TOTALINVESTOR

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.

Dow Jones Never Loss Trade
Incredible Dow Jones Secret - No Loss!

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)

Charting a Potential Break in Bond Fund IEF and TLT

2012-01-21T00:06:00.001-05:00

Following up with my prior inter-market post this week “Something’s Gotta Give,” let’s take a look at the sharp down-move that developed since then as seen in bond funds IEF and TLT.

Let’s start with the 7 to 10-year Treasury Fund IEF:

Quick analysis shows us a lengthy (mature) uptrend that is undercut by lengthy negative divergences in both volume and momentum – not something you want to see if you’re bullish on bond prices.

There’s also a mini-Triple Top pattern (and internal divergences) into the critical $106 overhead resistance.

In short, that’s bearish for bond prices as it stands at this moment.

This week saw a sharp three-day reversal lower which now threatens to break the rising 50 day EMA at $104.50.

Let’s turn now to the similar landscape in the more popular (known) 20+ Treasury fund TLT:

We see a similar mature uptrend undercut by lengthy negative divergences into the key $122.50 overhead resistance level.

This is a closer look at what I was describing in the “Something’s Gotta Give” post:

Either “Risk-Off” assets such as bonds reverse lower from resistance, which suggests “Risk-On” assets like stocks break higher, or vice versa.

As of the last few days, the structure has tipped in favor of “Risk Off” assets beginning an early potential reversal, though we’ll need to see price break firmly under their respective rising daily trendlines and 50d EMAs where they stand now.

In other words, while we still could see a bounce higher in bond prices off the 50d EMA (reference early November 2011), further downside price action suggests a high probability for the “Risk-Off” Asset Reversal lower and “Risk-On” Asset Continuation higher thesis.

Though I don’t show it in a separate chart, the S&P 500 broke tentatively above 1,300 and closed the week at 1,320 on a seemingly hesitant (not compellingly impulsive) breakthrough.

The Dow Jones almost completed a full retest of its 2011 high which will be a critical ‘price resistance’ area to watch closely.

For a longer perspective on bond funds, let’s view the monthly structure for IEF:

