily PIMCO’s view alone. Chairman Bernanke and Fed staff members have been sniffin’ this trail like the good hound dogs they are for some time now. In addition, Credit Suisse, in their “2012 Global Outlook,” devoted considerable pages to specifics of zero-based money with commonsensical historical comparisons to Japan over the past decade or so. The following pages of this Outlook will do the same. At the heart of the theory, however, is that zero-bound interest rates do not always and necessarily force investors to take more risk by purchasing stocks or real estate, to cite the classic central bank thesis. First of all, when rational or irrational fear persuades an investor to be more concerned about the return of her money than on her money then liquidity can be trapped in a mattress, a bank account or a five basis point Treasury bill. But that commonsensical observation is well known to Fed policymakers, economic historians and certainly citizens on Main Street.

What perhaps is not so often recognized is that liquidity can be trapped by the “price” of credit, in addition to its “risk.” Capitalism depends on risk-taking in several forms. Developers, homeowners, entrepreneurs of all shapes and sizes epitomize the riskiness of business building via equity and credit risk extension. But modern capitalism is dependent as well on maturity extension in credit markets. No venture, aside from one financed with 100% owners’ capital, could survive on credit or loans that matured or were callable overnight. Buildings, utilities and homes require 20- and 30-year loan commitments to smooth and justify their returns. Because this is so, lenders require a yield premium, expressed as a positively sloped yield curve, to make the extended loan. A flat yield curve, in contrast, is a disincentive for lenders to lend unless there is sufficient downside room for yields to fall and provide bond market capital gains. This nominal or even real interest rate “margin” is why prior cyclical periods of curve flatness or even inversion have been successfully followed by economic expansions. Intermediate and long rates – even though flat and equal to a short-term policy rate – have had room to fall, and credit therefore has not been trapped by “price.”

When all yields approach the zero-bound, however, as in Japan for the past 10 years, and now in the U.S. and selected “clean dirty shirt” sovereigns, then the dynamics may change. Money can become less liquid and frozen by “price” in addition to the classic liquidity trap explained by “risk.”

Even if nodding in agreement, an observer might immediately comment that today’s yield curve is anything but flat and that might be true. Most short to intermediate Treasury yields, however, are dangerously close to the zero-bound which imply little if any room to fall: no margin, no air underneath those bond yields and therefore limited, if any, price appreciation. What incentive does a bank have to buy two-year Treasuries at 20 basis points when they can park overnight reserves with the Fed at 25? What incentives do investment managers or even individual investors have to take price risk with a five-, 10- or 30-year Treasury when there are multiples of downside price risk compared to appreciation? At 75 basis points, a five-year Treasury can only rationally appreciate by two more points, but theoretically can go down by an unlimited amount. Duration risk and flatness at the zero-bound, to make the simple point, can freeze and trap liquidity by convincing investors to hold cash as opposed to extend credit.

Where else can one go, however? We can’t put $100 trillion of credit in a system-wide mattress, can we? Of course not, but we can move in that direction by delevering and refusing to extend maturities and duration. Recent central bank behavior, including that of the U.S. Fed, provides assurances that short and intermediate yields will not change, and therefore bond prices are not likely threatened on the downside. Still, zero-bound money may kill as opposed to create credit. Developed economies where these low yields reside may suffer accordingly. It may as well, induce inflationary distortions that give a rise to commodities and gold as store of value alternatives when there is little value left in paper.

Where does credit go when it dies? It goes back to where it came from. It delevers, it slows and inhibits economic growth, and it turns economic theory upside down, ultimately challenging the wisdom of policymakers. We’ll all be making this up as we go along for what may seem like an eternity. A 30-50 year virtuous cycle of credit expansion which has produced outsize paranormal returns for financial assets – bonds, stocks, real estate and commodities alike – is now delevering because of excessive “risk” and the “price” of money at the zero-bound. We are witnessing the death of abundance and the borning of austerity, for what may be a long, long time.

Chart of the Day - TransDigm Group (TDG)

2012-02-02T00:04:00.001-05:00

The "Chart of the Day" is TransDigm Group (TDG), which showed up on Tuesday's Barchart "All Time High" list. TransDigm on Tuesday posted a new all-time high of $105.10 and closed up 2.32%. TrendSpotter has been Long since Jan 23 at $101.11. In recent news on the stock, TransDigm on Jan 21 announced a definitive agreement to purchase AmSafe Global Holdings for about $750 million in cash. Wedbush on Jan 18 downgraded TransDigm to Neutral from Outperform and reduced its target to $98 from $108 due to the analyst's belief of limited upside growth in commercial aftermarket growth in 2012. RBC Capital on Jan 3 downgraded TranDigm to Outperform from a Top Pick with a target of $110 due to the firm's new policy of allowing only one Top Pick per analyst. TransDigm Group, with a market cap of $5 billion, is a leading global supplier of highly engineered components for use on nearly all commercial and military aircraft in service today.

Steve Quayle & Chris Duane: Silver and the New Paradigm

2012-02-02T00:04:00.000-05:00

Steve Quayle and Chris Duane have an in-depth discussion of all things Silver, and discuss post-Dollar Collapse paradigm shift possibilities .Chris Duane outlines his thoughts on the future of America and the World.The Silver Shield, Chris Duane, of the website Dont-tread-on.me and founder of the Sons of Liberty Academy.Trade in your slave currency for gold/silver and take it out of their hands permanently. If enough people do it, we won't have to clash with stormtroopers in the streets. "In the land of the blind, the one eyed man is kind." All we need to do is take the one eyed man's eye out.

Golden Cross

2012-02-02T00:03:00.000-05:00

Technical analysts define the “Golden Cross” as the chart feature that occurs when a security's short-term moving average (such as the 50-day simple moving average) breaks above its long-term moving average (such as the 200-day simple moving average) or resistance level.

Long term indicators carry are considered to have more weight, so crossing the longer-term average by short-term average price line is a significant indicator of a change in momentum. The Golden Cross indicates a bull trend may be starting and is confirmed by higher trading volume. The long-term moving average becomes the new support level in the rising market after a Golden Cross.

The S&P 500 index is approaching a Golden Cross now. If it happens, some analysts will forecast a new bull market for stocks. And they will have the numbers on their side.

The S&P 500 has produced 16 “golden crosses” since 1962, 75 percent of which were followed by positive returns in the next six months, with gains averaging 4.4 percent, according to historical studies. There were 26 instances in the past 50 years when the S&P 500’s short-term average crossed above the long-term measure. The data show the index rose 81 percent of the time with an average increase of 6.6 percent in the next six months.

We can also see the Golden Cross in the great bull market for gold. The last occurrence of the 50/200 crossover can only be seen on the monthly basis chart. It occurred back in 2005. Since then, the price of gold on the spot market has moved up from $348/oz to $1734oz today, a 398% percent increase.

Investors who spotted the start of the great bull market in gold early on have done very well.

But what about now? Is there more profit to be had in gold and the precious metals going forward? Can I determine the best time to enter the market? I say yes, and we can use the Golden Cross concept to pinpoint profitable trading opportunities.

Here’s how. We use technical analysis tools which are based on momentum, the best of which, in my opinion, is Ichimoku Kinko Hyo combined with MACD. The Ichimoku Kinko Hyo is a well established technical trading system developed by Goichi Hosoda in the 1930’s. Today, it is used by almost every securities trader in Japan, Asia and a growing number in Europe and North America. The indicator can be found on most trading platforms. Ichimoku Kino Hyo translates from Japanese to mean “one glance equilibrium chart”. It gives the analyst, at once, the trend and momentum of the market, and a good forecast of future price action, as if he could see everything at an instant.

The key to Ichimoku Kinko Hyo is crossovers. That is, four of the five components that comprise the system are comprised of short-term and long-term moving averages. Two establish support and resistance levels and are represented by the “cloud”, or moku. Two others (Tenkan Sen and Kijun Sen) establish trend. The fifth component, known as the Chikou Span, is not an average, but measures momentum.

Like the Golden Cross, crossovers by Ichimoku Kinko Hyo indicators signal changes in momentum. But the Ichimoku Kinko Hyo indicators provide much more information than the cross by a short-term simple moving average and a longer-term simple moving average. Ichimoku Kinko Hyo provides valuable trading information. It can tell the speculator when to enter the market with the best chance for profit.

So let’s examine the case for gold using Ichimoku Kinko Hyo and its trading discipline.

A look at the daily spot gold chart with 50/200-day moving average indicators shows no Golden Cross events over the last year. Also, support and resistance levels are not evident. Price action suggests the long-term trend is bullish, but more recent price action shows some consolidation. There is little information here to support a decision to trade.

Now let’s see what Ichimoku Kinko Hyo says about spot gold.

There is much more information here. To the uninitiated, it may seem confusing. But to the skilled trader, it provides almost everything needed for profitable trading.

Here’s what I see from this single chart. There have been two high probability buy signals and one high probability sell signal over the last four months for spot gold. These correspond to crossovers of the Tenkan Sen (blue line) and the Kijun Sen (red line) moving averages. The trading rule is momentum turns bullish when the Tenkan Sen crosses the Kijun Sen from below.

We can see this buy signal with a bullish crossover on October 26th and another on January 17th.

Likewise, momentum turns bearish when the Tenkan Sen crosses the Kijun Sen from above. This sell signal occurred on November 29th.

High probability trading requires confirmation by other indictors. Ichimoku Kinko Hyo provides these by the Chikou Span (green line), and price action in relation to support and resistance levels, displayed by the cloud, or “moku” (shaded areas of the chart). There are trading rules associated with each of the five Ichimoku indicators. Trading volume and the MACD are two separate indicators that support the decision to trade. We can see that crossovers of the MACD tend to lead Ichimoku crossovers. The aggressive trader can act on MACD crossovers for timing trades. The conservative trader will use Ichimoku to trade into the meat of a momentum move.

Using the technical trading tools Ichimoku Kinko Hyo and MACD has produced excellent results in trading gold, silver and other commodities. These are golden crossovers that work.

Investors from around the world benefit from timely market analysis on gold and silver and portfolio recommendations contained in The Gold Speculator investment newsletter, which is based on the principles of free markets, private property, sound money and Austrian School economics.

By Scott Silva

Altria's Ever-Shrinking Window : BTI, ITYBY.PK, MO, RAI

2012-02-01T00:07:00.000-05:00

It's probably foolish to think that smoking will ever go away entirely. The health risks have long been decided, but people have their vices and smoking has long been among them. That said it seems like governments around the world are on the same page when it comes to reducing the number of places people can smoke, and increasing the cost of doing so. That suggests an ever-shrinking window for Altria (NYSE:MO), but investors can likely wring a great deal of cash flow for many years to come.

Year-End Results Come in as Expected
Altria's earnings are often a mess, but the company's fundamental performance was more or less in line with expectations. Revenue net of excise tax rose 5%, as weaker cigarette volumes were offset by better performance in smokeless tobacco.

Margins and profits continue to stay reasonably healthy. So-called operating company income (on an adjusted basis) rose almost 9%, and the company's share count continues to shrink. By segment, cigarette earnings before interest and tax grew almost 14%, while smokeless tobacco earnings grew about 4%.

Still Fighting for Share
The tobacco "pie" isn't getting any larger in the United States, so maintaining brands is critical. To that end, Altria is having mixed success. The 3% adjusted decline in cigarette volume this quarter basically matched the industry, but key brand Marlboro's share slipped very slightly. Altria is still the 800-pound gorilla in the U.S., though, with roughly half the market and well more than Reynolds American (NYSE:RAI) and Lorrilard (NYSE:LO).

The story is a little different with smokeless tobacco, where Altria saw nearly 10% volume growth. As smoking becomes increasingly stigmatized, more and more smokers are shifting to smokeless tobacco. It's also not hurting Altria that the U.S. government is making it increasingly difficult to export smokeless tobacco into the country, leaving only very few companies like Swedish Match with the willingness and ability to compete.

Pushing for Growth
What can Altria do to make more money? Much is made of the price inelasticity of vice products like tobacco, but that's really not true. There's always a price-point where people cut back or switch brands.

At the same time, there's arguably not much slack left in the company from an operational perspective. That suggests to me, then, that the company's best option is to pressure its supply change - pushing on companies like Universal (NYSE:UVV) for better leaf tobacco pricing, and companies like Glatfelter (NYSE:GLT) for better pricing on filters and packaging.

The Bottom Line
For companies like Philip Morris International (NYSE:PM), British American Tobacco (AMEX:BTI) and Imperial Tobacco (OTCC:ITYBY) there's still some international growth potential as improving economic conditions allow smokers in emerging markets to upgrade their tobacco options. At the same time, a lot of emerging markets heavily regulate or product their markets, so it's not exactly a profitable free-for-all.

In many respects, Altria is like a royalty trust. There isn't going to be much market growth, but the company can reap a meaningful amount of earnings and cash over the coming decades, assuming that the federal government (whether through lawsuits or health regulations) allows them to. That leaves Altria as a reasonable, though not particularly cheap, income play.

Energy Stock APC Approaching Buy Point Anadarko consolidating, but 200-day moving average should hold any pullbacks

2012-02-01T00:06:00.000-05:00

Anadarko Petroleum Corporation (NYSE:APC) – This major independent oil and gas exploration and production company, with operations primarily in the United States, the deepwater of the Gulf of Mexico, and Algeria, is in a consolidation that began early last year.

After a $4 billion settlement with BP (NYSE:BP), the focus can now shift to APC’s top-tier exploration and development portfolio. Earnings are estimated to be $2.95 in 2011 and $3.05 in 2012. Recent developments in the supply of natural gas should help the company’s bottom line.

The stock has been consolidating within a massive “V” formation with a bottom at under $60 and a neckline at $84. The 200-day moving average at $75 should hold any pullbacks, and so that is the preferred buy point. A breakout through the neckline at $84 has a target of $110.

Pic of the Day

2012-02-01T00:05:00.002-05:00

Sovereign Debt Crisis When? Martin Armstrong

2012-02-01T00:05:00.001-05:00

Sovereign Debt Crisis When?

click here to read in pdf

Jay Taylor: Turning Hard Times Into Good Times

2012-02-01T00:05:00.000-05:00

1/31/2012: Sound Money and National Sovereignty for the U.S., Israel & the World

The Impending Undeclared Default Of 5 Major US Banks: Jim Sinclair

2012-02-01T00:04:00.004-05:00

The following interview with Ellis Martin of www.EllisMartinReport.com covers in detail the impending undeclared default of 5 major US banks this week by the International Swaps and Derivatives Association.

This even has the potential to cause a second financial crisis that would require significant financial intervention. If you have time to spare, listen to this interview. If you don’t have time to spare, listen to it anyway.

Fukushima was a blip; uranium fundamentals stronger than ever

2012-02-01T00:04:00.003-05:00

The meltdown at the Fukushima Daiichi nuclear plant last March had uranium investors fleeing for the exits. While the nuclear fuel used to make yellowcake had enjoyed something of a renaissance (after tanking in 2008-09 due to the financial crisis) in the runup to the earthquake and tsunami that rocked Japan, all that changed in the aftermath of the quake.

Uranium stocks and the uranium price plunged after the seriousness of the accident at Fukushima became apparent, although the price remained above lows reached in early 2010. The misery for uranium investors continued when Germany, Belgium and Switzerland announced they would phase out nuclear reactors.

While uranium stocks have moved up in recent weeks, with market leader Cameco for example climbing from $18 to near $24, uncertainty in the sector remains.

Addressing that uncertainty, Uranium Energy Corp. CEO Amir Adnani presented a picture of uranium and nuclear energy missing from last year’s headlines.

Speaking at last week’s Roundup event in Vancouver, Adnani’s primary message is that despite Fukushima, the fundamentals for uranium haven’t changed, and the outlook is bullish.

Adnani is an informed and passionate speaker. What follows is a summary of his key points and slides. Thanks to Uranium Energy Corp. for sending us the presentation.

1. On the outlook for nuclear energy: People in the West take the availability of electricity for granted, but 1.5 billion, or 20% of the world’s population, are without it. There is no credible alternative to nuclear power, therefore nuclear energy is still in the energy mix.

2. On the shelving of Germany’s nuclear program: Germany had planned even before Fukushima to phase out nuclear reactors. Germany represents just 3% of global nuclear capacity. (more)

What Is a Good Credit Score – Understanding Credit Ratings & Ranges

2012-02-01T00:04:00.002-05:00

When it comes to your credit, it’s important to know how you stack up. Do you have good credit? Excellent credit? Poor credit? How can you find out?

In most cases, the easiest way to determine the health of your credit is to look at your credit score, a numerical value that reflects a mathematical analysis of your debt, your payment history, the existence of liens or other judgments, and other statistical data collected by the credit bureaus. In other words, your credit score is the compact, simplified version of your entire credit history, all rolled up into one tidy three-digit number.

Why Do You Need Good Credit?

The importance of having good credit can’t be understated. From helping you get a loan, to qualifying you for a great job, good credit simply makes life easier and less expensive.

In the eyes of lenders, employers, insurance agents, and a host of other people and entities, your credit score represents how responsible and even how ethical you are. For example, lenders look at your credit score to determine not only your ability, but your willingness to repay a loan. Insurance companies view an individual with a good credit score as someone who is trustworthy and less likely to commit insurance fraud. Employers look at credit scores as a way to determine whether a candidate will be a dependable new employee.

A bad score, however, can prevent you from being able to purchase a home, work in certain industries, and will wind up costing you a bundle in higher interest rates and fees. However, if you understand what hurts your credit score, you can make an effort to fix bad habits and improve your credit rating.

The Three Major Credit Agencies

Experian, Equifax, and TransUnion

There are three major credit agencies that provide consumer credit information (including credit scores) to the majority of interested parties: Equifax, Experian, and Transunion. Each reporting agency collects information about your credit history from a variety of sources, including lenders, landlords, and employers, as well as other sources. These includes public records, current and past loans, your payment history, and other data. They then rate your performance using a proprietary scoring system to come up with a credit score.

Because each agency may access different information and has its own formula for calculating your creditworthiness, it is not uncommon for someone to have three different credit scores.

Understanding Credit Scores

Your credit score is a three-digit number that, without context, may mean very little to you. Here is a breakdown of how lenders, insurance agencies, and employers all view your credit score:

Excellent Credit: Credit Score Above 800

If your credit score is above 800, you have an exceptionally long credit history that is unmarred by things such as late payments, collections accounts, liens, judgments, or bankruptcies. Not only do you have multiple established lines of credit, but you have or have had experience with several different types of credit, including installment loans and revolving lines of credit. You generally have a stable work history, usually with one company.

Simply stated, you are an A+ borrower in the eyes of all lenders big and small, and will have no trouble securing a loan of your choosing. Be prepared to receive the very best interest rates, repayment terms, and lowest fees available. Insurance companies love people like you because they know that you’ll pay your premiums on time and do not pose any risk of insurance fraud. Plus, prospective employers love you too because you have shown yourself to be responsible and are less likely to steal from the company or commit fraud.

Very Good Credit: Credit Scores Between 750 and 800

If your credit score is between 750 and 800, you have a long and distinguished credit history that shows a responsible payment history and the ability to handle multiple types of credit responsibly. As a matter of fact, for the most part, you are regarded in the same standard as borrowers with excellent credit history, with the exception that you may have a higher debt-to-income ratio.

In the eyes of lenders, insurance companies, and employers, you’re just as good as anyone with excellent credit and, for the most part, will receive the same red carpet treatment. However, in some cases, you may end up paying a little more in interest. But ultimately, having very good credit will qualify you for some of the best deals in town.

Good Credit: Credit Scores Between 700 and 750

Having good credit means that you have built a solid credit history by working hard to keep your accounts in good standing – however, there may be a late payment or two somewhere in your past. Things happen sometimes, but they are nothing you can’t handle. You might have had a collections account reported, but you’ve paid it. And you know you have some extra credit card debt, but you’ve made strides to get it under control.

Generally, lenders will have no issues loaning money to someone like you. Your good credit score will land you competitive interest rates and low origination fees, though certainly not as good as you could have gotten with a few more points on your score. You’ll also have no trouble getting an insurance policy for just about any need, but you should expect your premiums to be somewhat higher than for those with excellent or even very good credit.

Furthermore, your credit score should not have any negative effect on your ability to get hired, though some employers may pass you by for an equally qualified candidate with a better score. (more)

Oil Service Companies Hit By Dry Gas Drilling Cuts : BHI, CRR, HAL, RES

2012-02-01T00:04:00.001-05:00

Several oil services companies have reported a negative impact from the reduced spending on dry gas plays in the onshore United States. This will remain a continuing problem for many oil service companies in 2012.

Dry Gas Drilling Cuts
Carbo Ceramics (NYSE:CRR) manufactures and sells ceramic and resin coated sand proppant used during the hydraulic fracturing of a horizontal well. The company reported revenues of $158.1 million in the fourth quarter of 2011, up 32% from the same quarter of last year.

Although growth of this magnitude should be enough to satisfy the investor base, many were expecting higher sales, and the shares fell 20%. Also contributing to the decline, was commentary by the management of Carbo Ceramics at the time of the earnings release. The company said that a shift to liquids drilling during the fourth quarter of 2011 led to a 70% sequential drop in proppant sales in the Haynesville Shale. Sales of proppant also fell short due to logistical problems in the company's distribution system as a result of this shift in drilling activity.

RPC (NYSE:RES) also turned in strong growth in the fourth quarter of 2011, reporting double digit percentage increases in revenue and net income. Despite this growth, the management of RPC expects revenues in the first quarter of 2012 to decline sequentially, due to a shift from dry gas to liquids drilling in the U.S.

"We're going to be moving in the basins which typically aren't quite as service intensive," said Ben Palmer, the CFO of RPC. The company hopes that margins will be higher on these lower revenue service jobs.

Why Worry?
One company that doesn't seem worried about a cutback in dry gas drilling is Halliburton (NYSE:HAL), which reported earnings on Jan. 23, 2012. The company is one of the largest oil service operators active in North America, with $14.4 billion in revenues in 2011.

Halliburton also experienced the decline in drilling of dry gas plays in its service area in the fourth quarter of 2011. The company believes that the equipment leaving these areas will move to areas that produce crude oil and liquids, and help support demand in 2012.

"It is clear to us that the strength of liquids demand will provide a cushion to equipment coming out of the dry gas basins. We also believe that there will be a net overall increase in rig count in 2012," said David Lesar, CEO of Halliburton.

Baker Hughes (NYSE:BHI), which also has a dominant position in the onshore North American region, is relatively optimistic as well regarding activity in North America in 2012. The company disclosed its rig count outlook for 2012, and expects the overall rig count to be flat through the end of 2012, with any decline in dry gas drilling offset by an increase in liquids rich basins. Baker Hughes expects growth in the international rig count and estimates 11% growth here in 2012.

The Bottom Line
Although some operators are suffering the impact of a decline in dry gas drilling in North America, the largest oil service companies appear to be cushioned from this so far. Investors have to decide whether this will be the case for the balance of 2012 before buying into this stock price sell off.

Chart of the Day - Yum Brands (YUM)

2012-02-01T00:04:00.000-05:00

The "Chart of the Day" is Yum! Brands (YUM), which showed up on Monday's Barchart "All Time High" list. Yum Brands on Monday posted a new all-time high of $63.83 and closed up 1.32%. TrendSpotter has been Long since Oct 27 at $54.39. In recent news on the stock, Barron's on Jan 29 ran a favorable article on Yum Brands focused on the company's bright future in the emerging markets. Yum is earning about 45% of its $12.5B in revenue from China last year and 42% of its operating profit. KFC is now the largest fast-food chain in China. Yum Brands, with a market cap of $28 billion, is the one of the world's largest restaurant companies, with restaurants around the world and restaurant chains including KFC, Pizza Hut and Taco Bell.

Time to be Long this Silver Stock: SLW

2012-01-31T00:07:00.000-05:00

After spending more than a year "digesting" big gains, Silver Wheaton (SLW) is ready to head higher...

Regular readers know we consider Silver Wheaton one of the premier silver plays in the market [2]. Silver Wheaton isn't your average mining stock. It doesn't operate mines or explore for mineral deposits. Instead, it finances lots of early-stage silver projects... and collects royalties when those projects start producing silver. This makes the company a diversified, leveraged way to profit [3] from rising silver prices.

#-ad_banner-#

In 2009, with shares [4] trading around $13, we noted how this stock was enjoying one of the strongest uptrends in the market... and could explode higher in a precious-metals bull market [5]. About two years after our note, SLW had tripled in price. But like all big moves, this one needed time to "digest" its gains before going higher. That's just how the market works.

You can see in the two-year chart below that SLW spent 2011 "digesting" in a volatile, sideways range... which frustrated both buyers and sellers. During this sideway move, sellers twice managed to knock SLW down near $27. The stock rebounded both times. As Steve recently noted in his True Wealth newsletter, SLW has a solid fundamental picture driving this uptrend. The technical picture is firming up as well. It's time to be long SLW.

Baltic Dry Index Signals Renewed Market Decline

2012-01-31T00:06:00.000-05:00

Much has been said about the Baltic Dry Index over the course of the last four years, especially in light of the credit crisis and the effects it has had on the frequency of global shipping. Importing and exporting has never been quite the same since 2008, and this change is made most obvious through one of the few statistical measures left in the world that is not subject to direct manipulation by international corporate interests; the BDI. Today, the BDI is on the verge of making headlines once again, being that is plummeting like a wingless 747 into the swampy mire of what I believe will soon be historical lows.

The problem with the BDI is that it is little understood and often dismissed by less thoughtful economic analysts as a “volatile index” that is too “sensitive” to be used as a realistic indicator of future trends. What these analysts consistently seem to ignore is that regardless of their narrow opinion, the BDI has been proven to lead economic derision in the market movements of the past. That is to say, the BDI has been volatile exactly BECAUSE markets have been volatile and unstable, and is a far more accurate thermometer than those that most mainstream economists currently rely on. If only they would look back at the numbers further than one year ago, they might see their own folly more clearly.

Introduced in 1985, the Baltic Dry Index first and foremost is a measure of the global shipping rates of dry bulk goods, mostly consisting of vital raw materials used in the creation of other products. However, it is also a measure of demand for said materials in comparison to previous months and years. This is where we get into the predictive nature of the BDI…

In late 1986, for instance, the BDI fell to its lowest level on record, then, began a slow crawl towards moderate recovery, just before the Black Monday crash of 1987.

Coincidence? Not a chance. From 2001 to 2002, a similar sharp collapse in the BDI preceded a progressive drop in the Dow of around 4000 points, ending in a highly suspect (Fed engineered) illegitimate recovery. In 2008, the index fell to near record lows once again just before the derivatives and credit crisis hit stocks full force. To imply that the BDI is not a useful measure of future economic trends seems like an astonishingly ignorant proposition when one examines its very predictable behavior just before major financial downturns.

This is not to suggest that the BDI can be used as a way to play the stock market from day to day, or often even month to month. MSM analysts rarely look further than the next quarter when considering any financial issue, and that is why they don’t understand the BDI. If an index cannot be used by daytraders to make a quick buck in a short afternoon, then why bother with it at all, right? The BDI is not an accurate measure of the daily market gamble. It is, though, an accurate measure of where markets are headed in the long run and under extreme circumstances.

Over the course of the past month, the BDI has fallen around 65% from above 1600 to 726. Mainstream economists argue that the BDI’s fall in 2008 was a much higher percentage, and thus, a 65% drop is nothing to worry about. They fail to mention that shipping rates never recovered from the 2008 collapse, and have hovered in a sickly manner near lows reached during the initial credit bubble burst. By their logic, if the BDI was at 2, and fell to 1, this 50% drop should be shrugged off as inconsequential because it is not a substantial percentage of decline when compared to that which occurred in 2008, even though the index is standing at rock bottom. Yes, the useful idiots strike again…

Looking at the rate and the speed of decline this past month, it’s hard to argue that the current 65% drop is meaningless:

Another subversive argument against the BDI is the suggestion that it is not the demand for raw materials that is in decline, but the number of shipping vessels out of use that is growing. A smart person might suggest that these two problems are mutually connected. An MSM pundit would not.

In 2008, many ships were left to wallow in port without cargo, but this was due in large part to two circumstances. First, demand had fallen so much that too many ships were left to carry too little raw materials. Second, credit markets had sunk so intensely that many ships could not find trade financing necessary to take on cargo. In either case, the BDI still falls, and in either case, it still signals economic danger. The only way that the BDI could signal a major decline in shipping demand artificially or inaccurately is if a considerable number of ships under construction were suddenly released onto the market while there is no demand for them. There have been no mass increases or extreme changes in cargo fleets this past month, or at all since 2008, which means, the BDI’s decline has NOTHING to do with the number of ships in operation, and everything to do with decline in global demand.

What is the bottom line? The stark decline in the BDI today should be taken very seriously. Most similar declines have occurred right before or in tandem with economic instability and stock market upheaval. All the average person need do is look around themselves, and they will find a European Union in the midst of detrimental credit downgrades and on the verge of dissolving. They will find the U.S. on the brink of yet another national debt battle and hostage to a private Federal Reserve which has announced the possibility of a third QE stimulus package which will likely be the last before foreign creditors begin dumping our treasuries and our currency in protest. They will find BRIC and ASEAN nations moving quietly into multiple bilateral trade agreements which cut out the use of the dollar as a world reserve completely. Is it any wonder that the Baltic Dry Index is in such steep deterioration?

Along with this decline in global demand is tied another trend which many traditional deflationists and Keynesians find bewildering; inflation in commodities. Ultimately, the BDI is valuable because it shows an extreme faltering in the demand for typical industrial materials and bulk items, which allows us to contrast the increase in the prices of necessities. Global demand is waning, yet prices are holding at considerably high levels or are rising (a blatant sign of monetary devaluation). Indeed, the most practical conclusion would be that the monster of stagflation has been brought to life through the dark alchemy of criminal debt creation and uncontrolled fiat stimulus. Without the BDI, such disaster would be much more difficult to foresee, and far more shocking when its full weight finally falls upon us. It must be watched with care and vigilance…

Ralph Acampora: Stocks Headed For Higher Ground; Blue Chips Breaking Out

2012-01-31T00:05:00.002-05:00

MP3

James J Puplava CFP with Ryan Puplava CMT, Ralph Acampora, and Robert Bernard

Jim Puplava welcomes back noted technician Ralph Acampora this week. Ralph sees stocks headed higher, and is particularly bullish on the blue chip stocks, which are technically breaking out. In addition, Ryan Puplava checks in with a wrap-up of the markets, and Rob Bernard of the PFS Group discusses fixed income opportunities.

A Potential 30%-50% Gain in Mining Stocks

2012-01-31T00:05:00.000-05:00

After months of waiting, it's finally time to trade copper from the long side... and potentially make 50% or more in copper stocks.

Copper is one of the world's most useful building materials. It's a good conductor of heat and electricity. It's easily stretched and shaped... and it's resistant to corrosion. That's why the metal is in almost everything around you... from computers and refrigerators to plumbing and automobiles.

As my colleague Brian Hunt often points out, this "in everything" attribute makes the metal rise and fall with perceptions toward the global economy [2].

Last year, copper busted. Nobody wanted to own the stuff because of fears over the global economy. Copper fell from $4.40 per pound to $3.10 per pound. You can see this bust in the two-year chart below...

Now look to the right side of the chart. You'll see that the plunging copper price has stabilized... and just rallied to a multi-month high around $3.80 per pound. You can thank China for this rally...

China imported 406,937 metric tons of copper in December. That marked the seventh-straight increase in monthly imports. It's also 78% higher than China's copper imports last December.

#-ad_banner-#This continued consumption has helped send copper to its highest point in four months. And supplies are getting scarce...

The inventory [3] of copper in London Metal Exchange warehouses is at a three-year low. That's incredibly bullish [4] for this trend.

Even so, the headlines are screaming economic doom and gloom. Greece can't complete a bailout deal. France is in a full-blown recession [5]. The U.S. economy remains on the ropes. Some market [6] forecasters even say a depression [7] is in the cards.

The bears might eventually be right. But always keep in mind: The world has a way of not ending. And the time to buy an asset [8] is when pessimism is high.

That's why copper is an interesting trade at these levels. The price is down big since early 2011, but it's experiencing a bit of price strength now. And many copper miners are beaten-down and cheap.

Take Freeport-McMoRan, for example. Freeport is the world's biggest copper producer. It owns the world's best "trophy" copper asset: Indonesia's Grasberg mine. Freeport is giant: $41 billion in market value [9]. And it yields 2%.

Over the last year, its stock is down 20%. Freeport's peers have seen their share prices drop between 20% and 40% over that same 12-month span. Should the world simply "not end," copper could easily go back over $4 per pound and force a big recovery in these copper miners. If Freeport rallies back to its 2011 high, it'd be a 35% gain from here.

If you make a trade here, keep a stop loss near the late-2011 lows to protect your capital. That way, you lose just a little if copper declines. But I think 2012 will surprise the bears... especially when it comes to resource stocks.

Right now, copper stocks are in the dumps... Should the economy simply muddle along, these stocks could experience a solid rally. That's why it's time to jump back into copper miners.

Don Yacktman: How He Beats the Overall Stock Market

2012-01-31T00:04:00.002-05:00

Great Investor Don Yacktman, founder and co-manager of the Yacktman Fund tells us how he continues to beat the overall stock market landing in the top one percent of all large cap mutual funds over the past one, three, five and ten year periods. Such outstanding performance was recently recognized by Morningstar, the mutual fund rating firm, that nominated Yacktman for Domestic Manager of 2011.

Time to Ride the Commodity Bull

2012-01-31T00:04:00.001-05:00

Long time readers know that I am a long-term commodity bull. Moreover, I have been writing on the theme of global healing for a few weeks. Despite last week's disappointing US GDP report, I am seeing signs that it may be time to get on the commodity bull for a ride. Both sentiment and momentum indicators are lining up for another upleg in commodity prices.

First of all, sentiment measures indicate that commodity prices are at levels suggesting accumulation. This chart from Mary Ann Bartels of BoA/Merrill Lynch (Note: the depictions of bull and bear phases are mine, not hers) shows that large speculators, who are mainly hedge funds, have moved off a crowded long in commodity prices. The chart was produced by aggregating the Commitment of Data reports for all futures exchange traded commodities in the CRB Index.

CRB Large Spec

My depiction of the bull and bear phases show that during the bear phases, neutral readings are good times to fade the rally. On the other hand, neutral readings are good opportunity to accumulate positions during the bull phases. The bull and bear phases is best exemplified by the chart of the bellwether of gold prices, which bottomed in 2002 along with the rest of the commodity complex.

Gold

Just because there is a neutral signal from this is a good time to accumulate positions doesn't mean that there isn't more downside to commodity prices. To see some near-term upside, you need a catalyst.

Bullish CAT guidance the bullish catalyst?

I have offered that one of the key indicators to watch for market direction is to watch the corporate guidance and the body language from management during 1Q earnings season. A bullish catalyst appeared last week when Caterpillar, which is a cyclical company that does business worldwide, reported and gave guidance that was very upbeat :

We expect improving world economic growth to increase demand for commodities. Our outlook assumes most commodity prices will increase slightly in 2012 and continue at levels that encourage investment. We expect that copper will average over $4 per pound, Central Appalachian coal about $75 per ton and West Texas Intermediate crude oil about $100 per barrel. In particular, mining will be a source of growth in 2012 and growth will be so high that supply will have a tough time with meeting demand:

We expect mining to continue to be strong globally, and we have a sizable order backlog for mining equipment. We expect sales to increase in 2012 and are in the process of adding production capacity for many of our mining products. However, we expect sales to be constrained by capacity throughout 2012. Moreover, the WSJ showed that the American economy continues to grow despite last week's disappointing GDP report:

US economy picks up steam

CAT was bullish on the outlook for US housing:

We expect total U.S. construction spending, which, net of inflation, has declined since 2004, to finally begin to recover in 2012. We project a 1.5-percent increase in infrastructure-related construction and a 5-percent increase in nonresidential building construction. We are expecting housing starts of at least 700 thousand units in 2012, up from 607 thousand units in 2011. They were sanguine on Europe because of ECB support of the eurozone:

The Eurozone public debt crisis has been a lingering negative, but it is unlikely to trigger a worldwide recession. The Eurozone will likely have at least two quarters of weak, possibly negative growth, but should begin to improve in the second half of 2012. For 2012, our outlook assumes economic growth for the Eurozone near zero and growth of about half of a percentage point for Europe in total.

Our expectation for improvement of European growth in the second half of 2012 rests on a continued easing by the European Central Bank (ECB). The ECB has recently lowered interest rates and could cut rates further in 2012. CAT also saw sufficient growth in China to support construction demand and commodity growth:

China took its first easing action in late 2011, and we expect that further easing is likely. We expect China's economy will grow 8.5 percent in 2012, sufficient for growth in construction and increased commodity demand. In addition, Joe Weisenthal highlighted some of the positive long-term fundamental drivers of Chinese commodity demand, namely a population that is rapidly becoming more affluent, which will raise demand for the consumer good life, such as electricity:

Chart of the Day - Old Dominion Freight Line (ODFL)

2012-01-31T00:04:00.000-05:00

The "Chart of the Day" is Old Dominion Freight Line (ODFL), which showed up on Friday's Barchart "All Time High" list. Old Dominion on Friday posted an all-time high of $42.15 and closed up 0.17%. TrendSpotter has been Long since Jan 19 at $41.28. In recent news on the stock, FTR's Truck Loading Index in December was up +5.3% y/y. SunTrust Robinson on Jan 7 initiated coverage on Old Dominion with a Neutral. Old Dominion Freight Line, with a market cap of $2.4 billion, is a motor carrier transporting primarily less-than-truckload shipments of general commodities, including consumer goods, textiles and capital goods to a diversified customer base.

VIX Still Priced For Depression Risk

2012-01-31T00:03:00.001-05:00

zerohedge.com

Since the spike in VIX in October of last year, short-dated volatility (and correlation) has dropped significantly, but the vol term-structure has steepened, and long-dated volatility remains stubbornly high. Goldman Sachs updates their volatility debt cycle thesis today and so far we are following the typical cycle post-volatility-spike - realized vols drop, short-term implied vols drop, term structure steepens, long-term vols drop - leaving them focused on both the implications of the current low levels of short-term vol and the high-levels of long-term vol. In brief, short-term volatility reflects very closely the current macro environment (GDP growth, ISM, high-yield, and Goldman's models) but longer-dated volatility trades significantly worse. The front of the volatility curve is in-line with the economics, the back is still pricing in potential damage. The volatility (variance swaps) market is expecting realized volatility to be very high over the next 5-10 years - the only time this has happened was during The Great Depression.

The four-stage model of post vol spike market behavior is very useful (if not somewhat obvious) in considering where we are in terms of sentiment. (more)

Learn These 4 Profitable Chart Patterns

2012-01-31T00:03:00.000-05:00

If you’re just starting out as a trader, the sheer number of technical analysis [2] patterns can be downright overwhelming. With literally hundreds of patterns to look for anytime you analyze a chart, it’s no surprise that new technical traders often suffer from analysis paralysis when they’re just starting out.

But it doesn’t have to be that way…

Today, I’d like to show you four simple chart patterns that could help you find your next profitable trade in 2012.

In his book, The Definitive Guide to Point and Figure, Jeremy du Plessis argues that:

“Some authors go on to list tables of patterns, but the need to learn patterns indicates a lack of true understanding of how a pattern is created. There is no point in trying to learn dozens of patterns; it is better to understand what causes them.”

As a market [3] technician, that’s one of my favorite quotes. When it comes to chart patterns, it’s absolutely true that rote memorization will only get you so far. Instead, it pays (literally) to understand how and why patterns are created.

At their most simple construction, patterns are just different arrangements of support, resistance, and trend lines. While I won’t get into too much detail over how those individual building blocks work, you should be able to see a lot in common with the four patterns I’m about to show you. So, rather than trying to memorize the pattern on these four formations, memorize the combination of support, resistance, and trendlines that combine to create them…

1. Ascending Triangle [4]

First up is the ascending triangle, a bullish [5] pattern that’s formed by a horizontal resistance level to the upside, and uptrending support below shares [6]. Those two technical levels form a shape that resembled a right triangle. As shares bounce in between them, they get squeezed closer and closer to a breakout above that resistance level. When the breakout happens, it’s a strong buy signal for shares.

The bearish [7] opposite of the ascending triangle is a descending triangle [8]. In a descending triangle, shares have horizontal support and downtrending resistance. The shorting signal comes when that horizontal support level [9] gets broken.

2. Head and Shoulders [10]

One of the most well-known technical formations is the head and shoulders top. It’s a bearish pattern that’s identified by a peak (the head), with smaller peaks on each side (the shoulders). Even though the head-and-shoulders is likely the most well known technical pattern, it’s still a valuable one: an academic study conducted by the Federal Reserve Board of New York found that the results of 10,000 computer-simulated head-and-shoulders trades resulted in “profits [that] would have been both statistically and economically significant.”

On the opposite side is the inverse head and shoulders, which, as the name implies, is just a flipped version of the head and shoulders top. It’s a bullish pattern.

In both cases, the trade signal comes when shares push through the neckline (sometimes called “shoulder level”) in the chart above.

3. Consolidation [11]

A consolidation channel (sometimes called an “If/Then Trade”) is a channel that’s bounded by both a horizontal resistance level and a horizontal support level. Frequently, consolidation channels come after large moves. They’re an opportunity for a stock to bleed off some volatility and for traders to think about their next moves. Unlike the other patterns we’ve looked at, this setup doesn’t have any directional bias until it triggers.

The trigger happens when shares push outside of the channel. When that happens, the high probability move is to take a position in the direction of the breakout.

4. Double Top

Finally, we’ll look at the double top; as the name implies, it’s a topping pattern (thus it’s bearish). The double top can be identified by two swing highs that peak at approximately the same price level — that price level is a strong resistance level, above which there’s a glut of supply of shares that overwhelms buying pressure. A double top becomes a short signal when shares push through the intermediate trough that separates the tops.

Not surprisingly, a pattern called a double bottom [12] is the bullish opposite of the double top.

While we’re hardly taking an exhaustive look at all of the potential patterns that you may encounter in the market, these four patterns provide a good sample of how the building blocks of support, resistance, and trend create actionable patterns. By keeping these four patterns in mind the next time you look at a chart, you’ll be better able to spot [13] other, more unconventional setups than traders who resort to rote memorization.

The Fed, the S&P 500, & Why Gold Is Shining Bright

2012-01-30T00:06:00.000-05:00

“I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.”

~ Thomas Jefferson ~

Well here we are, caught between resistance in the S&P 500 around the 1,330 area and support around the 1,300 price level. My last two articles have discussed why I was expecting a top in the coming days and weeks ahead, but prices just continued to work higher.

One of the things that I pride myself in as a person who trades and writes about financial markets in public is that I am always honest. If I blow a call I fess up and admit it. When I have made mistakes in the past, I always try to learn something new from them and I discuss losing trades publicly with readers and members of my service.

This time is different. I honestly do not know if I am going to be right or wrong. The price action in the S&P 500 Thursday was certainly bearish short term, but a back test of 1,300 or possibly even 1,280 could give rise to a Phoenix. Granted, the Phoenix is nothing more than Ben Bernanke’s pet, but that is a topic for a different time.

I have scanned through my list of indicators which discuss sentiment based on momentum, put/call ratio, the advance/decline line, Bullish Percent Indicators, and several ratio based indicators and they are all SCREAMING that a top is near. The interesting thing about the previous statement is that it would have been true a week ago and mostly true two weeks ago, yet prices have continued to climb.

The daily chart of the S&P 500 Index demonstrates the recent price action that has continued to climb the “Wall of Worry” for several weeks:

S&P 500 Daily Chart

The culmination of the massive run higher for the S&P 500 was the dovish comments coming from Ben Bernanke during Wednesday’s press release and press conference.

The U.S. & European Central Banks are seemingly in a perpetual race to debase their underlying fiat currencies. The race will not end well. In fact, this type of situation smells like a Ponzi scheme where Ben Bernanke and Mario Draghi (ECB President) are the wizards behind the curtains. Their loose monetary policies and forced reflation are synthetic drugs that juice risk assets higher and ultimately Mr. Market will have his vengeance in due time.

At this point, it seems like Ben Bernanke will do anything to juice equity prices higher. I think his hope is that they will be able to artificially keep the game going until the recovery is on a more sound footing. However, when the entire recovery is predicated on cheap money and liquidity and is not supported by organic economic growth it just prolongs the inevitable disaster.

As an example, the daily chart of the Dow Jones Industrial Average is shown below. I would point out that that Dow came within 35 points (0.27%) from testing the 2011 highs. Furthermore, the Thursday high for the Dow was only 1,356 points (10.55%) from reaching the all-time 2007 October high.

Dow Jones Industrial Average Daily Chart

I have argued for quite some time that the economy and the stock market are two different things. If Bernanke and his cronies succeed in reflating the financial markets and the Dow reaches its October 2007 high in the near term, more retail investors will regard equity markets as being rigged.

Who could blame them for viewing financial markets as a giant rigged casino that stands to win while they continue to lose their hard earned capital? We all recognize that the current economy is nowhere near as strong as it was in 2007. But alas, the regular retail investor does not recognize that the stock market and the economy do not portray the same meaning.

One specific underlying catalyst that has gone largely unnoticed by most of the financial media during this sharp run higher in stocks is the total lack of volume associated with the march higher. The NYSE volume over the past 2 months has been putrid when compared to historical norms.

As a trader, I am forced to take risk through a variety of trade structures. However, the idea that a crash could be coming seems hard pressed as long as Big Bad Ben is at the wheel.

If the Russell 2000 drops 10%, I am convinced that Ben will be out making announcements that the Fed stands ready to intervene with all of the supposed tools they have at their disposal. Let’s be honest here, they really have one tool comprised of 3 separate functions which are all a mechanism to increase liquidity in the overall system. To express this liquidity, the following chart from the Federal Reserve shows the M2 money supply levels:

Current M2 Money Supply

The 3 functions are the printing of currency, the monetization of U.S. Treasury debt (QE, QE2, QE2.5, Operation Twist), and exceptionally low interest rates (ZIRP) near 0 for an “extended period of time (2014).” Since monetary easing is all that the Federal Reserve has done since the financial crisis began, it begs to reason that the Federal Reserve has no other solutions or tools available. If they did, they seemingly would have used them by now.

The first bubble they created due to loose monetary policy was the massive bubble in oil in 2008. Fast forward to the present, and they are currently supporting another bubble in U.S. Treasury obligations. The bubble that they will create in the future when the game finally ends will be in precious metals. The precious metals bubble will be building while the Federal Reserve and the U.S. Treasury attempt to keep the Treasury Bond bubble from bursting.

At this point in time, if we continue down this path stocks will not protect investors adequately from inflation should the Treasury bubble burst. I would argue that the central planning and monetary policy we have seen the past few years continues in the United States and Europe that gold, silver, and other precious metals are likely to begin their own bubble of potentially epic proportions.

As the weekly chart of gold futures illustrates below, gold has recently pulled back sharply and has broken out. I will likely be looking for any pullbacks in gold as buying opportunities as long as support holds.

Gold Weekly Chart

In closing, for longer term investors the stock market might have some serious short term juice as cheap money and artificially low interest rates should juice returns. However, eventually equities will start to underperform. At that point, gold will be in the final stages of its bubble and the term parabolic could likely be applied.

If central banks around the world continue to print money there are only a few places to hide. Precious metals and other commodities like oil will vastly outperform stocks in the long run if the Dollar continues to slide. The real question we should be asking is who will win the race to debase, Draghi or Bernanke?

Gold Stocks To Rally Like During The Great Depression And Early 70s

2012-01-30T00:05:00.001-05:00

Below, is an extract of my Gold Mining Fractal Analysis Report.

“He answered and said unto them, When it is evening, ye say, It will be fair weather: for the sky is red. And in the morning, It will be foul weather to day: for the sky is red and lowering.”- Jesus Christ

During the Great Depression, at a certain point, gold stocks started a massive rally. While most things were going down in price, gold stocks made significant gains, becoming one of the best performing sectors during that time.

It was no coincidence that gold stocks performed as well as they did. Like all goods, gold stocks will thrive under the ideal conditions. During the Great Depression, those ideal conditions were present.

The purpose of this editorial is to look at what those conditions were, and identify a pattern that was present before and during those rallies. If we are able to identify those circumstances and pattern, we could look to see if they are present today, or in the future, in order to know when to expect a massive gold stocks rally. – end of extract.

I then go on to identify those ideal circumstances and patterns that were present before and during the great gold stocks rally. The conditions today are very similar to then, and is an ideal set-up for a most spectacular gold stocks rally over the coming months. Here, I would like to illustrate, by way of a chart, how the conditions were similar.

The gold stock rally of the 1930s coincided with major economic decline, as well as a significant increase in the real price of gold. Below, is a chart (from planbeconomics.com) of the long-term Gold/Oil ratio:

On the chart I have highlighted a peculiar pattern that exists just before the gold stocks rallies of the Great Depression and the early 70s. The pattern is basically:

The peak in the stock market (DOW) and Dow/Gold ratio – point p
Gold rallies significantly from about after 1 – point g
After a significant bottom in the Gold/Oil ratio and after that ratio has been rising for quite some time.

Note that the yellow lines in the chart represent the point where the gold stocks really took off (broke out)

Currently, conditions are setting up in a similar manner to the Great Depression and the early 70s. We have a significant bottom in the long-term Gold/Oil ratio, we have had a peak of the Dow and the Dow/Gold ratio (in 1999) and we have had a gold rally that started after 1999, and is about to accelerate. We are also at a point where major economic decline can be expected (see my previous video), similar to the decline during the Great Depression.

So, it appears that we have conditions that are ideal for gold stocks to finally take the lead in this bull market.

Do the charts for these gold stocks agree?

Below, is a chart of the HUI (finance.yahoo.com):

HUI Analysis

The HUI appears to have bottomed, and is currently embarking on a massive rally. The yellow line should be good support, should price fall back again. Buying close to the yellow line would also be a good long-term entry point. Please note that the green drawn line is just for illustration purpose, it is not meant to show exactly how the chart will play-out.

Fractal Analysis of the HUI – only for Premium Subscribers.

A scenario for the HUI, which is very likely, is that the HUI follows the example of silver’s rally from the $19 level to $49. I think this is very likely, since it seems that the HUI is now in a very similar situation to where silver was in August 2010.

Note that there is more detailed analysis (including fractal analysis) in the Gold Mining Fractal Analysis Report.

For more of this kind of analysis on silver and gold, you are welcome to subscribe to my free silver and gold newsletter or premium service. I have also recently completed a fractal analysis report for gold and silver .

Warm regards and God bless,

Hubert

Randgold Should Forge Ahead After Consolidation

2012-01-30T00:05:00.000-05:00

Randgold Resources (NASDAQ:GOLD) — For months, gold bullion prices have been running ahead of the gold mining stocks. But miners forged ahead in Q3 as higher earnings from increasingly better bullion prices improved their outlook.

With that rise in the price of gold bullion, Randgold is estimated to increase revenues by 108% in 2011, and looks for an increase of 38% in 2012. Earnings are expected to rebound to $6.74 in 2012 from $3.52 in 2011, and S&P has a “four-star buy” on GOLD with a price target of $140 within 12 months.

Technically the pullback from $120 and the successful consolidation at $110 offers buyers an excellent opportunity to purchase this quality mining stock at a discounted price.

The trading target for GOLD is $120 with a longer-term projected target of $150, as the recent decision by the Fed to keep interest rates low until at least late 2014 is a boost to most commodities, including gold.

Chart of the Day - Digital Realty Trust (DLR)

2012-01-30T00:04:00.000-05:00

The "Chart of the Day" is Digital Realty Trust (DLR), which showed up on Thursday's Barchart "All Time High" list. DLR on Thursday posted a new all-time high of $69.87 and closed up 1.09%. TrendSpotter has been Long since Oct 18 at $58.92. In recent news on the stock, Collins Stewart on Jan 19 initiated coverage with a Neutral and a target of $65. KeyBanc on Jan 12 downgraded DLR to Hold from Buy due to valuation but raised its target price to $68 from $66. Digital Realty Trust, with a market cap of $7.1 billion, owns, acquires, repositions and manages technology-related real estate, mainly data centers.

Chris Martenson Interviews John Mauldin: “It’s Time to Make the Hard Decisions”

2012-01-30T00:03:00.001-05:00

US Weekly Economic Calendar

2012-01-30T00:03:00.000-05:00

time (et)	report	period	forecast	previous
MONDAY, JAN. 30
8:30 am	Personal income	Dec.	0.4%	0.1%
8:30 am	Consumer spending	Dec.	0.1%	0.1%
8:30 am	Core PCE price index	Dec.	0.1%	0.1%
10:30 am	Texas manufacturing index	Jan.	--	-3.0
2 pm	Senior loan officer survey	Jan.
Tuesday, JAN. 31
8:30 am	Employment cost index	4Q	0.4%	0.3%
9 am	Case-Shiller home prices	Nov.	--	-1.2%
9:45 am	Chicago PMI	Jan.	61.5%	62.5%
10 am	Consumer confidence	Jan.	68.0	64.5
Wednesday, FEB. 1
8:15 am	ADP employment report	Jan.	--	325,000
10 am	ISM	Jan.	54.9%	53.9%
10 am	Construction spending	Dec.	0.3%	1.2%
TBA	Motor vehicle sales	Jan.	13.5 mln	13.5 mln
Thursday, FEB. 2
8:30 a.m.	Jobless claims	1-28	370,000	377,000
8:30 am	Productivity	4Q	0.6%	2.3%
8:30 am	Unit labor costs	4Q	0.8%	-2.5%
FRIDAY, FEB. 3
8:30 am	Nonfarm payrolls	Jan.	125,000	200,000
8:30 am	Unemployment rate	Jan.	8.5%	8.5%
8:30 am	Average hourly earnings	Jan.	0.2%	0.2%
10 am	ISM services	Jan.	53.5%	52.6%
10 am	Factory orders	Dec.	1.4%	1.8%

Don’t Buy a Home OR Home Builder Stocks! Says Schoenberger

2012-01-28T00:06:00.000-05:00

The housing sector was hit with a major setback in the latest new home sales data released on Thursday. The most recent snapshot showed sales slid 2.2% last month compared to November. December's weakness dragged on the entire year, making 2011 the weakest on record for sales of new homes in the U.S., and prices dropped 12.8% year-over-year.

Home Builder Stocks Under Pressure After Weak New Home Sales

Meanwhile, home builder stocks (XHB), a sector up 12% so far in 2012, took a hit on this data, raising questions about the validity of their year-to-date rally. Stocks like Lennar (LEN), Ryland (RYL), D.R. Horton (DHI), Pulte (PHM), and Toll Brothers (TOL) all pulled back roughly 2-3% on the data.

According to Todd Schoenberger, managing director at LandColt Trading, you shouldn't have touched these home builder stocks anyway. He explains in the attached video why the fundamentals of the housing market are still too broken to consider investing in the sector through home building stocks, and through traditional home ownership for that matter.

Schoenberger points to the U.S. homeownership rate which is currently at 66%. He believes this is too high, especially compared it to the historical average of 64%.

"You still have too many people that own homes that should not be owning a home right now," he says. "Those are your toxic mortgages that you hear about."

Is Now a Good Time to Buy a Home?

Combine this with excess supply on the market and historically low 30-year fixed mortgage rates, and you only see Schoenberger's case grow stronger. He sees oversupply creating further home price depreciation and mortgage rates that will only move lower.

"So why would you go out now to buy a home?" he asks Jeff Macke. "You can buy probably the same home a year or two from now with a 20% discount with a cheaper mortgage rate… And as a result of that thesis, that is why you want to stay away from home builders."

Simple, straightforward, and gloomy. So when will the housing depression begin to turn around?

Schoenberger turns to Fed Chairman Ben Bernanke as his magic 8-ball. Last August, Bernanke & Co. announced that the federal funds rate would remain near zero through mid-2013. However, just Wednesday the Fed updated that outlook, extending the time line out through late 2014.

Thus, Schoenberger's bottom line prediction: "Spring of 2014 will be the time that you would start to consider to buy a home," says Schoenberger.

The 10 Rules For Your Emergency Food Pantry

2012-01-28T00:05:00.001-05:00

Those of you who plan to take the first steps toward preparing for emergencies may feel a bit overwhelmed at where to begin. After all, there is a lot of food to choose from at the grocery stores. Many websites, including this one encourage families to start buying small amounts of food related preparedness items each time they go shopping. This way, your budget is not dramatically affected.

Food storage calculators are a great tool to incorporate in your preparedness planning, and can help you understand how much food your family will need for a given emergency. The food storage calculations can also be printed out and used as an inventory list to keep you on track in terms of what preparedness supplies you have and will need.

To make the most of your emergency food supply, keep these essential food pantry rules in mind before purchasing:

Caloric intake is an important factor in survival. In any disaster situation, you want to avoid malnutrition. Having foods stored to prevent this health issue will keep you at your optimum health. Stock up on foods that provide you with essential nutrients to maintain body functions, proteins and carbohydrates, fats for energy, as well as foods that are not high in salt (the more salty your food is, the more water you will drink). To calculate how many calories you will need in your diet, click here.
Consider buying multifunctional food items. Items that can serve more than one purpose will help your finances, as well as save precious space in the food storage pantry. Items such as oats, pasta, rice, wheat and beans are some great low-cost foods will serve a variety of uses.
Store high energy snacks to help boost energy levels. Eating snacks that are high in complex carbohydrates and protein will provide you with a guaranteed energy boost. High energy snacks such as nuts, peanut butter, crackers, granola bars and trail mix can be stored for up to 1 year and will help keep energy levels and spirits high in an emergency scenario.
Bring on the protein! Protein is an essential ingredient in our daily diets and cannot be omitted out of a survival diet. Canned meat is a good source of protein and can also help you maintain your energy level. Meats such as tuna, ham, chicken and spam are great additions to the food pantry and are multifunctional. (Remember, the oil in canned meat can be used as an emergency candle.) Beans are another great source of protein, and when beans are accompanied with rice, it makes a complete protein which provides all the amino acids needed to survive. One serving of beans and rice provides 19.9 g, or 40 percent of your daily vitamins.
Don’t forget the basics. Essential staples such as cooking oil, flour, cornmeal, salt, sugar, spices, baking soda, baking powder and vinegar should not be overlooked. If they are present in your kitchen, they should likewise be present in the emergency food supply.
Convenience helps in stressful situations. Many moms know that boxed dinners can be a lifesaver when you are in a time crunch. Having some pre-packaged dinners and meals-to-grab during emergency scenarios will help you begin acclimating yourself to cooking in a grid down scenario as well as can help provide some comfort at the same time. Personally speaking, my family has the “just add water” pancake mixes, corn breads and drink mixes that are a great convenience.
Variety’s the very spice of life, that gives it all it’s pleasure. Variety in your food pantry is important and can prevent the monotony that comes with eating the same foods day in and day out. Having a well rounded food storage will cut down on culinary boredom, as well as balance your diet. Further, stocking up on a variety of spices will also enhance your food pantry.
Find comfort in the little things. Have some comfort food items that provide enjoyment to the family. Items such as popcorn, sweet cereals, hard candy, juice boxes, pickles, applesauce, pudding, cookies could be a great way to provide a bit of normalcy to the emergency situation you may face.
Have backs up for your backs ups. Compressed food bars are lightweight, taste good and are nutritious. Having food bars as a back up to your existing food supply can provide you with peace of mind knowing you have an alternative to turn to if you run out of food. Further, these are great additions to your 72-hour bag or bug out vehicle. A review of the different types of bars can be read here or you can practice your survival skills and make your own with this recipe. MRE’s are another alternative food choice to turn to if you happen to run out of food in your pantry. Although many have turned their nose up at MRE’s (due to their high amounts of preservatives), they will provide you with sufficient calories and nutrition when it counts. Note: These should not be the only items in your food supply. Over time, you could become nutrient and vitamin deficient.
Rotate and resupply when needed. Any items bought for the food storage closet should be used, rotated and resupplied. This is the best way to have the freshest foods available in the event that a disaster occurs. When organizing food reserves place the item that has the earliest expiration date in the front so that it is used first. FIFO is a well known acronym used in the restaurant business that stands for, “First In, First Out,” and can be incorporated in your food storage endeavors. Do an inventory check every 6 months to make sure that canned goods, preserves and other storage items are within their expiration dates.

Keeping the above considerations in mind when purchasing your food supply will provide your family with a well rounded food pantry stocked with an array of foods that will assist in promoting a healthy diet. Not listed in the suggestions is water. You must have water to survive. To learn more about potable water, click here. It would be prudent to have a 2-week supply of water on hand, as well as a water filtration device to rely on for extended disasters.

Prepping is a passion for some. For others it is the most efficient way to keep their family as safe as possible. For further resources and a list of essential items for your emergency supply, click here.

Is Now The Time To Move Away From Major U.S. Cities?

2012-01-28T00:05:00.000-05:00

As the U.S. economy falls apart and as the world becomes increasingly unstable, more Americans than ever are becoming "preppers". It is estimated that there are at least two million preppers in the United States today, but nobody really knows. The truth is that it is hard to take a poll because a lot of preppers simply do not talk about their preparations. Your neighbor could be storing up food in the garage or in an extra bedroom and you might never even know it. An increasing number of Americans are convinced that we are on the verge of some really bad things happening. But will just storing up some extra food and supplies be enough? What is going to happen if we see widespread rioting in major U.S. cities like George Soros is predicting? What is going to happen if the economy totally falls to pieces and our city centers descend into anarchy like we saw in New Orleans during the aftermath of Hurricane Katrina? In some major U.S. cities such as Detroit, looting is already rampant. There are some sections of Detroit where entire blocks of houses are being slowly dismantled by thieves and stripped of anything valuable. Sadly, the economy is going to get a lot worse than it is at the moment. So is now the time to move away from major U.S. cities? Should preppers be seeking safer locations for themselves and their families? Those are legitimate questions.

According to a recent Gallup poll, satisfaction with the government is now at an all-time low. Americans are rapidly losing faith in virtually every major institution in society.

Anger and frustration are rising to very dangerous levels, and we are rapidly approaching a boiling point.

When people feel as though they have lost everything, they get desperate.

And desperate people do desperate things.

In many communities in the United States today, crime has become so terrifying that people are literally sleeping with their guns.

The following is a story from Rancho Cordova, California that one of my readers recently sent me.... (more)

George Soros Shares His View on Europe

2012-01-28T00:04:00.003-05:00

What the Bond Market Knows That You Don’t

2012-01-28T00:04:00.002-05:00

by Matt Tucker, iShares

A picture is worth a thousand words:

Equity Performance vs. Bond Yields

Source: Bloomberg (1/13/11-1/16/12)

On the back of improving US economic data, equities have rallied off of autumn lows, and yet US Treasury yields have continued to surf bottom with the 10-year note trading below 2% for the first time on record. Why haven’t interest rates recovered in support of improving data? Do US Treasury investors know something that equity investors don’t?

The answer may lie across the pond in Europe. The European crisis intensified significantly in the fall, causing equity markets (and most risky assets for that matter) to sell off and US Treasury rates to fall, despite the August downgrade.

The chart below shows the on-the-run credit default swap contract for a basket of European sovereign credits, including the peripheral countries. As the chart shows, spreads widened significantly in late summer / early fall and have yet to recede meaningfully, despite grinding progress on the political front and some prominent actions by the European Central Bank to stabilize liquidity.

Source: Bloomberg

While the United States certainly has well publicized fiscal problems, it is, as our colleague Jeff Rosenberg of BlackRock Fundamental Fixed Income states, “the best house in a bad neighborhood.” To this point, Russ Koesterich estimates that the fair level of rates for the US Treasury 10-year yield based upon historical economic relationships is around 2.5-3%. The current yield of ~1.85% essentially reflects a liquidity or “safety” premium that investors are willing to pay in order to have relative safety in the neighborhood (protection money, if you will). Additionally, the Fed continues with Operation Twist, which is intentionally designed to keep a lid on longer term US Treasury rates (in response to concerns that the European overhang could damage the fragile US recovery).

How long will US Treasuries stay at this level, and will they eventually move up to reflect tentatively improving economic conditions in the United States? It all depends upon Europe. If the European situation deteriorates from here, US equities will almost certainly retreat, and US Treasury investors will look justified in having accepted a low yield, since it was low in anticipation of this risk. In that situation, US Treasury yields could move even lower.

If Europe claws its way out of the worst potential outcome and gets to a point of relative stability, the liquidity premium in US Treasuries will likely dissipate and yields may move to more fundamentally justified levels. But for now, it does appear that bond market and equity market investors are making very different bets.

Natural Gas Prices Up: Is There Still Time to Buy?

2012-01-28T00:04:00.001-05:00

Natural gas has gotten a much needed boost over the last couple weeks, rising over 15% after a catastrophic drop in the last year. The rally came in reaction to Chesapeake Energy's (CHK) announcement that it was cutting capital expenditures by more than 2/3's from last year, suggesting lower supplies. In addition, President Obama suggested in his State of the Union address that he'd seek to use more natural gas as a bridge between crude and renewables, suggesting stronger demand.

As econ 101 taught us: less supply + more demand = higher prices. So what's the trade now that the tape has digested these news items and rallied sharply?

Rich Ilczyszyn, founder of iiTrader.com likes natural gas here and suggests the U.S. Natural Gas fund (UNG) as a way for retail investors to play. "UNG is definitely something I'd take a look at here," he says in the attached clip, and offers two bullish catalysts to support the idea:

1. The huge downtrend has been accompanied by massive shorts. When shorts are forced to cover it "scoots the market up," as Ilczyszyn puts it, leading to gains building on gains, particularly when there's a fundamental basis for the move.

2. It's a relatively low-risk trade, in his view.

Those who've been long natural gas over the last few years may take issue here. To be clea, Ilczyszyn isn't saying there isn't danger that the perennial "next big thing" can't continue it's trend lower, just that natural gas isn't going to go to zero, and sees your downside risk that $2.

Ilczyszyn is targeting a move into the $3's and possible as high as $4/btu. As he says, the days of natural gas in the teens may be over but it's not going below $2. In what remains a somewhat dodgy market in the big picture a potential move greater than 30% is nothing to sneeze at.

Trading The MACD Divergence

2012-01-28T00:04:00.000-05:00

Moving average convergence divergence (MACD), invented in 1979 by Gerald Appeal, is one of the most popular technical indicators in trading. The MACD is appreciated by traders the world over for its simplicity and flexibility because it can be used either as a trend or momentum indicator.

Trading divergence is a popular way to use the MACD histogram (which we explain below), but, unfortunately, the divergence trade is not very accurate - it fails more than it succeeds. To explore what may be a more logical method of trading the MACD divergence, we look at using the MACD histogram for both trade entry and trade exit signals (instead of only entry), and how currency traders are uniquely positioned to take advantage of such a strategy.

MACD: An Overview
The concept behind the MACD is fairly straightforward. Essentially, it calculates the difference between an instrument's 26-day and 12-day exponential moving averages (EMA). Of the two moving averages that make up the MACD, the 12-day EMA is obviously the faster one, while the 26-day is slower. In the calculation of their values, both moving averages use the closing prices of whatever period is measured. On the MACD chart, a nine-day EMA of the MACD itself is plotted as well, and it acts as a trigger for buy and sell decisions. The MACD generates a bullish signal when it moves above its own nine-day EMA, and it sends a sell sign when it moves below its nine-day EMA.

The MACD histogram is an elegant visual representation of the difference between the MACD and its nine-day EMA. The histogram is positive when the MACD is above its nine-day EMA and negative when the MACD is below its nine-day EMA. If prices are rising, the histogram grows larger as the speed of the price movement accelerates, and contracts as price movement decelerates. The same principle works in reverse as prices are falling. See Figure 1 for a good example of a MACD histogram in action.

Figure 1: MACD histogram. As price action (top part of the screen) accelerates to the downside, the MACD histogram (in the lower part of the screen) makes new lows

Source: FXTrek Intellicharts

The MACD histogram is the main reason why so many traders rely on this indicator to measure momentum, because it responds to the speed of price movement. Indeed, most traders use the MACD indicator more frequently to gauge the strength of the price move than to determine the direction of a trend.
Trading Divergence
As we mentioned earlier, trading divergence is a classic way in which the MACD histogram is used. One of the most common setups is to find chart points at which price makes a new swing high or a new swing low, but the MACD histogram does not, indicating a divergence between price and momentum. Figure 2 illustrates a typical divergence trade.

Figure 2: A typical (negative) divergence trade using a MACD histogram. At the right-hand circle on the price chart, the price movements make a new swing high, but at the corresponding circled point on the MACD histogram, the MACD histogram is unable to exceed its previous high of 0.3307. (The histogram reached this high at the point indicated by the lower left-hand circle.) The divergence is a signal that the price is about to reverse at the new high, and as such, it is a signal for the trader to enter into a short position.

Source: Source: FXTrek Intellicharts

Unfortunately, the divergence trade is not very accurate, as it fails more times than it succeeds. Prices frequently have several final bursts up or down that trigger stops and force traders out of position just before the move actually makes a sustained turn and the trade becomes profitable. Figure 3 demonstrates a typical divergence fakeout, which has frustrated scores of traders over the years.

Figure 3: A typical divergence fakeout. Strong divergence is illustrated by the right circle (at the bottom of the chart) by the vertical line, but traders who set their stops at swing highs would have been taken out of the trade before it turned in their direction.

Source: Source: FXTrek Intellicharts

One of the reasons that traders often lose with this set up is they enter a trade on a signal from the MACD indicator but exit it based on the move in price. Since the MACD histogram is a derivative of price and is not price itself, this approach is, in effect, the trading version of mixing apples and oranges.

Using the MACD Histogram for Both Entry and Exit
To resolve the inconsistency between entry and exit, a trader can use the MACD histogram for both trade entry and trade exit signals. To do so, the trader trading the negative divergence takes a partial short position at the initial point of divergence, but instead of setting the stop at the nearest swing high based on price, he or she instead stops out the trade only if the high of the MACD histogram exceeds its previous swing high, indicating that momentum is actually accelerating and the trader is truly wrong on the trade. If, on the other hand, the MACD histogram does not generate a new swing high, the trader then adds to his or her initial position, continually achieving a higher average price for the short.

Currency traders are uniquely positioned to take advantage of this strategy because with this strategy, the larger the position, the larger the potential gains once the price reverses - and in Forex (FX), you can implement this strategy with any size of position and not have to worry about influencing price. (Traders can execute transactions as large as 100,000 units or as little as 1,000 units for the same typical spread of three to five points in the major pairs.)

In effect, this strategy requires the trader to average up as prices temporarily move against him or her. This, however, is typically not considered a good strategy. Many trading books have derisively dubbed such a technique as "adding to your losers." However, in this case the trader has a logical reason for doing so - the MACD histogram has shown divergence, which indicates that momentum is waning and price may soon turn. In effect, the trader is trying to call the bluff between the seeming strength of immediate price action and the MACD readings that hint at weakness ahead. Still, a well-prepared trader using the advantages of fixed costs in FX, by properly averaging up the trade, can withstand the temporary drawdowns until price turns in his or her favor. Figure 4 illustrates this strategy in action.

Figure 4: The chart indicates where price makes successive highs but the MACD histogram does not - foreshadowing the decline that eventually comes. By averaging up his or her short, the trader eventually earns a handsome profit as we see the price making a sustained reversal after the final point of divergence.

Source: Source: FXTrek Intellicharts

The Bottom Line
Like life, trading is rarely black and white. Some rules that traders agree on blindly, such as never adding to a loser, can be successfully broken to achieve extraordinary profits. However, a logical, methodical approach for violating these important money management rules needs to be established before attempting to capture gains. In the case of the MACD histogram, trading the indicator instead of the price offers a new way to trade an old idea - divergence. Applying this method to the FX market, which allows effortless scaling up of positions, makes this idea even more intriguing to day traders and position traders alike.

Ellis Martin Report With JSMineset Co-Founder David Duval

2012-01-28T00:03:00.003-05:00

James Dines: Gold to Challenge Last Year’s Highs in 2012 on the Way to $3,000 oz. and Beyond

2012-01-28T00:03:00.002-05:00

Newshour, Guest Expert (click here for audio links)

Jim is pleased to welcome back James Dines of The Dines Letter to discuss his forecast for 2012. In an interview covering many subjects, Mr. Dines believes gold shares will catch up to the gold price, Chinese growth won’t be enough to bail out the world’s economies, and that nothing will save the world until a currency link to gold is reinstated and enforced.

Stocks That Benefit From A Weak Dollar : COP, KBR, TCK, XOM

2012-01-28T00:03:00.001-05:00

There's a lot of talk today about the future of the dollar. If left unchecked or without an appropriate exit strategy, our massive stimulus programs will have a crippling effect on the value of the dollar. It's simple economics: if you increase supply without a similar increase in demand, the price of your product drops.

What to Consider
Exporters benefit when their home currency weakens relative to the rest of the world because their trading partners can now buy their product for less. This is why China's currency has been undervalued for years. The Chinese government does not let the yuan float freely, which leads many to cite that as the reason China's exports are so incredibly cheap.

Oil and gold also benefit from a weak dollar. Gold is often perceived as a safe haven during periods of asset devaluation. Oil benefits because it's priced in dollars. As we've seen with the oil price over the past few months, that indeed seems to be the case.

Quality Always Matters
So commodity businesses that have pricing power and U.S. companies that do brisk business abroad benefit from a weaker dollar. But let me go on record as saying over the long run, it's not beneficial for a country to continually suffer from a weak currency. In the case of the U.S., that rings even more true since the greenback is regarded as the world's premier currency.

Nonetheless, major oil companies like ConocoPhillips (NYSE:COP) and ExxonMobil (NYSE:XOM) that have substantial operations abroad will be OK. And since a weak dollar also benefits the price of oil, the majors doubly benefit. Construction and engineering firm KBR (NYSE:KBR), a virtually debt-free $4.8 billion company, does a bulk of its work overseas. And because the bulk of KBR's work comes from government agencies, the company continues to prosper as best as one can during a recession.

Foreign Investing
Another option is investing in businesses located outside the U.S. that earn money in other currencies that are likely to strengthen against the U.S. dollar. But such a move poses some risk because the other currency must appreciate and the company needs to maintain its profitability. So while the Japanese yen has gotten stronger against the greenback lately, many Japanese businesses have a tough time of it.

Nations like Brazil and Australia, which are rich in commodities, are expected to resume a healthy GDP going forward. Up north in Canada, you have commodity giant Teck Resources (NYSE:TCK), which does business all over the world and has the Canadian dollar as the functional currency.

Bottom Line
It's never wise to make any investment based solely on a single macro bet, especially if the prices aren't bargains. But if the dollar does weaken long-term, then businesses with characteristics like those above will benefit.

The Key To High Returns Is A Disciplined Strategy

2012-01-28T00:03:00.000-05:00

Having a disciplined investment strategy differentiates the professional from the do-it-yourself investor. An investment strategy does not have to be complicated. If you were to sum up Warren Buffett's investing strategy it might be to "buy good businesses at a fair price with the intention of holding them forever." An investment strategy helps provide focus and ensures emotions are held in check when making decisions. Having an investment strategy for both asset mix and security will provide discipline to be a successful investor over the long term. In this article, we will look at different investment strategies and how you can pick the right one for you.

Strategic Asset Mix
Central to any investment plan is the strategic or long-term asset mix. In general, its purpose is to capture the benefits of diversification and the advantages of investing in assets that have a low correlation to each other. The strategic asset mix is essentially the link between your long-term investment goals and the capital markets.

Many investors want to keep the current asset mix of their portfolios close to their strategic asset mix. A simple rebalancing strategy is all that is required. Typically, as each asset class will perform differently over time, the asset mix will deviate from the strategic asset mix.

For example, a balanced portfolio of 60% equity and 40% fixed income could become 70% equity and 30% fixed income after a strong stock market. Rebalancing would require selling equities and using the proceeds to buy fixed-income assets, so the asset mix then will get back to the long-term asset mix. The rebalancing could be done on a regular basis, semiannually, annually or when an asset class deviates by a set percentage.

A rebalancing strategy is effectively a sell high, buy low strategy, because it will always sell the assets that have been the best relative performers and buy the assets with relatively weak performance.

Tactical Asset Allocation
A tactical asset mix strategy attempts to add value by overweighting the asset classes that are expected to outperform, and underweighting those asset classes that are expected to underperform.

As an example, if an investor believes that over the next year the U.S. equities market will be weak, the investor might decide to underweight his exposure to equities and overweight cash or bonds. Unlike a rebalancing strategy, which is mechanical, tactical asset allocation requires some forecasting ability to make the correct decisions.

Security Selection Strategies
There is no shortage of strategies to choose from when buying and selling stocks. Countless books have been written describing many strategies in detail. Strategies range from growth, to value and momentum. There are fundamentally based strategies, as well as technical or quantitative strategies. There are also top-down and bottom-up strategies.

Each type of strategy will have its proponents, but any logical, rational strategy that is followed consistently is always better than no strategy at all. The value is in the disciplined approach a strategy provides.

Developing Your Strategy
The value of an investing strategy is not in the strategy itself, but in how it is followed and implemented.

In investing, there are two different approaches: a top-down or a bottom-up approach. In a top-down approach, the investor analyzes the major factors that will influence the capital market and the companies in it. The main factors will be the overall economy, monetary and fiscal policy, demographic changes, inflation, industrial sector trends and interest rates. Other investors will take a bottom-up approach, analyzing individual companies, their financial statements, growth prospects and industry trends.

One approach is not necessarily better than the other. However, depending on your own interests, knowledge and experience, one approach might be more appropriate for you. As an example, an economist will likely take a top-down approach to investing and an accountant might feel more comfortable with a bottom-up approach. Your orientation to analyzing investments will determine the types of investment strategies to follow.

In addition, the amount of time you are able to commit to your investment program determines the type of strategies to use and how much of the investment decision-making you will delegate. For example, with limited time, an investor might build a portfolio using a few exchanged-traded funds (ETFs) and then rebalance once a year. Similarly, the investor might have all of their investments in a couple of balanced funds or have their funds managed by a discretionary money manager.

Information and knowledge are important to the success of any investment strategy. One should identify the sources of data, investment commentary or investment research. The biggest challenge as an investor is to be able to filter out truly useful information from the needless noise. A disciplined investment strategy forces you to focus on the information that is important for your decision-making process.

Delegating Decision Making
Recognize the fact that it is difficult to do it all when it comes to investing. If you have a well-diversified portfolio and you invest in the major assets classes - and maybe some of the sub-asset classes as well - you are not likely to be able to actively manage all your investments effectively, unless you have a lot of time to allocate. The question then becomes, what to do yourself and what to delegate to others. It is important to stick to your strengths and interests and delegate out the asset classes in which you have a limited expertise.

As an example, an investor might feel confident trading large cap value stocks. As such, this person should concentrate their efforts on that asset class and delegate the investment management of other asset classes to someone else. Investors have several choices here, including active or passive management of the funds or assets they are looking to delegate. From the passive management side, you can find an advisor to handle the areas that you have little time to manage or research; you could also purchase a mutual fund or an ETF that provides exposure to these areas.

The Bottom Line
Having an investment strategy for both asset mix and security selection is important to ensure consistent success as an investor. Having the discipline to follow an investment strategy is more important than the actual strategy chosen. Equally important to any strategy, is determining what to manage yourself and what to delegate to others.

Coal's Weak, So Buy Peabody: ACI, ANR, BTU, CLD, PVR, WLT

2012-01-27T00:08:00.000-05:00

Yes, that title seems counter-intuitive. Why buy a major U.S.-based producer of coal at a time when thermal coal prices are weak and the outlook for metallurgical coal is uncertain? Well, the reality is that it's only when coal markets look terrible, that Peabody Energy (NYSE:BTU) ever looks relatively cheap. While this leading energy company has more work to do in Australia than expected, today's prices represent a relatively good long-term entry point for patient and risk-tolerant investors.

Blame it on the Wombats
Peabody's fourth quarter was not especially strong, and it's mostly the fault of the acquired operations of Ma carthur Coal in Australia. Honestly, few analysts or institutional investors really care about the revenue of a coal company like Peabody, but it was up 26% from last year, with an 8% increase in tons sold and better than 11% growth from the U.S.

What analysts do care about are metrics like EBITDA, shipment volumes and per-ton profits. Shipments were up about 8% as reported and a bit more than 6% on an "organic" basis. Although shipments from the West region were better than expected and Midwest shipments were OK, shipments in Australia were a fair bit weaker than expected.

At the same time, operating costs were problematic. The West was again pretty good this quarter, but costs were higher than expected in the Midwest and the operating costs in Australia were higher because of significant cost overruns at Macarthur, which were about twice the operating cost per ton of Australia as a whole. This took a real toll on operating EBTIDA, and although the reported growth was good, it was more than 10% shy of expectations.

2012 Will Be a Year of Retrenching
Peabody acknowledged its problems with Macarthur on the call, and at least some of the problems seem attributable to former management not really running operations at peak efficiency. That's not altogether surprising, given that Australian coal companies have been under a lot of pressure to increase production, with costs being a secondary concern, to meet surging Asian demand.

The problems in Australia are fixable; they'll just take some time and money to do so. Consequently, profit expectations in Australia need to be a little lower for 2012, but these adjustments will pay off with better profitability down the line.

A Chill in Thermal Coal
Peabody supplies about 10% of the coal burned by U.S. utilities and the state of the thermal coal market is a significant issue for coal stocks these days. Natural gas prices have fallen so low that they're actually starting to crimp demand for Powder River Basin coal; this is definitely a bad thing for a PRB pure-play like Cloud Peak (NYSE:CLD). How bad are things? Prices are getting close to the cash cost of production and that doesn't happen very often.

Unfortunately, it's hard to say that things will get rapidly better. At current prices, PRB coal is still about one-quarter more expensive than natural gas and coal from Appalachia is about 70% more expensive. Although it's true that there's a limit to how much utilities can substitute gas for coal, Peabody management thinks upwards of 80 million tons could be in play in 2012, depending upon prices. For companies with more exposure to thermal coal, names like Cloud Peak, Arch Coal (NYSE:ACI) and Penn Virginia (NYSE:PVR), that's definitely a concern heading into the year.

The Bottom Line
Peabody does have a metallurgical coal "kicker," but the uncertain economic outlook in Europe and China may keep a lid on met coal pricing and take some steam out of Peabody, Walter (NYSE:WLT) and Alpha Natural (NYSE:ANR). Still, the longer-term outlook is fairly positive.

Based on past EV/EBITDA experience, Peabody shares ought to be trading somewhere in the mid-to-high $40s. That suggests 25% or so undervaluation; maybe not the greatest discount out there among commodities, but more than investors often get with a company of Peabody's quality. By all means, consider other commodity plays like copper and steel, but also consider buying Peabody at these levels, as a play on eventual price recoveries.

Why is Platinum Cheaper Than Gold?

2012-01-27T00:07:00.000-05:00

In recent months there has been a near paradigm shift in the precious metals market that goes against basic market analysis of supply and demand. I'm referring to the recent change in which gold became higher than platinum. This shift occurred during last October and since then has proceeded with no clear end in sight.

Currently, gold is near $1,728, and platinum is at $1,608 per ounce, i.e. gold is nearly 7.5% more expansive than platinum.

During July/August the linear correlation changed direction and sharply fell to -0.5, i.e. a strong negative correlation between gold and platinum. This change came during the sharp rally of precious metals, when the uncertainty vis-à-vis the U.S. economy soared; this was stem, in part, due to the debate over raising the debt ceiling, and the announcement of S&P to downgrade U.S.'s credit rating. During that time when gold soared, platinum didn't react to this news in the same way and only slightly increased.

Will this change in which gold is more expansive than platinum will continue? For the time being, it seems that the answer is yes, but once the gold bubble will burst (probably in 2013), we should see a reverse in this direction and gold will become cheaper than platinum as it once was.

Funny Pic

2012-01-27T00:06:00.002-05:00

Yellow Gold Looks Strong Again…

2012-01-27T00:06:00.001-05:00

The stock markets had a very solid session. Most charts shot higher after Apple beat estimates Tuesday night surging over 10%. This set the tone for stocks Wednesday. Also the FOMC said they would keep interest rates low until mid 2014 and projected a 2% inflation rate which took the market by surprise. Looking at the 10 minute intraday charts of gold, silver, oil, and the SP500 you would think it was the 4rth of July with everything shooting higher.

My gut feeling before the FOMC meeting was that there would be no QE3 announced. This I figured would trigger the dollar to rise which in turn would put pressure on stocks and commodities. But the low interest rates until mid 2014 was the wild card trumping that scenario.

Trading around FOMC meetings always brings a heightened level of uncertainty to traders and investors. The news is unpredictable making that much more of beast to try and out smart. I personally do not trade on any news because of the added risk involved.

Let’s take a quick look at gold and silver…

The Weekly Gold Chart:

Gold has started to break out of its down trend and if it can hold up into Friday’s close then it will be a very positive sign for the shiny metal. It is still mid week and a lot can happen, so let’s see how it holds up and go from there.

The Weekly Silver Chart:

Silver has some work to do before it’s back in an uptrend on the weekly chart. I would not be surprised to see it catch up with gold and run toward the $35 resistance level in the next couple days.

Mid-Week Trend Conclusion:

In short, gold is on the move and in the next few weeks I figure we will be getting involved. Silver I think will unfold a little different from a chart pattern point of view, but I do feel there will be a buying opportunity soon also.

Looking more broad based we are seeing the stock market continue to make new highs with solid volume behind it while Crude oil continues to tread water.

Still Crashing: 2011 Was Worst Year Ever for Real Estate Sales

2012-01-27T00:06:00.000-05:00

While the National Association of Realtors says the real estate trend for 2012 will be one of “continued slow growth” as we saw in 2011, the reality is that there is no growth.

It’s so bad, in fact, that 2011 was the worst year on record for home sales. You read that right. The worst year since records have been kept – a trend we warned of back in 2009 when green shoots were reportedly popping up all over the country.

Fewer people bought new homes in December, making 2011 the worst sales year on record.

The Commerce Department said Thursday new-home sales fell last month to a seasonally adjusted annual pace of 307,000. The pace is less than half the 700,000 that economists say must be sold in a healthy economy.

About 302,000 homes were sold last year. That’s less than the 323,000 sold in 2010, making 2011 the worst year on records dating back to 1963.

The median sales prices for new homes dropped in December to $210,300. Builders continued to slash price to stay competitive.

Still, sales of new homes rose in the final quarter of 2011, supporting other signs of a slow turnaround afoot in the depressed housing market.

Source: San Francisco Chronicle

Millions of homes remain in the shadow inventory, prices continue to drop even with interest rates at historic lows, and jobs – the real driver behind the ability to purchase a home – don’t seem to be coming back, despite an unemployment rate that is officially on the decline.

No matter how bad it gets, however, the corporate media’s cheerleaders will continue to try and convince us otherwise.

Homebuilders are slightly more hopeful because more people are saying they might consider buying this year. And home construction picked up in the final quarter of last year.

“Although this decline was unexpected, it does not change the story that housing has likely bottomed,” said Jennifer H. Lee, senior economist at BMO Capital Markets.

Ian Shepherdson, chief economist at High Frequency Economics, said easier lending requirements, historically low mortgage rates and improved hiring all point to consistent, albeit slow, rises in sales in the coming months.

“A sustained rise in new home sales is imminent,” he said. “Homebuilders say so too, and they should know.”

People may be saying they might consider buying this year, but there is a difference between someone wanting to buy a home and having the ability to do so.

Housing, as we have vehemently maintained since the onset of this real estate crisis, is not going to bottom any time soon. We are looking at a decade’s long, perhaps longer, collapse of the U.S. real estate market.

Variable mortgage rates are going to continue to adjust upwards for those buyers who took them on in the midst of the boom, which means they will be paying more in monthly payments at the end of this year than they are today, putting even more strain on consumers who are quickly running out of savings and losing purchasing power for essential goods to monetary inflation.

On top of that, there are literally millions of homes in shadow inventories – homes that have been foreclosed on that, for all intents and purposes, aren’t even counted as being in existence.

Home builders are, naturally, going to say that a sustained rise in home sales is imminent. Does anyone really expect them to come out and say, “Hey, we’ve got a great house for you, but it may lose 20% in the next 18 months.” They will say whatever they have to say to make a sale.

Since the initial meltdown in sub-prime real estate the financial pundits, economists and industry insiders have been telling us things would get better, that we’re just about to turn the corner. These are the same people who argued that the sub-prime fiasco was isolated to just that sector of the market.

We now know that the problems were much, much bigger than that, yet the most influential media outlets, like the Wall Street Journal who last year penned Why 2011 May Be the End of the Housing Crash, continue to ignore (probably by design) what’s really going on.

Going forward, we may seem some positive real estate numbers, because prices don’t drop in a straight line. The long-term trend, however, is very negative for home values.

To get an idea of how bad it can get, just look to Japan. From peak to trough, their real estate bubble saw a collapse of 75% over the ten years following the burst in 1990. They have still not fully recovered.

We’re not immune to such a collapse. Expect the worst, because there is a strong chance this is exactly what’s coming.

Author: Mac Slavo
Date: January 26th, 2012
Website: www.SHTFplan.com

Gold To Hit $2,000/Oz By Third Quarter, Then Retreat – Barclays

2012-01-27T00:05:00.001-05:00

Precious metals, paced by gold breaking $2,000 an ounce by the third quarter, should lead the commodity sector in 2012 with 20% gains by the end of the second quarter and up 21% for the entire year, Barclays Capital said Thursday.

In a research note, Barclays said after rising to $2,000 by the third quarter, gold likely will back off slightly.

Gold will still end higher year-over-year, Barclays said. Silver should have a similar trajectory, up in the first and second quarter, peaking in the third quarter. However, they see silver ending 2012 below levels recording in the fourth quarter of 2011. “Gold’s larger share in the S&PGSCI weighting means the double-digit growth expected for this year is a larger driver of overall returns,” they said.

Commodities have rallied stoutly in January, but they might be vulnerable to a setback near-term. As a whole, however, the main commodity indexes should rise in 2012 about 10% as China is able bring its economy down to a soft landing, the U.S. will continue to grow and worries over European sovereign debt will ease, they said.

In addition to precious metals, base metals should be the next-strongest price leader of the group. Base metals are forecast to show returns of 13.5% in the first half of 2012 and 14.4% in all of 2012. All base metals but nickel should rise, with several peaking in the third quarter before pulling back by the end of the year.

Energy prices are forecast to rise, with gains of 2.9% in the first half of the year, rising to 8.8% by the year’s end.

Agriculture markets, outside of cocoa, could see weakness in 2012, particularly in the second half of 2012. The agriculture markets might be the only sector to see negative returns in 2012, they said.

Commodity investment flows should also rebound this year, Barclays said. In 2011, investment flows were the weakest since 2002, with just $15 billion investment, down from $67 billion in 2010. In December alone, there were $7.7 billion in net withdrawals from commodity funds. The year ended with $399 billion total assets under management, which was up just $19 billion over the year prior.

“We believe commodity investment flows will rebound in 2012, but will not go back to the very high levels reached in 2009-10. An easing in the unusual factors which capped flows last year, ie, the European debt situation, along with what we expect to be an economic stabilization, should provide upside potential to commodity investments,” they said.

Barclays also expect correlations between commodities and other asset classes to ease this year. “Last year saw a pick-up in the correlations on the back of macro concerns and heightened volatility leading to a number of sell-off episodes across different markets,” they said.

“Negative roll yields” – or the drag on returns when investors have to sell a less-expensive nearby commodity contract and buy a more expensive deferred commodity contract to retain a position – should ease, they said.

This happens when commodity markets are in contango, or carry, meaning prices for the commodity rise as time goes on to reflect costs for insurance and storage. Backwardation happens when the nearby prices are more expensive than longer-dated priced. When that happens it signals strong immediate demand and usually tight current supplies.

“Negative roll yields are likely to become less of a drag on overall returns this year as tightness returns to several commodity markets, as supply struggles to keep up with demand. As a result, this should make commodities more attractive for first-time investors. The easing in negative roll yields is in line with a trend already observed through 2011. For instance, the negative roll yield on the S&PGSCI shrank from -11.8% in 2010, to -3.3% in 2011 and -0.2% YTD in 2012,” they said.

Peter Schiff’s Latest Gold Price Prediction

2012-01-27T00:05:00.000-05:00

Speaking with GoldSeek Radio host Chris Waltzek this week, Euro Pacific Capital CEO Peter Schiff expects the re-inflation trade to dominate in an unprecedented way in 2012, as money mangers send oil, gold and other dollar-sensitive assets much higher in price, or at record prices, in their effort to flee the dollar.

In particular, the former U.S. senatorial candidate from Connecticut expects gold to reach its inflation-adjusted high of approximately $2,300 this year, citing the Fed’s reaffirmation on Wednesday that it intends to further suppress rising interest rates for another three years.

Schiff contends that the dollar will suffer greatly as a result, “fizzling” out of investor portfolios as the market realizes that the alleged dollar strength last year has been nothing but an illusion brought about by the euro’s relative weakness against the Greenback.

“In fact, it [U.S. dollar] is already fizzling,” Schiff told GoldSeek Radio. “In fact, it’s fizzling quite a bit today after Ben Bernanke basically said zero percent interest rates will be here until the end of 2014, so we got an extra year or so of zero percent interest rates. Although I think it [dollar collapse] is going to hit the fan before 2014, but, that’s got gold up $40 today [Wednesday].”

According to Schiff, professional traders will view the Fed’s most recent language as a signal that more debt monetization by the Fed is planned for 2012, with a lower dollar as the price paid for a Fed monetary policy of affecting artificially low interest rates in the U.S. Treasury and corporate debt markets. But Schiff doesn’t see how the Fed getting a free lunch from its actions.

Within 24 hours of the Fed’s statement of Wednesday, the USDX has already broken below its 40-month MA support of 79.72 and has accelerated downward on Thursday to 79.21 in early afternoon trading.

“They [Fed] have to create massive inflation to keep interest rates that low, especially as prices are rising, they will continue to rise,” Schiff added. “I think we could see record high oil prices this year. It’s clearly the consequences of all this money printing the Fed has to do to keep buying up the bonds to keep interest rates low.”

Schiff continued, “It’s reasons to buy more gold, buy more silver,” as a weaker dollar elicits more central bank buying of gold as a hedge against heavily-weighted dollar bank reserves.

While the euro was weak against the dollar throughout the second quarter of 2011, central banks began aggressively accumulating the yellow metal as its price, in dollar terms, dropped.

However, also during the second half of 2011, U.S. money supply has again stalled, according to economist John Williams of Shadowstats.com. That stall remains as the telltale signal to central bankers that the Fed, indeed, needs to step up purchases of future Treasury issuances, on top of maturing U.S. debt and illiquid mortgage-backed securities, if Bernanke has any chance of achieving his objective of negative real interest rates.

On Jan. 23, India-based The Economic Times stated, “The WGC, an industry-backed group, said in November it expected central banks to add some 450 tonnes of gold to their existing reserves in 2011, driven mainly by purchases from emerging economies that are seeking alternative investments to the U.S. dollar.”

Many gold analysts expect central banks to accelerate purchases of gold, led by China’s central bank, whose gold reserves continue to rise along with imports of gold from its principal supplier, Hong Kong.

Though Beijing reports its gold reserves at a considerable lag to its central bank’s activity in the marketplace, gold consultancy firm GoldCore reported earlier this month that China imported a record 102 metric tons of gold in November, as the that latest print shocked the gold community into reassessing their price targets for 2012.

GoldCore continues, “Informed speculation” suggests that some of Hong Kong’s gold exports to China include the People’s Bank of China, with one analyst telling Bloomberg following the news, “there is always the possibility that some purchases were made by the central bank.”

Gold’s $200 move off its bottom in December and breakout above the $1,700 point to a resumption of the gold rally. The gold pundits are wrong, according to Schiff.

Without naming any analyst in particular, Schiff suggested that talk of the end of the gold market bull, as heralded by economist Nouriel Roubini and Kitco’s Jon Nadler during the December plunge, is pure nonsense.

Data show that American investors own so little gold, which indicates to Schiff and gold expert Peter Grandich (in an interview with GoldSeek this week) that the gold price has further room to run much higher before the manic stage ends at a top.

“We’re a long way from a blow-off top that you would get at the end of a bubble,” Schiff said. “We might eventually get there, but we’re years away and thousands of dollars an ounce away.”

Chart of the Day - Regeneron Pharmaceuticals (REGN)

2012-01-27T00:04:00.000-05:00

The "Chart of the Day" is Regeneron Pharmaceuticals (REGN), which showed up on Wednesday's Barchart "All Time High" list. Regeneron on Wednesday posted a new all-time high of $83.14 and closed up 4.39%. TrendSpotter has been Long since Jan 5 at $60.94. In recent news on the stock, Roth Capital downgraded Regeneron to Neutral from Buy with a target of $78 on valuation concerns. Regeneron on Jan 10 rallied 14.9% after Eylea sales beat expectations. RW Baird on Jan 10 upgraded Regeneron to Outperform from Neutral and raised its target to $81 from $56. Regeneron Pharmaceuticals, with a market cap of $7.2 billion, is a biopharmaceutical company that discovers, develops, and commercializes therapeutic drugs for the treatment of serious medical conditions.

The Impact of Low Rates Through 2014

2012-01-27T00:03:00.000-05:00

Bloomberg details the latest from the Fed:

Chairman Ben S. Bernanke said the Federal Reserve is considering additional asset purchases to boost growth after extending its pledge to keep interest rates low through at least late 2014.

Policy makers are “prepared to provide further monetary accommodation if employment is not making sufficient progress towards our assessment of its maximum level, or if inflation shows signs of moving further below its mandate-consistent rate.”

The immediate market reaction was a risk asset rally, a huge rally in gold (per Calculated Risk: Bernanke made it clear that even if inflation moved above the target – and unemployment was still very high – the Fed would only slowly pursue policies to reduce the inflation rate), and a rally at the belly of the yield curve (the yield curve flattened out to five years… shorter rates couldn’t fall as they are already at or near zero). Why? The “late 2014″ date is much later than the June 2013 date previously projected by Bernanke last summer.
The impact of this announcement (and the previous projected rates) can be seen in the chart below that shows the Fed Funds rate curve (implied by EuroDollar futures) for March 2013 through December 2014, as of various dates over the past year.

What do we see? We see an initial drop between March and June of last year as Bernanke indicated low yields for the foreseeable future, then a huge drop (mid-summer) after Bernanke stated rates would remain zero through June 2013. Today’s announcement really did nothing through June 2013 (that was already projected), but was felt further out along the curve.
The key question is what is the Fed trying to accomplish?
In “normal” times, low yields = cheap financing = increased consumption (it creates an incentive for individuals to borrow and banks to lend), but in today’s zero-bound world the impact is minimal. Increased consumption is limited as individuals are trying to rebuild their own balance sheets and those that might benefit most from borrowing, don’t necessarily have the credit to qualify for a loan. In terms of impact on unemployment, GYSC (of Economic Disconnect fame) states:

Unemployment is a structural problem, not a cyclical one, but the FED is still stuck in the past.

In addition, there are some theories that consumption may actually be negatively impacted by zero bound rates. As I outlined over the summer, I think it is possible that negative real interest rates may actually cause individuals to save more, while Kid Dynamite outlined yesterday that low rates forecasted may cause individuals to hold off from making a loan fueled purchase:

Let me explain: right now, one appealing factor of home buying/selling decisions is that interest rates are very low – you can afford to buy more house. If I think that interest rates are going to remain low for a long period of time, I will be in no hurry to lock in this low rate on the debt I’m borrowing – I will be in no hurry to go out and buy a house.

So what is it then? Corporations!
There is one sector that I think will be positively impacted by the latest announcement…. corporations. Don’t let their record profits as a percent of GDP (while personal income is at record lows) fool you into thinking they don’t need help at the populations expense. Seriously though… my initial reaction upon hearing that rates would be held down near zero through 2014… buy credit… WITH duration out to around ten years (the secondary impact is positive for equities, as explained below).
While Treasury yields are at all-time lows, corporate spreads remain at elevated levels (when yields fell during the summer when we had to deal with the US downgrade and Europe, spreads widened significantly).

In “normal” times, when markets calm these spreads would be expected to narrow, which I still believe is the case. One would also “normally” expect Treasury yields to rise as investors shift out of Treasuries, causing the hard interest rate component of corporate yields (rate + spread = yield) to rise, but this risk has been removed for the foreseeable future out to around ten years. The result is that corporate bonds seem like a very safe investment. This decreased risk should mean even cheaper financing for longer dated maturity corporate bond issuance.
So will this finally set off a round of corporate fueled expansion? If they don’t see aggregate demand improving, then I don’t see how this will impact the underlying economy. But, with the cost of equity high (i.e. what I perceive as fair to cheap equity valuations) and cost of debt low (i.e. these lower yielding corporate bonds), we may see significant change in capital structures (perhaps via private equity).
Source: Barclays Capital

When to Start Buying Stocks Again

2012-01-26T00:07:00.000-05:00

Political, economic and foreign crosscurrents resulted in a lower opening yesterday. But much like Monday, buyers arrived in enough strength to take back a significant portion of the early losses. Greece’s debt-reduction talks with its creditors were the main reason for the early weakness, but buyers snapped up some bargains in the technology sector.

At the close, the Dow Jones Industrial Average was off 33 points to 12,675, the S&P 500 fell just over 1 point to 1,315, and the Nasdaq rose 2 points to 2,787. The NYSE traded 741 million shares and the Nasdaq crossed 443 million. Breadth was slightly positive on both exchanges with advancers ahead of decliners by 1.2-to-1 on the Big Board and 1.5-to-1 on the Nasdaq.

After the closing bell, Apple (NASDAQ:AAPL) blew the cover off the ball by announcing that they had sold 37 million iPhones in the December quarter while analysts had predicted that 30 million would be sold. The enormous sales gains resulted in their “best quarter ever,” according to Apple’s CEO.

Click to Enlarge

Rumors of a big quarter for Apple have been circulating for weeks, and with the announcement, the Nasdaq could open higher and then retreat since the good news is now public, or the index could fade on the opening. Either way the Nasdaq has had a spectacular 11% run from its December low, and like the broad market, is due for a rest at the bearish resistance line at about 2,800.

Monday’s high touched the line and then quickly reversed, which created a sell signal on the stochastic. The first support on a pullback would be at the October high of 2,753, shown in green on the chart.

Click to Enlarge

Even the small-cap Russell 2000 index is showing exhaustion. Following the breakout above its 200-day moving average most small caps would make a run to new highs. Instead the index has paused and yesterday traded in a broad range but failed to break Monday’s high as sellers arrived just before the close. Its stochastic is very overbought and close to a sell signal. However, the index could punch into the heart of the broad resistance zone between 760 and 845 before reversing.

Conclusion: The broad market has reached significant resistance, and every internal measure encourages us to expect a pullback. Nevertheless, the longer-term momentum has shifted to the bulls, and so the chances of a broad breakout following a period of consolidation have improved. Thus pullbacks should be used as buying opportunities. The first area of support for the S&P 500 is 1,285 to 1,292, for the Nasdaq, it is 2,753, and for the Dow, the support is at 12,300.

Jim Sinclair: Mainstream Entities Will Now Enter Gold Market

2012-01-26T00:06:00.001-05:00

from King World News:

With gold and silver exploding to the upside on the Fed announcement, today King World News interviewed legendary Jim Sinclair, to get his take on where things are headed. Sinclair told KWN he now expects mainstream entities to enter the gold market. Here is what Sinclair had to say: “Today is an important day. There are many days we talk but this is a mile-marker. What the Fed did today is they turned on the light of what will be QE to infinity. Today the light went on with regards to the intentions of the Fed. They did that for very specific reasons, we have troubles people can’t see and this is one of the ways out.”

Jim Sinclair continues: Read More @ KingWorldNews.com

The Demise of the Petrodollar

2012-01-26T00:06:00.000-05:00

The official line from the United States and the European Union is that Tehran must be punished for continuing its efforts to develop a nuclear weapon. The punishment: sanctions on Iran's oil exports, which are meant to isolate Iran and depress the value of its currency to such a point that the country crumbles.

But that line doesn't make sense, and the sanctions will not achieve their goals. Iran is far from isolated and its friends – like India – will stand by the oil-producing nation until the US either backs down or acknowledges the real matter at hand. That matter is the American dollar and its role as the global reserve currency.

The short version of the story is that a 1970s deal cemented the US dollar as the only currency to buy and sell crude oil, and from that monopoly on the all-important oil trade the US dollar slowly but surely became the reserve currency for global trades in most commodities and goods. Massive demand for US dollars ensued, pushing the dollar's value up, up, and away. In addition, countries stored their excess US dollars savings in US Treasuries, giving the US government a vast pool of credit from which to draw.

We know where that situation led – to a US government suffocating in debt while its citizens face stubbornly high unemployment (due in part to the high value of the dollar); a failed real estate market; record personal-debt burdens; a bloated banking system; and a teetering economy. That is not the picture of a world superpower worthy of the privileges gained from having its currency back global trade. Other countries are starting to see that and are slowly but surely moving away from US dollars in their transactions, starting with oil.

If the US dollar loses its position as the global reserve currency, the consequences for America are dire. A major portion of the dollar's valuation stems from its lock on the oil industry – if that monopoly fades, so too will the value of the dollar. Such a major transition in global fiat currency relationships will bode well for some currencies and not so well for others, and the outcomes will be challenging to predict. But there is one outcome that we foresee with certainty: Gold will rise. Uncertainty around paper money always bodes well for gold, and these are uncertain days indeed. (more)

Oil Service Stocks Perking Up: APC, NOV, XLE, XTEX

2012-01-26T00:05:00.001-05:00

Many oil service stocks have been appearing on my stock screens the past few nights and it comes as no surprise with the U.S. dollar showing weakness over the past two weeks. Oil is typically inversely correlated to the “greenback” and if oil is seen as strengthening, then its service stocks usually aren't too far behind.

The group, as represented by the SPDR Select Sector Fund - Energy (NYSE:XLE) ETF, has been consolidating near its 200-day moving average for several months following a similar pattern to crude oil. What is interesting is that XLE didn't weaken much despite the U.S. dollar trading strongly towards the end of 2011. XLE has been setting progressively higher lows since last October and recently cleared its 200-day moving average. It has since been trading in a tight range near the $72.50 level which has been acting as resistance for several months. If it can successfully clear this area, it could set the stage for a test of last year's highs near $81. (For related reading, see The 7 Pitfalls Of Moving Averages.)

National Oilwell Varco, Inc. (NYSE:NOV) is an individual stock in this sector following a similar pattern. NOV has been consolidating since a false breakdown in October, as it trades between the mid $60s and $75. It was struggling with its 200-day moving average as well, until clearing the average in late December. It has started to trade in a very tight range near $75 has just started to clear this level. If it can sustain above this area, it could set the stage for a test of the mid $80s. (For related reading, see Simple Moving Averages Make Trends Stand Out.)

Crosstex Energy, L.P. (Nasdaq:XTEX) is another oil stock testing a key resistance level. XTEX has been struggling with $17.50 since August 2011. The stock has been finding strong support near $14.50 as it builds a wide base. Recently, XTEX has been experiencing a decline in volatility as the base matures. XTEX is trading in a very tight range over the past month, and any strength that carries it above $17.50 may lead to a breakout. (For related reading, see 3 Reasons Not To Trade Range Breakouts.)

Anadarko Petroleum Corporation (NYSE:APC) is an oil stock that is not quite as close to a breakout, but still revealing a healthy consolidation. APC has been consolidating between $72.50 and $85 after a violent shakeout in October. It has found strong support near $72.50 and is starting to form a well developed trading range. It is resting above its 50-day moving average and could be close to testing a trendline marking recent highs. If it can clear this trendline and the $82.50 level, it could lead to new highs. (For related reading, see The Utility Of Trendlines.)

The Bottom Line
It is always worth investigating when an entire group moves in unison. The oil service stocks have been consolidating now for several months and many are starting to press up against resistance. While it is possible that they fail to emerge from their consolidation patterns, there are enough clues suggesting a possible breakout. Traders should keep an eye on the index ETFs for the group such as XLE to see if the strength is confirmed. If so, it could lead to several individual names breaking out.

Chart of the Day - Simon Property Group (SPG)

2012-01-26T00:05:00.000-05:00

The "Chart of the Day" is Simon Property Group (SPG), which showed up on Tuesday's Barchart "All Time High" list. SPG on Tuesday posted a new all-time high of $133.64 and closed up 1.60%. TrendSpotter has been Long since Dec 22 at $129.06. In recent news on the stock, Simon Property Group on Jan 17 was downgraded to Hold from Buy by Sifel Nicolaus due to valuation concerns. WSJ on Jan 9 reported that malls and shopping centers in Q4 showed a slight improvement in occupancy rates but that the outlook for 2012 is mixed. Simon Property Group, with a market cap of $38 billion, is a real estate investment trust that is engaged in the ownership, development, management, leasing, acquisition and expansion of income-producing properties, primarily regional malls and community shopping centers.

Complacency Risk Is High

2012-01-26T00:04:00.001-05:00

By Lance Roberts of Streettalk Live

As I was writing this past weekend's newsletter "A Technical Review Of The Markets", it really dawned on me just how complacent investors have become on the economy, the markets, and risk in general. The mainstream media, and most analysts, are looking at recent improvements in the economic data as a sign that the economy has begun to make a turn for the better. This view is further supported by the rise of the stock market.

With a couple of breadcrumbs, a sprinkle of "hope" and a cup of optimism, analysts, economists and investors have whipped up the perfect concoction by extrapolating recent upticks into long-term future advances. However, this is a game that we have seen play out repeatedly before.

Take a look at the chart of the volatility index versus the S&P 500. The media and analyst community were convinced early on in 2007, even though we did protest heavily, that the economy would experience a "Goldilocks scenario" and the economy would "muddle through." As the market declined, and one indication after another showed that the coming crisis would be far worse than people imagined, investors remained complacent until the "Oh $#@!" moment occurred. Unfortunately, by that time it was far too late. The same thing occurred in 2009 as the Fed intervened with quantitative easing and then again in 2010 with QE2. Each time, as the volatility index retraced back to levels of complacency, the seeds were sown for the next "Oh $#@!" moment.

Reminiscent of the "Perfect Storm", when the Captain of the Andrea Gail gets a brief reprieve from danger as the eye of the storm passed by, investors today are currently basking in the warmth of a rally not realizing that much more danger lies ahead. Bullish sentiment, as measured by the composite of AAII and Investors Intelligence indexes, is currently at very high levels. While this does not mean that a market correction of some magnitude is imminent, it does mean that further gains are likely to be small and the next correction is likely not too far away.

David Rosenberg agreed with this veiw point in today's missive:

"Most measures of market sentiment are back to where they were last May just when the S&P 500 was peaking.
Short interest has dried up to three year lows.
The VIX closed the week below 20 for the first time since last July.
As Mike Santoli points out in Barron's, volume in leveraged ETF's versus bearish ones has risen to levels that in the past touched off interim market pullbacks.
Credit market indicators have lagged well behind the improvement in equity performance.
The S&P 500 is three standard deviation points above its 20-day moving average.
Again, as Barron's points out, the ratio of the 15-day volume puts on the S&P 100 Index to bullish call volume hit 2-to-1 last week - this happened in the February 2007, February 2011 and April 2011."

As I said in this past weekend's newsletter, if you look at the markets, commodities, bonds and the dollar, there is really not much that is screaming "BUY ME" at the current time. The markets are very overbought on a short-term basis, and further gains are likely to be limited.

This is not a prediction of the next bear-market cycle or the next recession. Those are coming, either sooner or later, as they are a function of the economic and business cycle. The current trend of the market is bullish and the majority of our "buy signals" are aligned. However, the level of complacency that has surrounded this recent rally is getting to dangerous levels, and it is only a function of time before the next "Oh $#@!" moment arrives.

SILVER & GOLD CURRENCY AND MINERS David Morgan Interviewed by Cambridge House Live

2012-01-26T00:04:00.000-05:00

Failed treasury auction portends Egyptian disaster

2012-01-26T00:03:00.001-05:00

Investors bought less an a third of the 3.5 billion Egyptian pounds (US$580 million) worth of Treasury bills offered to the market on January 22, a red flag warning that Egypt's foreign exchange position is close to the brink.

Yields on Egyptian government debt maturing in nine months jumped to nearly 16%, but the government could not place its local-currency debt to Egyptian investors, even at that exorbitant rate.

This is a new and ominous decline in the financial position of the most populous Arab country. I have been warning since last May that "Egypt is running out of food, and, more gradually, running

out of the money with which to buy it." How fast this may occur is hard to specify, but the government's inability to borrow on money markets suggests that the crunch is not far off. (See The hunger to come in Egypt Asia Times Online, May 10, 2011.)

Interest rate on Egyptian 9-month treasury bills

Source: Bloomberg

Egypt faces a disaster of biblical proportions, and the world will do nothing about it. Officially, Egypt's foreign exchange reserves fell by half during 2011, including a $2.4 billion decline during December - from $36 billion to $18 billion, or about four months of imports. (more)

Another Chance to Sell Common Stocks and Buy Precious Metals

2012-01-26T00:03:00.000-05:00

Jordan Roy-Byrne, CMT | Jan 24, 2012

It has been a tough last year for precious metals investors but not so much for common stocks. Sure, the Euro crisis benefited Gold initially but as the panic has abated, stocks are rallying back to their highs while Gold has sold off and the gold stocks are trying to hold their lows. What is going on? Are we in the twilight zone?Bull and bear markets are long lasting, providing ample time for trends and counter trends to continually reappear and redevelop. The long-term activity of precious metals and common stocks is not a mystery. Gold has continued to hit all-time highs while the gold stocks eclipsed and maintain 2008 highs as support. Yes, common stocks are rallying but are nowhere close to seriously testing 2008 highs. Recently, we noted a potential major bottom in both the metals and the mining stocks. With common stocks nearing major resistance, it is no surprise that we are nearing a point where the secular bull trend is ripe for reemergence.

The chart below shows Gold against the S&P 500. Note the similarity between 2003-2006 action and 2009-2012 action. After surging higher, the ratio retreats quickly but then forms a bottom and builds a base. The ratio has found strong support and won’t be going lower anytime soon. Stocks have had a nice relief rally against Gold but it looks to be all but over.

Turning to Gold Stocks against Stocks, we find this ratio at a confluence of support. Yes, the mining equities had a difficult 2011 but it was nowhere close to their severe under-performance in 2008. Technically, the ratio looks likely to bottom soon and reverse course.

Moving along, we see the S&P 500 closing in on an area of strong resistance. Common stocks remain in a secular bear market and as a result, the market is nearing another sell signal. Conversely, the gold stocks which are in a secular bull market, are digging out a bottom

Investors and traders have to monitor charts and also sentiment which tells us more about fund flows and risk versus reward. Below is a screenshot of a new indicator developed by sentimentrader.com. They are combining put-call ratios, short interest and analyst ratings to develop another indicator for the various sectors. As you can see, every sector is either at or very close to a sell signal while the gold stocks are the only sector on a buy signal.

It may take a few months but common stocks are nearing an important peak. They won’t crash but they will act typical of what we see in the last third of a secular bear market. Doom and gloomers and extreme deflationists ignore the obvious reasons why stocks will begin a mild cyclical bear market and nothing of the sort of the previous two bear markets. At the same time, the precious metals sector is set to emerge from a major bottom and spend 2012 working its way towards the next major breakout that will serve as a catalyst for the beginnings of a bubble.

Good Luck!

Jordan Roy-Byrne, CMT
Jordan@TheDailyGold.com

You won't believe who owes U.S. billions

2012-01-25T00:07:00.000-05:00

How would it be if the next few hundred billion dollars or so in U.S. bills could be paid off in cash? No borrowing. No additional debt.

Just as Barack Obama is planning to borrow another pile of currency, probably from China, to pay for his programs and promotions, calls are starting to develop for the U.S. to call in the debts that are due – and have been due for roughly two generations.

Those would be the sovereign debt bonds sold by China before the communist revolution – bonds that were issued with the promise by the Chinese that they would be an internationally recognized debt of China and its successor governments until paid.

But so far? Nothing.

The issue got the attention of Peter Huessy, the president of GeoStrategic Analysis, a defense forecasting firm, in a commentary at Fox News not long back.

“Many people assume China has the U.S. over a barrel. The country buys so much of our debt – around $800 billion – that we cannot ‘rock the boat’ when it comes to U.S. and China relations. That has meant not pressing the PRC ‘too hard’ when it comes to North Korea, or Iran,” he wrote. “Just recently, a top Obama administration delegation visited the People’s Republic of China. While there, the Chinese were told not to worry about the U.S. paying its debts to the country – their investments in the U.S. were safe. True enough.”

But he added, “I was struck with the fact that the PRC, however, does not pay its debts to the U.S.”

WND reported when Obama’s first “stimulus” package of some $700 billion-plus was being pushed through Congress that some of the beneficiaries would be Chinese companies – even while the billions of unpaid debt remained outstanding.

At that time, Kevin O”Brien, writing for the Global Association of Risk Professionals, warned that the situation could develop into a significant problem.

“One of the greatest problems facing China is the government’s failure to acknowledge and effectively address the true extent of state institutions’ bad debt,” he wrote.

“The repayment obligation was inherited by the People’s Republic of China, when the communists took control in 1949. The successor government doctrine of settled international law affirms continuity of obligations among international recognized successive governments,” O’Brien wrote.

Huessy explained what happened.

“Many decades ago, China sold sovereign bonds worldwide to investors in many nations. They sold tens of thousands of these bonds on U.S. soil to American citizens on the recommendation of our government, indicating it was a solid investment,” he said. “Over the last sixty years, China has refused to pay to these bondholders either the principal or interest on these full faith and credit sovereign bonds.”

He noted that in 1987 the British financial markets threatened to keep China out because of the unpaid bonds due to owners in that nation, so the Chinese reached agreement to pay up. But only to those bondholders.

That’s what is know as a “selective default,” meaning some debts were paid but others were not, Huessy said.

He noted that U.S. credit rating agencies such as Standard and Poor’s claim they simply can overlook that.

“Under the rules, they are granted a license by the Security and Exchange Commission (SEC) of the United States to be a nationally recognized statistical rating organization (NRSRO), a charter to assess the risk of investing in sovereign and corporate debt, stocks, or bonds. The ‘selective default’ of the PRC must be acknowledged, in that the metrics used by the NRSRO organizations that they themselves have promised to follow as part of their license agreement includes just such a requirement,” he warned.

“Now if China was found in selective default, this would cause the PRC to have to pay considerably more to finance its debt than it does now. Billions more,” he said.

He noted that China insisted, when Saddam Hussein’s government in Iraq collapsed several years ago, that any successor government in Iraq must be held to the existing debts, and the U.N. agreed to its demands.

“Currently, the People’s Republic of China owes a debt of over $750 billion to American citizens who are holding these full faith and credit sovereign bonds (many of them denominated in gold) sold to them by the Republic of China. Worldwide, the debt China owes to all bondholders is estimated to be several trillion dollars. The debt owed to the American people should be paid. The U.S. government could dollar for dollar offset bond interest we owe China with interest, principal and penalties China owes us,” Huessy said.

It wasn’t too far off the date when China demanded Iraq be held to account that the Chinese Ministry of Finance in 2006 issued an official communiqué addressed to “the Embassy of the United States of America in China,” in which the Chinese government formally repudiated China’s defaulted full faith and credit sovereign debt and announced that it would not repay any debt held by America, O’Brien explained.

China, meanwhile, continues to boast of its economic growth and influence, moves that periodically prompt outraged members of Congress to try to bring the issue to a head. A few years back it was Sen. James Inhofe, R-Okla., tried to advance a resolution noting China’s attempt “to conceal its defaulted government debt from investors.”

Huessy indicated that the White House should be jumping on the issue.

“That could even be part of the upcoming budget and debt agreement, paid down over a period of years,” he noted.

Meanwhile, under last year’s debt increase law, Obama can raise the nation’s debt cap, now $15.2 trillion, after he notifies Congress of the need unless his plan is opposed by a two-third supermajority, an unlikely event.

Fox News reports that almost $1 trillion of the new debt for the U.S. “can be attributed to Obama’s 2009 deficit-financed economic stimulus package,” of which some of the benefits went to Chinese-owned companies.

http://www.wnd.com/2012/01/find-out-who-owes-u-s-billions/

Jay Taylor: Turning Hard Times Into Good Times

2012-01-25T00:06:00.002-05:00

1/24/2012: Gold & Country Confiscation. What Can You Do About It?

James Paulsen: Investment Outlook (January 23, 2012)

2012-01-25T00:06:00.001-05:00

Main Street Misery Sets Wall Street’s Valuation

Investment and Economic Outlook, January 23, 2012

by James Paulsen, Chief Investment Strategist, Wells Capital Management (Wells Fargo)
During 2011, the stock market suffered a significant erosion in its price-earnings (PE) multiple. On a trailing four-quarter basis, the PE multiple on the S&P 500 finished 2011 at about 13 times compared to about 15 times at the end of 2010. Rising earnings were offset by a declining valuation resulting in a flat stock market last year. Will the stock market’s valuation revive in 2012? And, what is the outlook for PE multiples during the next several years?

The valuation of Wall Street often reflects the character of Main Street. Indeed, for the last several decades the PE multiple of the stock market has been closely related to the Misery Index (sum of the U.S. unemployment rate and the core consumer price inflation rate) on Main Street. A higher (declining) unemployment rate and/or inflation rate tends to lower (raise) the valuation investors are willing to pay for stocks. In the aftermath of the 2008 crisis, “Main Street Misery” remains high suggesting that Wall Street valuations could rise substantially in future years should Main Street fortunes slowly improve.

PEs and MISERY

The accompanying chart overlays the S&P 500 PE multiple with the Misery Index. The PE multiple is based on the trailing five-year moving average of reported earnings and the Misery Index is shown on an inverted scale (misery rises when the dotted line declines). Since 1970, the sum of the unemployment rate and the core consumer inflation rate has done a good job duplicating the movements of the stock market PE multiple. That is, the valuation of the stock market is consistently impacted by the rate of inflation and labor unemployment on Main Street.

The collapse of the PE multiple in the 1970s resulted from both runaway inflation and stubbornly high rates of labor unemployment. Conversely, the Great Bull Run of the 1980s and 1990s occurred against the backdrop of a steady decline in both the inflation rate and unemployment rate. From 1980 until 2000, the core consumer price inflation rate declined from about 13 percent to 2 percent. The unemployment rate fell from a post-war high of 10.8 percent in 1982 to a low near 4 percent in the 1990s. Lower inflation and declining unemployment combined to improve the Misery Index from about 20 percent to only about 5.5 percent which produced about a four-fold increase in the S&P 500 PE multiple! Since 2000, however, although the core inflation rate has trended sideways, the unemployment rate has surged causing a near doubling in the Misery Index, and a halving in the S&P 500 PE multiple. It appears “Misery on Main Street” establishes “Valuation on Wall Street.” Therefore, what is the outlook for “Main Street Misery” and what does it imply about future stock market PE multiples?

A Little “Misery Math” for Stock Investors?

Currently, the Misery Index is 10.7 comprised by an 8.5 percent unemployment rate and a 2.2 percent core inflation rate. The stock market’s trailing 5-year PE multiple is about 16.5 times. What does a little “Misery Math” imply for the stock market in 2012?

The pace of job creation finally appears to be strong enough to produce a slow but steady decline in the unemployment rate. A modest assumption for 2012 would be the unemployment rate declines to between 7.5 percent and 8 percent. The core consumer price inflation rate is also likely to moderate this year. A significant decline in commodity prices last year, a recent moderation in core producer price trends (sixmonth annualized core PPI inflation slowed to 2.3 percent in the second half of 2011 versus a 3.7 rise in last year’s first half) and a continued deceleration in wage inflation suggest a mild decline this year (perhaps to between 1.5 and 2 percent?) in core consumer price inflation. Assuming the unemployment rate declines to 7.7 percent and the core consumer price inflation rate drops to 1.8 percent, the Misery Index would fall to 9.5 percent in 2012. The accompanying chart implies about a 19 to 20 PE multiple with a 9.5 percent Misery Index. Finally, assuming 2012 S&P 500 earnings per share reach current consensus expectations of $105, the trailing five-year average earnings would be about $80. A 19 PE multiple applied to $80 yields a S&P 500 target price for 2012 of 1520.

What does the Misery Index suggest for the stock market longer term? Looking out a few years is, of course, much more uncertain. However, if the recovery continues for the next four years, the unemployment rate would likely slowly decline to between 4 and 6 percent. The real wild card for the Misery Index and therefore the stock market longer term is what happens to core consumer price inflation. Assume the unemployment rate declines to 5 percent, but consider three different inflation scenarios—a high inflation outcome of 10 percent core inflation, a medium inflation outcome of 5 percent, and a low inflation outcome of 2 percent. It seems reasonable that as the recovery matures, core consumer inflation will not likely be much lower than it is today and could be substantially higher.

Finally, we conservatively estimate that four years from now, five-year trailing S&P 500 share earnings would reach $120, $115, and $110 respectively in the high, medium, and low inflation scenarios. What are the implied four-year forward S&P 500 price targets for each of these scenarios? The high inflation scenario implies a 15 percent Misery Index and from the accompanying chart this yields a PE multiple of about 11.5 and a future price target of 1380. The medium inflation scenario yields a PE multiple of 18.2 and a price target of 2093. Finally, the low inflation scenario implies a 27 PE and a price target of almost 3000!

Summary

As the accompanying chart illustrates, Main Street and Wall Street are closely connected. Misery on Main destroys the Valuation on Wall!

For 2012, the stock market could be driven higher by improved optimism and renewed confidence resulting from a slow but steady decline in the unemployment rate. Indeed, the relationship between the Misery Index and the PE multiple suggests a 1500 price target for the S&P 500 is reasonable assuming only modest declines this year in the unemployment rate and core inflation.

Long term, however, what will prove most important for Wall Street is the inflation outcome. If the character of the contemporary recovery is ravished by surging inflation, the stock market may reflect ongoing Main Street Misery by extending its decade long sideways trading channel. Alternatively, should inflation remain reasonably contained during the next few years of this recovery, stock market valuations may surge higher as the Misery Index on Main Street steadily improves.

BP Energy Outlook To 2030: BP, DVN, PBR, XOM

2012-01-25T00:06:00.000-05:00

BP (NYSE:BP) expects global demand for energy to continue to grow over the next two decades, driven by population and income growth from the emerging economies. These forecasts and others related to supply and demand for energy are contained in Energy Outlook 2030, a long-term macro outlook on energy trends recently published by BP.

Global Energy Growth
BP estimates that demand for all forms of energy will increase by 39% through 2030, equal to a 1.6% annual rate. The company expects virtually all of this growth to come from non-OECD countries.

This rate of growth is slightly less than growth forecast by Exxon Mobil (NYSE:XOM) in The Outlook for Energy, a similar publication released by that company in December 2011. The company is looking for annual growth in energy demand to average 0.9% from 2010 to 2040.

Assumptions Used
BP's energy demand growth estimates are based on population growth of 0.9% per year through 2030, implying an additional 1.4 billion people. The company also assumes growth in GDP of 3.7% per year over the next two decades, an increase over the actual growth of 3.2% from 1990 to 2010.

Sources of Growth
As one might expect, BP is looking for almost all demand growth for energy to come from non-OECD countries. The company expects energy consumption for these nations to be 69% higher in 2030, with growth averaging 2.7% per year.

Market Share
BP also expects fossil fuels to maintain its status as the chief source of energy through 2030, with 81% of demand comprised of oil, natural gas and coal by the end of the forecast period. In 1990, these three fossil fuels supplied 89% of the world's energy needs.

The relative share of energy demand within the fossil fuel category will also shift markedly, according to BP, with crude oil losing the most market share through 2030. The company expects demand for liquids to grow 18%, and reach 103 million barrels per day by 2030. This growth, while impressive, will reduce its share of energy demand to 27% by 2030, down from 39% in 1990.

Natural gas demand will gain market share through 2030, with this commodity's market share reaching 26% by 2030, up from 22% in 1990.

Energy Independence?
One interesting prediction by BP is that the Western Hemisphere will become almost totally energy self-sufficient by 2030. This independence will be powered by increased production from the oil sands of Canada, deepwater areas offshore Brazil and production from shale oil and natural gas in the onshore United States, coupled with the anticipated overall decline in oil demand.

Devon Energy (NYSE:DVN) has operations in two of these three areas and might benefit if BP's forecast is realized. The company is involved with the Jackfish Project, a multistage oil sands project in Canada, and also has extensive acreage in a number of onshore shale oil and natural gas plays in the United States.

Petroleo Brasileiro (NYSE:PBR) is the state oil company of Brazil, and has an intensive exploration and development program planned over the next five years. The company is expected to spend $224 billion from 2010 to 2014.

The Bottom Line
BP expects brisk growth in demand for energy to continue for the next two decades, with this growth coming from what used to be called the Second and Third World areas. While some investors might find this forecast reassuring, is anyone really surprised that yet another major oil company has provided a macro forecast that supports an investment in the sector.

The American Debt Imperium and the Mother of all Bubbles

2012-01-25T00:05:00.001-05:00

Baltic Dry Index – Sell-Off Overdone?

2012-01-25T00:05:00.000-05:00

The Baltic Dry Index crashed by 50.4% to 893 on Friday from a high of 1,799 in the last week of 2011 and is 58.2% lower than October’s high of 2,136.

Source: StockCharts.com

The Baltic Dry Index is generally viewed as a leading indicator of global economic activity as dry bulk primarily consists of commodities such as building materials, coal, metallic ores and grain. The massive growth in demand for commodities from 2005 to 2008 led to a surge in shipping rates as measured by the Baltic Dry Index. The demand and surging shipping rates subsequently resulted in a significant increase in capacity as the number of ships built increased sharply. Even during the great 2008/2009 crisis capacity continued to be increased as it takes two years to build a ship. Historically the capacity was generally tight and the supply seen as inelastic, resulting in marginal changes in demand causing rapid changes in shipping rates. The current significant surplus capacity in the industry means that supply exceeds potential demand to such an extent that supply elasticity has increased, resulting in rapid changes occurring in what is essentially a downtrend – yes, fundamentally the Baltic Dry Index is in a bear market as shown by the long-term chart below.

Source: StockCharts.com

But what causes the rapid changes in demand and therefore the Baltic Dry Index? My research indicates that global manufacturing demand has very little to do with it. The answer is Chinese manufacturing demand but not the actual level of manufacturing measured by the CFLP Manufacturing PMI. In previous articles I referred to the CFLP Manufacturing PMI that is supposed to be seasonally adjusted. Despite the seasonal adjustment, a seasonal trend is clearly evident and I therefore seasonally adjusted the series further. I was amazed to find that the monthly seasonal factors and the Baltic Dry Index track each other. The reason why is not hard to find, as China is by far the world’s biggest consumer and importer of commodities and therefore the biggest player in dry bulk. Seasonally weak periods in the economy will lead to low physical demand for commodities and therefore low freight demand. On the other hand, strong periods in the economy will lead to high freight demand.

In the graph below I depicted my calculated PMI seasonal factor against the Baltic Dry Index. I have also indicated China’s New Year’s Golden Week holiday on the chart as it coincides with and explains the reasons for the weak seasonal pattern in January/February. The impact on China’s manufacturing sector is massive as the New Year’s Golden Week lasts for 15 days and includes three public holidays, while factory workers are allowed to take Sundays off. This year New Year will be celebrated on January 23, and the festival will last until February 6. The onset of the festive season/weak seasonal patch is therefore the reason behind the tumble in the Baltic Dry Index.

Sources: CFLP; Li & Fung; I-Net Bridge; Plexus Asset Management,

January/February could also mean a seasonal low for the Baltic Dry Index as from a seasonal perspective March and April are the strongest months in China’s manufacturing sector. In March and April last year the Baltic Dry Index failed to rise rapidly due to Japan’s twin disasters in March that severely restricted trade between China and Japan.

Notorious Market Timer Joe Granville Predicts A 50% Plunge

2012-01-25T00:04:00.002-05:00

Notorious market timer Joe Granville predicted a 50% market plunge yesterday on Bloomberg Television:

Joseph Granville, whose “sell everything” call in 1981 sparked a decline in U.S. stocks, said the Dow Jones Industrial Average (INDU) will drop toward 8,000 this year because of waning momentum and volume.

“Volume precedes prices,” Granville, 88, a technical analyst who has been publishing the Granville Market Letter from Kansas City, Missouri for about 50 years, said in an interview on “Street Smart” on Bloomberg Television. “You are seeing much lower volume. That tells you that prices are going to go much lower, much lower than most people think possible and very few people have projected.”

Art Cashin noted the significance of Granville's call (via Zero Hedge):

Calamity Joe Is Back - Last week, we wrote that various cycles and technicians were pointing to a possible market top, on or about January 23rd. The “causes” ranged from sophisticated oscillators to the new moon to astrological confluences. Yesterday, one more “cause” was added and it came from a somewhat controversial Wall Street legend - Joe Granville.

Here's the video:

Production Cut Spells Profits for Apache : APA

2012-01-25T00:04:00.000-05:00

Apache Corp. (NYSE:APA) — This independent energy company, which explores for, develops and produces natural gas, crude oil and natural gas liquids, has been in a bear market since August, when it broke down from its 200-day moving average at $120.

On Oct. 5, with the stock at $79, the Trade of the Day recommended buying APA following a positive signal from our proprietary indicator, the Collins-Bollinger Reversal (CBR), for a trade to $90.

The trade was successful and the stock is now recommended for a longer-term move higher following the break from a base at its 50-day moving average (blue line).

Chesapeake Energy (NYSE:CHK) announced yesterday that it will cut natural gas production by 8%, which should result in higher gas prices that would benefit APA.

Initially the stock should trade up to its 200-day moving average at over $105, but S&P has a “five-star strong buy” on APA with a 12-month target of $145.

Where to Find Good Value in Europe (Koesterich)

2012-01-25T00:03:00.001-05:00

by Russ Koesterich, Chief Investment Strategist, iShares

Call #1: An Update on Europe & Overweight Norway

While there have been developments toward solving the European debt crisis in recent months, more needs to be done.

Funding costs for Italy and Spain remain high, particularly for Italy. It also looks more likely that at some point in the next year or two Greece will need to default and potentially leave the euro zone. Europe also has yet to definitively address the fiscal and growth problems in the peripheral countries.

With the European crisis dragging on and Europe likely to experience at least a mild recession this year, stocks in the region have become very cheap — the Euro Stoxx Index is trading at 8.3 next year’s earnings. I still, however, continue to be cautious on the region overall and advocate avoiding large parts of Europe – particularly Spain and Italy. These markets are cheap for a reason.

Still, I do like some countries in the economically stable northern region of the continent. Much of Northern Europe arguably represents a good value for long-term investors when you consider these countries’ current valuations, growth prospects and perceived risk. I’m reiterating my overweight views of Germany and the Netherlands, and I’m also now advocating an overweight position in Norwegian equities.

From a valuation perspective, you can buy global large caps in Northern Europe for virtually the same price as the more fundamentally challenged companies in southern Europe. Stocks in Germany’s DAX index, for instance, currently trade at less than 9x next year’s earnings, while equities in Norway and in the Netherlands are trading at just 8.5x next year’s earnings.

Meanwhile, countries in Northern Europe, particularly the Nordic countries, are generally expected to grow faster than other developed markets. Based on International Monetary Fund forecasts, Sweden, Finland and Norway should post economic growth this year well above the developed market average.

Finally, based on current credit default swap spreads, these countries are perceived as less risky than the problem children further to the south. This is largely due to Northern Europe’s very modest debt burdens (potential iShares solutions: EWG, EWN).

Source: Bloomberg

Chart of the Day - J.M. Smucker Company (SJM)

2012-01-25T00:03:00.000-05:00

The "Chart of the Day" is J.M. Smucker Company (SJM), which showed up on Monday's Barchart "All Time High" list. Smucker on Monday posted a new all-time high of $81.25 and closed up 0.85%. TrendSpotter has been Long since Dec 20 at $78.39. In recent news on the stock, JP Morgan on Nov 18 added Smucker to its Focus List and reiterated its Overweight rating. Barron's on Nov 18 ran a favorable article on Smucker, saying the company should benefit from recent price increases and that its brands should give it leverage with retailers and resonate with consumers as the economy improves. J.M. Smucker Company, with a market cap of $9 billion, is the leading marketer of jams, jellies, preserves, and other fruit spreads in the U.S.

Is This the End of the Road for the Rally?

2012-01-24T00:07:00.001-05:00

The “dumb money” indicator has become extremely bullish (bear signal), and this is what one would expect with rising prices. The higher prices go the more bulls that are recruited. But is it the end of the road for the rally? Not necessarily so. In 1995, 2003, 2009, and Q4 2010/Q1 2011 we saw the phenomenon that I have dubbed “it takes bulls to make a bull market”. It is a market characterized by rising prices and excessive bullishness. In the case of 1995, 2003, 2009, the excessive bullishness and multi-month rally seem to be warranted as the markets were bouncing back from steep losses or a prolong period of consolidation (1995). The Q4 2010/ Q1 2011 version of this phenomenon was a QE2 induced feeding frenzy. With investors taking their cues from the Federal Reserve and European Central Bank, the current market environment resembles Q4 2010/ Q1 2011. For now, we need to respect this dynamic as we could be witnessing another melt up. The bulls have the ball in their court and are on the cusp of turning this recent price move into a multi-month barn burner.

The “Dumb Money” indicator (see figure 1) looks for extremes in the data from 4 different groups of investors who historically have been wrong on the market: 1) Investors Intelligence; 2) MarketVane; 3) American Association of Individual Investors; and 4) the put call ratio. This indicator shows extreme bullishness.

Figure 1. “Dumb Money”/ weekly

Figure 2 is a weekly chart of the SP500 with the InsiderScore “entire market” value in the lower panel. From the InsiderScore weekly report: “Insider trading volume was seasonally thin last week, the result of most insiders being locked-up and prohibited from trading until after their companies’ Q4’11 earnings announcements, as well as the market holiday.”

Figure 2. InsiderScore “Entire Market” value/ weekly

Figure 3 is a weekly chart of the SP500. The indicator in the lower panel measures all the assets in the Rydex bullish oriented equity funds divided by the sum of assets in the bullish oriented equity funds plus the assets in the bearish oriented equity funds. When the indicator is green, the value is low and there is fear in the market; this is where market bottoms are forged. When the indicator is red, there is complacency in the market. There are too many bulls and this is when market advances stall. Currently, the value of the indicator is 65.09%. Values less than 50% are associated with market bottoms. Values greater than 58% are associated with market tops.

Figure 3. Rydex Total Bull v. Total Bear/ weekly

Let me also remind readers that we are offering a one-month free trial to our Daily Sentiment Report, which focuses on daily market sentiment and the Rydex asset data. This is excellent data based upon real assets and not opinions.

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Dow Dogs Starting Strong In 2012 : AA, BAC, HPQ, JPM

2012-01-24T00:06:00.002-05:00

Every year, the worst performing stocks in the Dow Jones Industrial Average (DJIA) are bestowed the moniker Dogs of the Dow. And to some market observers a decent investment strategy is to pick stocks from the Dogs of the Dow list for the following year with the hope being last year's worst performers will outshine the following year.

Checking in
Back in December of 2011, I identified the worst performing DJIA stocks as a fun way to follow the Dogs of the Dow Theory in 2012. While the DJIA was up about 4.7% in 2011, that performance was hardly an indication of the representative performance of the constituents within the index. The worst Dow performer in 2011, Bank of America (NYSE:BAC) dropped over 50%, vastly underperforming the overall DJIA. JP Morgan (NYSE:JPM) was another victim of the financial sell-off in 2011 and declined over 20% in 2011. (For related reading, see An Introduction To Stock Market Indexes.)

Thanks to some corporate mishaps, tech bellweather Hewlett Packard (NYSE:HPQ) was the second worst performing DJIA stock dropping some 40% in 2011. After the plunge in shares, many notable investors including value investor Seth Klarman took the opportunity to load up on shares. Industrial aluminum giant Alcoa (NYSE:AA) rounded out the top four list as one of the worst performing Dow stocks in 2011, falling over 40%.

A Strong Start for the Dogs
While it's far too early in 2012 to make any calls, the Dow Dogs are having their day so far. Bank of America is up 20% so far in 2012, as investors seem to think this year may the beginning of the end of a terrible cycle for financials. Last week's earning report confirmed that Bank of America continues to wind down risky assets and improve its capital ratios. Following along the rally in financials, and JP Morgan shares are up over 10% so far. Both names are vastly outperforming the S&P 500 which is up around 3% so far. Even Alcoa is up nearly 10% so far despite an earnings report that was neither encouraging nor discouraging. And with a 2% year-to-date gain, Hewlett Packard gives the Dogs of the Dow Theory a perfect record for these top four underperformers in 2011.

The Bottom Line
It is far too early to claim victory for investing in the Dogs of Dow. At the same time, stocks like Bank of America and Hewlett Packard have been viewed as deep value plays by many investors throughout 2011. While 2012 still has a lot of time left, 2011's Dow Dogs could be 2012's gems.

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Is Silver the Great Trading Opportunity of 2012-2013?

2012-01-24T00:06:00.001-05:00

By John F. Carlucci

Silver tends to form a very periodic, predictably shaped asset bubble. Silver is also relatively volatile compared to most assets like large cap stocks and gold. These two factors – predictability and volatility – offer a potentially very lucrative trading opportunity for silver. I believe that window is opening right now. In this article, we will examine silver's predictability and volatility in great detail so as to prepare for this trade. Figures 1 and 2 are a side-by-side comparison of the two most recent silver asset bubbles in 2007-2009 and the current unfinished cycle that began in August 2010.

Figure 1: Silver - January 2007 through December 2009

Figure 2: Silver - June 2010 to January 2012

You'll notice corresponding points on both charts numbered 1 to 13. These tie in with the date and price tables below. In Figure 1 above (Silver, January 2007 through December 2009), there was a sloping increase from points 1 to 5 after the bubble first started to form. At point 5 the asset bubble burst, dropping sharply down to point 6. The price fluctuated somewhat up to point 11. From there it dropped sharply again to point 12, recovered to 13, then on down to the bottom during late 2008.

In Figure 2 (Silver from June 2010 to January 2012), notice how closely the points match those of Figure 1. The similarity is striking, and while they are not identical twins, you can see that they belong to the same "family". The odds of this particular pattern repeating itself by random chance must be virtually nil. For our purposes, that pattern suggests predictability, which equals great profit potential for traders.

To get an appreciation of that profit potential refer to the data tables in the appendix below. The left side of the tables is labeled SLV Silver 2007 – 2009, "SLV" being the symbol for the popular silver ETF. Referring to the table under SLV Silver 2007 – 2009 you see the words Date, Point, Price, Long, Short. "Date" is self-explanatory. "Point" refers back to the 1 – 13 points shown in Figures 1 and 2. "Price" is for one share of SLV corresponding to the date. "Long" and "short" trades are self-explanatory. Under the Long column is the percentage profit for various trades. The same percentage profit figures are listed in the Short column. Green indicates long trades, red indicates short trades.

Let's look at a specific example. You can see that on 17-Aug-07, the price of SLV was $11.66. That date was also point 1 on the Figure 1 chart. Assuming you bought SLV on that date for $11.66 and sold at point 2 on 9-Nov-07 for $15.29, you had a 31.11% profit. The entire trade from start to finish is highlighted in green since it was long.

Following down the table you see that the long trade from 14-Dec-07, point 3 to 14-Mar-08, point 5 had a 48.62% gain. Directly to the right of that you see the first short trade. It began 14-Mar-08, point 5, $20.42 and ended 21-Mar-08, point 6, $16.70. In this case, the profit was 22.28%.

This will give you an idea of how profitable an asset bubble can be and especially how lucrative trading silver has been recently. To save you the math of calculating compounding profits, if you had just traded long, bought $1000 of SLV at point 1 and sold at point 2 for a 31.11% profit, bought $1311 worth of SLV at point 3 and repeated the entire process to 20-Nov-09, your total compounded gain would be 548% over 2 ¼ years. If you include short trades the gain would have been 1,440%.

These are maximum potential gains, of course, under ideal circumstances with perfect trade timing. No investor will execute every trade perfectly for maximum gain. However, it does illustrate how much potential there is trading the silver asset bubble. You could have a very substantial profit by taking advantage of just half or one third of the potential.

Now consider SLV versus AGQ, the leveraged silver ETF. While SLV had a 71.57% gain from 20-Aug-10 to 31-Dec-10 (right side of first table), AGQ had a gain of 258%.

What will the near future likely hold for silver? In my opinion, the conservative signal to begin buying silver is when the MACD crosses (Figure 2), which will happen shortly. The more aggressive or early warning indicator is when Slow STO crosses, which has already happened. I anticipate that silver should rise over the next 12 months to the $40 level before pausing in advance of the next asset bubble in 2013 – 2014, at which point it could top $100 / oz.

There might be a steady rise from today's price up to $40. However, I think there could also be a near term drop to the $20 to $25 level before the rise to $40. It all depends on how the price of silver is influenced by the stock market and economy as a whole. A comparison of the charts for silver and the contemporaneous charts for the SS&Pamp;P do not indicate any type of direct correlation. The only tentative conclusion that might be drawn is that sharp declines in the SS&Pamp;P and silver will generally occur in close proximity. If we experience a sharp near term drop in the SS&Pamp;P expect silver to drop to $20 to $25 as traders liquidate to raise cash.

Keep a close eye on silver. It could provide an incredible trading opportunity over the next couple of years.

Precious Metals Stocks: Diversify, Seriously

2012-01-24T00:05:00.003-05:00

Gold and silver mining stocks will be the dot-coms of the second half of this decade. Yet most of the people who bet on them will lose money because they ignore the first rule of speculative sectors, which is that no matter how well the sector does, most of its constituent companies will fail.

This rule applies wherever hot money is chasing untested concepts, but it’s uniquely valid for mining, where reserves are uncertain until actually dug up, mines can cave in without warning, local laws can change in unfavorable ways, and managements frequently make dumb acquisitions. These risks make even the most attractive mine something of a crapshoot. Two recent examples:

Hecla’s Hangover
January 11, 201. Hecla already had a headache, but now it’s suffering from a full-blown hangover.

The series of unfortunate incidents that plagued Hecla Mining’s (NYSE: HL ) mile-deep Lucky Friday mine during 2011 attracted the scrutiny of the Mine Safety and Health Administration, which has now ordered the mine’s primary shaft closed until it can be cleared of debris that has accumulated over the years. Hecla estimates that the maintenance work will keep the mine shut through early 2013, leaving embattled silver investors to wonder whether someone spiked their holiday eggnog.

Hecla shares plummeted by more than 26% this morning, essentially mirroring a 26% reduction in the miner’s 2012 production outlook from 9.5 million ounces to 7 million ounces. Despite a strong price environment that saw the average price of silver in 2011 surge by 74% over the prior-year average, Hecla’s stock has lost some 54% of its value over the past 12 months. Though shareholders may wish to avert their eyes, the following image captures the devastation:

Kinross in Play After Paying Too Much for African Gold
Jan. 20 (Bloomberg) — By paying too much for acquisitions in western Africa, Kinross Gold Corp. is now turning itself into the cheapest gold-mining target in the world.

Kinross, Canada’s third-largest gold producer, fell the most in almost two decades after saying this week it will write down the value of its Tasiast mine in Mauritania. The company sold for 76 cents per dollar of net assets yesterday, versus the industry median of 2.5 times, according to data compiled by Bloomberg. Writing off the excess $4.6 billion it spent on Tasiast would still leave Kinross at a 50 percent discount to its competitors, the data show.

Hecla and Kinross are big companies which have been around forever, and they still hit common speed bumps. They’ll both survive, though, which is more than can be said for some junior miners with similar problems. Without money in the bank or other projects to share the load, an operating or cash flow problem can be fatal for a junior.

So why bother with mining stocks when you can just buy the metals? Because in the aggregate mining stocks will probably outperform the underlying metals (the fact that they haven’t lately just means they’ll outperform by an even bigger margin in the future), and the best miners will do two or three times as well as the metals.

So consider them, but show them some respect. Don’t buy just one, no matter how much of sure thing your broker or brother-in-law says it is. Instead, buy five or eight or ten, even if it means owning just a few shares of each. Or buy a mutual fund or ETF and let them do the diversifying for you. GDX holds a basket of major gold miners, GDXJ a basket of junior gold miners, and SIL most of the silver miners. One transaction and you own the sector.

The sector, of course, contains winners and losers, so the real prize goes to whoever has more of the former than latter. As mining guru Rick Rule likes to say, most junior miners aren’t viable, so all the gains in that sector come from the remaining 10 or 20 percent. So if you really want to be part of the coming mania you have to be a stock picker.

One low-stress way to do this is to piggy-back on the work of established analysts. They’re not always right but they do spend their days trying to separate solid properties from holes in the ground guarded by liars. Their best ideas go first to subscribers and/or investors, but they can’t keep everything to themselves. In media interviews, mining experts like Sprott’s John Embry frequently name a few of their favorites, and the funds managed by people like Tocqueville’s John Hathaway are required to report what they’re buying and selling. Once that information is public, it’s fair game.

Last but not least, keep some free cash available for opportunities like Kinross and Hecla, which are now takeover candidates.

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Martin Armstrong: Gold & Near Term Outlook for Gold

2012-01-24T00:05:00.002-05:00

Gold & Near Term

Outlook for Gold

* Roman Coins for Purchase

click here to read pdf

Can Technical Resistance and Excessive Bullishness Break Up Side Momentum?

2012-01-24T00:05:00.000-05:00

The S&P is up 4.6% year-to-date. Momentum is clearly positive, but if the S&P kept going at this rate, it would end the year up 80%. Obviously this is impossible and some sort of correction is inevitable.

The question is how long it will take before technical overhead resistance and increasingly troublesome bullish sentiment reel stocks back into reality.

Better than it Looks

As of Friday's close, the S&P has gained 58 points year-to-date. 48 of those points occurred overnight with the gains being reflected in the first hour of trading. There's been no follow through during Wall Street's regular business hours.

Talking the Talk but Not Walking the Walk

Investors are getting excessively bullish (more in a moment) but the conviction behind this rally is non-existent. Average trading volume for the first 12 days in 2012 is less than half of what it was in 2006, 2007 and 2008 and is 42% below the 8-year first 12 days of the year average. The chart below shows just how anemic trading volume is.

Bullish for Better or for Worse

The CBOE Equity Put/Call Ratio dropped to 0.47 last Thursday. This is the lowest reading since February 7, 2011 and means that more than twice as many options traders bet on rising prices than falling prices.

Concerning sentiment, the April 6, 2011 ETF Profit Strategy update warned that: 'The percentage of bearish advisors and newsletter-writing colleagues dropped from 23.1% to 15.7%. Stocks' performance 1 - 2 months following such a spike in bullish sentiment was substantially below normal. This is consistent with our outlook for a late April/May market reversal. According to sentiment, stocks are ripe for a decline.'

Less than a month later, the S&P rolled over into a wicked summer meltdown. About two weeks ago, the percentage of bearish investors dropped to 17.18%.

Of course we can't talk about sentiment without mentioning the VIX (Chicago Options: ^VIX). As the S&P (SNP: ^GSPC - News), Dow (DJI: ^DJI - News) and Nasdaq (Nasdaq: ^IXIC - News) have moved higher, the VIX has dropped to 18.28, the lowest reading since July 22, 2011.

The S&P lost nearly 250 points the 12 trading days following the July 22 VIX low.

Momentum vs. Technical Resistance

The markets relentless rallies of 2010 and 2011 have taught us that it 1) sentiment can always become more stretched and 2) it is dangerous to bet against strong up side momentum.

The 20% meltdowns starting in April 2010 and May 2011 on the other hand, have taught us that it is dangerous and nave to ignore the warning signs of a weakening market.

To profit (or prevent getting burnt) from this tricky situation, investors cannot afford to become complacent and need to be balanced about their decisions. Knowing important support/resistance levels and understanding how we got to where we're at will be a huge asset.

Dead Cat Bounce or New Bull Market

Is the rally from the October 2011 (or from the March 2009) low a dead cat bounce or the beginning of a new bull market?

A few days before the S&P hit its 1,075 low, the October 2, 2011 ETF Profit Strategy update stated that: 'Based on the studies discussed in August 14, I've been expecting new lows followed by a tradable bottom. I define a tradable bottom as a low that lasts for a few months and leads to a bounce that (in this case) should propel the markets around 20%. From a technical point of view, this counter trend rally should end somewhere around 1,275 - 1,300.'

Keep in mind that the prediction of a 20% rally seemed absurd at a time when Wall Street had already proclaimed the next bear market as the headlines below show:

Oct. 4, 2011: 'S&P enters bear market territory' - Reuters

Oct. 4, 2011: 'S&P 500 falls to the bears' - TheStreet

Oct. 3, 2011: 'Think the economy is bad? You haven't seen anything yet' - CNBC

The chart below, published in the October 2 ETF Profit Strategy update, outlined the S&P's journey back to about 1,300. Even though seen as impossible at the time, here we are at S&P 1,310.

Picking a top is always more difficult than picking a bottom, and it takes just as strong of a contrarian stand to sell into a top as it took to buy at the bottom.

Many indicators show that stocks are overbought and ready to roll over. However, relentless momentum and the possibility of QE3 could make it difficult to take a bearish stand and trade accordingly. How can you reduce risk?

Reducing Risk

The S&P responds to support/resistance levels like a car to traffic lights. A traffic light doesn't guarantee the car will stop, but if the car is going to stop, it will usually do so at a light, not in the middle of the road.

Knowing of important support/resistance levels is almost as valuable as exclusive insider information. The S&P's May 2, 2011 top for example occurred within points of the Fibonacci resistance at 1,369 (the April 2 ETF Profit Strategy update stated that: 'The 1,369 - 1,382 range is a strong candidate for a reversal of potentially historic proportions.') and the October 4 bottom was carved out within points of Fibonacci support at 1,088 (the October 2 ETF Profit Strategy update stated that: 'The ideal market bottom would see the S&P dip below 1,088 intraday followed by a strong recovery.')

The S&P is once again getting close to a combination of Fibonacci and trend line resistance. If the S&P is going to turn around, it will probably be there. Alternatively, a break below key support will signal that a turnaround has occurred.

The ETF Profit Strategy Newsletter outlines the target range of this rally and the one support, that once broken, will likely accelerate selling pressure. Updates are provided at least twice a week and include short, mid and long-term forecasts.

Last Time Bullishness Hit These Levels…

2012-01-24T00:04:00.001-05:00

Goldman Tells Clients to Short 10-yr Treasurys

2012-01-24T00:04:00.000-05:00

As of a few hours ago, Goldman’s Francesco Garzarelli has officially told the firm’s clients to go ahead and short 10 Year Treasurys via March 2012 futures, with a 126-00 target. While Garzarelli is hardly Stolper (and we will have more on the latest Stolpering out in a second), the fact that Goldman is now openly buying Treasurys two days ahead of this week’s FOMC statement makes us wonder just how much of a rates positive statement will the Fed make on Wednesday at 2:15 pm. From Goldman: “Since the end of last August, we have argued that 10-yr US Treasury yields would not be able to sustain levels much below 2% in this cycle. Yields have traded in a tight range around an average 2% since September, including so far into 2012. We are now of the view that a break to the upside, to 2.25-2.50%, is likely and recommend going tactically short. Using Mar-12 futures contracts, which closed on Friday at 130-08, we would aim for a target of 126-00 and stops on a close above 132-00.” As a reminder, don’t do what Goldman says, do what it does, especially when one looks the firm’s Top 6 trades for 2012, of which 5 are losing money, and 2 have been stopped out less than a month into the year.

What is Goldman’s rationale for shorting 10 Years?

At this stage of the cycle, growth expectations are in the driver’s seat: The value of intermediate maturity government bonds can be related to expectations of future policy rates, activity growth and inflation, and a ‘risk factor’ highly correlated across the main countries. These simple relationships are captured by our Sudoku econometric framework for 10-yr maturity yields. In coming months, we expect effective overnight rates to remain close to zero in the main currency blocs (US, Japan, Euroland, and UK) and retail price inflation to hover around 1.5-2.0% – consistent with the forwards and central banks’ objectives. With policy rates and inflation ‘dormant’ at this stage of the business cycle, bond yields (and the 2-10-yr slope of the yield curve) will likely react mostly to shifts in growth expectations.

Bond valuations are already stretched relative to consensus growth expectations: Around the turn of the year, the outlook on economic activity was buffeted by cross-currents reflecting the adverse credit conditions in the Euro area on the one hand, and the upward revisions to US GDP growth on the other. Our Sudoku model, which helps us trade-off these shifts, indicates that 10-yr government bond yields are currently trading too low (to the tune of 50-75bp) when mapped against prevailing macro expectations. Taking into account the cumulative impact of the Fed’s security purchases, the degree of mis-valuation of 10-yr bonds is roughly the same across the main regions.

Bond yields are lagging the improvement in industrial activity seen since late 2011: The momentum of our Global Leading Indicator (GLI) for the industrial cycle bottomed out in the fourth quarter of 2011, although the revised series after the latest data show it steadily improving through the second half of last year. The sequential improvement has extended into this year. We observe that, since policy rates have been floored in early 2010, intermediate maturity yields have tended to lag improvements in the GLI by around 2-3 months. With central banks on hold providing ‘carry’, fixed income investors may have been wary to trade on early cyclical signals until these received validation in the early ‘hard’ data.

Real rates (and the 2-10 curve) could play catch-up with cyclical stocks: We have identified a relatively tight positive relationship between the relative performance of US cyclical stocks vs. defensives (as captured, for example, by our US Wavefront Growth equity basket), and the 2-10-yr slope of the Treasury curve. The departure from this relationship since the turn of the year is now eye-catching. Cyclical stocks have strongly outperformed the broader market, a move probably amplified by positioning, while bond yields have barely moved, underpinned by US domestic investors’ continued attraction for ‘carry’ strategies. At a closer inspection, yields out to the 5-yr maturity have continued to decline in real terms, and are now in deeply negative territory (-150bp in 2-yr and -100bp in 5-yr, near the early November lows), while 5-yr 5-yr forward rates are barely above zero. Our estimates suggest that forward rates (5-yr 5-yr forward) are now too low. Incidentally, the fact that a potential rise in yields would come from a depressed base and mostly in response to an improvement in growth prospects (which should also influence earnings growth expectations) means that a fixed income sell-off should not pose a threat to the equity market.

The FOMC statement could provide a near-term catalyst: According to a client survey by our US trading desk, around half of those polled expect the Fed announcement to ease financial conditions further, with only 12% expecting a tightening. Around two-thirds of participants believe the mid-point of the ‘central tendency’ range for the Fed funds rate at the end of 2014 will be 75bp (the forwards) or below. Finally, 72% of respondents expect the FOMC will announce a long-run neutral policy rate of less than 4%. These results are consistent with our impression that Wednesday’s announcement is now largely discounted to represent an ‘easing event’. With the data improving, treasury yields below ‘equilibrium’, current coupon 30-yr mortgage yields at all-time lows, and discussions on policy easing shifting to ways to support the improvement in the housing market more directly, such expectations may be disappointed, in our view.

Got a Strong Gut? We've Got a Trade for You :MT

2012-01-24T00:03:00.000-05:00

Price action in the broad market has been so strong over the past month, even the "down and out" steel sector is making headway...

In late August, we noted how companies that produce steel to build skyscrapers, cars, bridges, and power lines are among the greatest "boom and bust" assets in the world. They soar and crash as the global economy fluctuates. The thin profit margins these companies sport add to their extreme volatility.

Today's chart displays the steel sector's volatility and sensitivity to investor sentiment toward global economic growth. It shows the past two years of trading in the world's largest steel producer, ArcelorMittal (MT).

Like most all assets, MT was hammered in late 2011. Shares fell from their summer level of $35 to $15 (a 57% haircut). But the broad market action has become more bullish... and MT has bounced off its lows. It's now close to staging a multi-month upside breakout.

Should the world simply "not end," volatile ArcelorMittal and the beaten-up steel sector could stage a big "bad to less bad" rally... and gain 50% in the coming months.

Silver Set To Soar Against Everything?

2012-01-23T00:07:00.001-05:00

Morris Hubbartt
Weekly Market Update Excerpt
posted Jan 20, 2012

Analysis

Sentiment analysis is the art of gauging the herd mentality. When an investment becomes overcrowded, it’s an area to avoid.
The dollar continues to be over-bought and over-loved by a herd of investors who seek a safe haven from the financial crisis. From a technical standpoint, the currency itself is due for a major sell-off this year, and that is likely to launch gold and silver dramatically higher.
The numbers from the COT report continue to be astonishing. The smart money commercials are holding fewer dollars than at any time in the last 14 years, while the speculative herd continues to buy it at a near record pace.
Over time the commercials usually win these battles. Keep in mind that just because the commercials are placing large bets against the dollar does not mean the dollar must start falling right away. In currency markets you need to have strong convictions and patience.
There have been three rallies on the dollar and each rally has been accompanied by weaker action in the RSI indicator. In baseball it is “three strikes and you are out”. For the dollar, it is the 3rd time up to the “rally” bat, and the technical indicators suggest that the outcome for the dollar will be similar to baseball.
I am projecting that the deteriorating technical condition of the dollar will cause a steadily rising gold price into the third quarter of this year, and that will be followed by an even stronger fourth quarter, but a lot depends on how strongly and how soon the dollar begins to decline. A $2300 gold price is highly likely in 2012.

UUP (US Dollar Proxy) Warning Chart

I have included a second chart this week. Here I examine the dollar via the UUP ETF. Technical indicators are warning that the time is near for the end of the current rally in the dollar.
Note the divergences that have occurred at each of the three tops I have highlighted, and note the overall weakening of the RSI over the life of this chart.
Time is running out to secure physical metal for yourself before the next leg down in the dollar commences. Note the black horizontal line on the chart near 83.56. I expect the primary bear trend to resume by that point or even earlier than that.

Gold Double Bottom Chart

The bearish US dollar set-up above has helped create a number of bullish set-ups for gold. Huge positions of dollars are being held by speculators while the commercials continue to flow their money into gold and silver.
I recommended traders take a little off the table in the $1650 area. Re-buy near $1625. I am operating with a larger focus on long-term positions than short-term swing trades, because the weight of the technical evidence suggests a large move higher is coming.
The $1680 price point likely corresponds roughly with the downtrend line I have highlighted on this chart, and I expect a reaction to around $1625 from there.

Gold Bulldozer Chart

The current down wedge on gold is very similar to the one I have highlighted on the chart in 2006. Note that when the price broke upside in 2006 there was more of a sideways chop with a strong upwards bias than a “surge” higher.
I think this is how we experience the beginnings of what I’ve termed the gold superhighway; the gold price acts more like a bulldozer as it enters the highway. Notice that by the summer of 2007, gold began a violent and powerful move higher. The same type of action seems very likely now as gold moves out of the wedge formation; first some “bulldozing”, then the autobahn!
Trying to outsmart this bull is really a fool’s game. Please don’t let fear-mongering by anyone convince you to sell your positions.

GDX Sentiment Chart

I think this chart is one of the most important ones for gold stock investors. Note the strong contrarian buy signals highlighted in green. These buy signals have provided gains, ranging from 32% to well over 100% over periods of just several months.
On Balance Volume (OBV) is at a record low for the life of this chart, and has started to creep higher.

GDXJ Weekly Set-Up Chart

GDXJ remains one of my favorite assets to hold for the next several months. By many metrics, these stocks are as cheap as they’ve been since the beginning of the bull market. Buy only on severe weakness, as this has proven to be a very volatile sector.
The technical situation of GDXJ improved again this week, with the price rising above the blue downtrend line I’ve highlighted on the chart. That’s arguably a breakout from a falling wedge technical pattern.
Note the action of the MACD indicator. The lines seem ready to cross into a classic buy signal, and that should bring some speculators back into this sector. GDXJ has also been outperforming GDX, which is another positive sign.

Silver Wedge Chart

The fundamentals for silver are solid. Physical silver inventories are being tapped and it is questionable as to how fast they are being replaced. My dealer reports a very tight physical market.
Some analysts claim that the ratio of silver being consumed vs. mined is greater than 10 to 1. I don’t know about the validity of that statement, but certainly the enormous growth in the Asian middle class and the Asian economies is a reason to hold some silver.
The CCI indicator has started to rise, MACD is hooking up, and the volume pattern is very bullish, with volume dropping in sync with the price all through this correction.

Silver Versus GDX Ratio Chart

I’m very bullish on gold and gold stocks but the above chart demonstrates why my current asset of choice is silver. Look at the bull flag pattern on this ratio chart of silver versus GDX.
This flag pattern projects that silver in the $60 price range is likely within 12 months. Note the strong rising action of the MACD histograms that has occurred.
When a crossover buy signal occurs, the action of the histograms can indicate the relative power of that signal, and in this case the histogram action suggests a bull move could be very powerful!

Chart of the Day - Chubb (CB)

2012-01-23T00:07:00.000-05:00

The "Chart of the Day" is Chubb (CB), which showed up on Friday's Barchart "All Time High" list. Chubb on Friday rallied to a new all-time high of $70.99 and closed up 0.95%. TrendSpotter has been Long since Nov 30 at $67.44. In recent news on the stock, Barron's on Jan 4 ran a favorable article saying that an expected improvement in Chubb's commercial-underwriting business should allow Chubb to continue to outperform its peers. Credit Suisse on Dec 7 initiated research coverage on Chubb with an Outperform and a target of $75. Chubb Corp, with a market cap of $19 billion, is principally engaged in the property and casualty insurance business.

Gonzalo Lira : Time to leave America it has become a dictatorship worse than Chile under Pinochet

2012-01-23T00:05:00.001-05:00

Gonzalo Lira told Max Keiser that he is now recommending to just leave the United States of America , America has become a dictatorship he says worse than that of chile under Pinochet under which he lived himself , now the American government thanks to NDAA can detain any US citizen indefinitely without charge no jury no nothing , the American government can detain or even kill anyone he likes ...we're in a downward pile because of the big government bureaucracy and bills like Dodd-Frank for the regulation of banks which collapsed the housing market, starting with normal - sub prime loans. Which also puts more regulation on business which outsources jobs to China. And Classick I'm afraid that this bill is complete crap. What they are proposing is Martial Law and Martial Law is only in a set area which you are warned. And the bill of rights accounts for everything and anything

IMAX shares poised for a breakout

2012-01-23T00:05:00.000-05:00

Get in on shares of IMAX before the Dark Knight Rises this summer.

In 2008 The Dark Knight grossed just over $1B. This summer, The Dark Knight Rises should shatter that record, and help IMAX's bottom line.

In fact, there are quite a few decent movies coming out in 2012 that should help IMAX's earnings out in 2012. Check out this list:

Dark Knight Rises
Underworld: Awakening
The Hobbit
Prometheus
Skyfall (The first 007 film to come out in years)
The Bourne Legacy
Total Recall
World War Z

Now compare that to movies in 2011:

Green Hornet
I am Number 4
Cowboys & Aliens
Sucker Punch
Pirates of the Caribbean
Battle of Los Angeles
Cars 2
MI4
Harry Potter

Not all of these were duds, but a lot were. Just check out this list of most anticipated movies from 2011 and look how their ratings turned out. That's not to say that there won't be any duds in 2012, but I for one am much more excited about some of these upcoming releases.

Fundamentally, IMAX is looking pretty sound these days compared to recent years. The company has finally started making a profit and its paid off the bulk of its debt, while continuing expansion into international markets (such as China).

The IMAX chart is looking great, with price action in a nice rising channel. Look for a breakout to above $25 in the coming months.

18 Stocks that Could Have BIG Upside -- and Limited Downside

2012-01-23T00:04:00.003-05:00

Investors have sought out "GARP" stocks for decades. These investments, which represent Growth at a Reasonable Price, typically sport reasonable P/E ratios and possess superior growth prospects.

There are a variety of ways to find such a combination of value and growth, but my preferred metric is the "PEG ratio." Companies with a PEG ratio below 1.0 means the forward price-to-earnings (P/E) ratio is less than the forward earnings growth rates. (PEG is formally defined as the P/E divided by the earnings growth rate.)

So I'm going hunting for extreme PEGs -- stocks with P/E ratios less than one-fifth of the earnings growth rate, or a PEG below 0.2. The reason that number is so low: Every stock in this group has a forward P/E ratio of less than 10 and is expected to post earnings per share gains of at least 40% from the current fiscal year into the next fiscal year.

On my first pass through this screen, I found many energy drillers and financial services stocks. I've culled them from the herd, as they're subject to energy prices, interest rates and other exogenous factors that may render profit forecasts moot. What's left? We have 19 companies that sport rock-bottom valuations AND are expected to generate robust profits in the next fiscal year.

Near the bottom of the list, you'll find a grouping of airline stocks. Delta Airlines (NYSE: DAL), United Continental (NYSE: UAL), Spirit Airlines (Nasdaq: SAVE) and U.S. Airways (NYSE: LCC) all appear quite inexpensive. It's worth noting that the earnings forecasts assume current oil prices of around $100 a barrel. It appears as if these carriers could handle even somewhat higher oil prices and still remain nicely profitable. Looked at another way, any pullback in oil prices could lead to even higher profits -- and lower P/E ratios for these stocks.

Investors may be warming up to airline stocks, despite the fact that oil prices are near a 52-week high. The AMEX Airline index, which had fallen from around 45 in early 2011 to just 27 in late September, is already back up to 35. This chart is an important snapshot of what's happened with airline stocks. The downturn of 2008 forced many carriers to become very lean, and they may now be in the strongest financial shape they've been in a very long time..

A few other stocks look like solid profit rebounders in the coming fiscal year. Take Sanderson Farms (Nasdaq: SAFM) as an example. The company is one of the nation's largest chicken producers and is quickly seeing its stars align. Feed costs have begun dropping and poultry prices have been firming. That won't be much in evidence in fiscal first quarter results (which ends in a few weeks) as Sanderson is still working off its chicken feed bought in 2011 at much higher prices. Yet after that, profits may soar. Analyst think per share profits can rise more than 1,000% sequentially to around $0.95 a share in the quarter ended April. That should set the stage for more than $3.50 in EPS in fiscal (October) 2012, and perhaps as high as $6 a share in fiscal 2013. Not bad for a company that lost $4 a share in the fiscal year ended last October.

Goldman Sachs considers Sanderson Farms to be one of its top ideas (a member of what the firm calls its "Conviction Buy List") and they "encourage investors to see the forest through the trees: the wheels are in motion for a robust earnings recovery as supply cuts drive sharply higher EPS through 2013." Depending on the direction of feed prices and poultry prices, they see shares moving up from a current $52 toward a range of $60 to $75.

The set-up for mining firm Couer D'Alene (NYSE: CDE) is pretty intriguing. The company has some mines coming online this year that should help boost output of silver and other metals. That's why per share profits are expected to double to around $3 this year. Silver trades for about $30 an ounce right now, well below the high of $48 seen last spring. If silver simply made a move halfway to that former peak, to $39, then Couer D'Alenes' per share profits could move closer to the $4 mark in a year or two.

Meanwhile, shares have traded down from $36 last spring to a recent $27. Also, shares likely have solid downside support in the event that silver prices fall. The company's assets (primarily its mines) are worth roughly $2.1 billion, not far below the stock's current $2.4 billion market value.

Risks to Consider: These lofty growth forecasts are based on assumptions that the U.S. economy will stay afloat in 2012. Any shockwaves emanating out of Europe could lead analysts to lower their profit forecasts for many of these stocks.

Action to Take --> The market appears to be hitting its stride, and investors are back in a buying mood. Still, it pays to be somewhat defensive in case the mini-rally peters out. These low PEG stocks should thrive in a rising market (thanks to their high earnings growth rates) but should also hold their own in a down market (thanks to those low P/E ratios).

-- David Sterman

How You Can Avoid The Greater Depression–Episode 154

2012-01-23T00:04:00.001-05:00

I’m up in Vancouver British Columbia for the Vancouver Resource Show. There will be nearly 600 mining companies telling their stories. Please forgive the less than stellar audio quality, I’m away from the studio. This is more of a personal Triple Lutz Report. I wanted you to know about my family and how they weathered the Great Depression.

If Doug Casey is correct and this is the Greater Depression, then this story may have value for you. While both sides of my family suffered during the depression, my mother’s side prospered and my father’s side became impoverished. This is the tale of two families living just three miles apart and how they were affected by the Crash of 1929 and the economic collapse that lasted for over 15 years. No World War II did not end the depression, it simply changed the terms.

Whether you survive and thrive of go off the cliff is really up to you in final analysis. I hope this helps.

Please send your questions/comments to KL@KerryLutz.comor call us at 347-460-LUTZ.

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This Emerging Market Could Deliver a +28% Gain

2012-01-23T00:04:00.000-05:00

If global stock markets are turning bullish after last year's lackluster performance, emerging markets could be the biggest gainers. In the most recent bull market, emerging markets gained an average of 176%, outperforming developed economies by almost double.

If history repeats itself, this could be the best way to profit...

My 26-week ROC strategy is signaling MSCI South Africa (NYSE: EZA) could be the top performing emerging market ETF in the coming months.

Right now, EZA is trading near its long-term support level. But I think that's about to change...

The weekly chart of EZA below includes the 26-week ROC at the bottom. The indicator became oversold in September and has since been in an uptrend. In the last week, the ROC broke above its 20-week moving average. This confirms that ROC is in an uptrend and is a bullish indicator pointing towards higher prices.

The price pattern is also bullish. Recent price action created a triangle pattern which allows us to calculate a price target. When the difference between the downward sloping line ($77.58) and the support line ($56.80) is added to where EZA broke out, we get a price target of $83.68 ($20.78 + $62.90 = $83.68).

That represents +28% upside potential from recent prices.

The chart also shows how to limit risk in this trade. Once broken, resistance generally becomes support and will often limit the down side in a trade. Resistance near $57 on EZA halted price advances in 2009. Once the price broke above that level, $57 became support. Prices have bounced off that price four times in the last 18 months. A close under $57 would show that support has failed and it's time to exit the trade.

EZA is a great way to add international exposure to your portfolio. Emerging markets tend to move the fastest in bull markets. The chart shows a bullish pattern and the potential reward is more than twice as high as the risk.

US Weekly Economic Calendar

2012-01-23T00:02:00.000-05:00

time (et)	report	period	forecast	previous
MONDAY, JAN. 23
	None scheduled
Tuesday, JAN. 24
10 am	Richmond Fed index	Jan.	--	3
Wednesday, JAN. 25
10 am	FHFA home prices	Nov.	--	-0.2%
10 am	Pending home sales	Dec.	--	7.3%
12:30 pm	FOMC announcement
2:15 pm	Bernanke press conference
Thursday, Jan. 26
8:30 a.m.	Jobless claims	1-21	375,000	352,000
8:30 am	Durable goods orders	Dec.	2.5%	3.7%
8:30 am	Chicago Fed national activity index	Dec.	--	-0.37
8:30 am	Leading indicators	Dec.	0.9%	0.5%
10 am	New home sales	Dec.	325,000	315,000
11 am	Kansas City Fed index	Jan.	--	-4.0
FRIDAY, JAN. 27
8:30 am	GDP	4Q	3.0%	1.8%
9:55 am	Consumer sentiment	Jan.	74.0	74.0

Investors Intelligence - Latest Sentiment Readings on Stocks

2012-01-21T00:07:00.000-05:00

With continued volatility in stock markets, today King World News wanted share, with our global readers, key portions from the latest Investors Intelligence report: “Indexes all closed higher again for the second week of the New Year although the advance did moderate. European debt woes again become a factor as S&P downgraded nine EU nations. There were also some disappointing results for the current quarter. However, even taken together those could not move the markets down and each small morning sell-off was met with new buying and at least a partial recovery at the close.” (more)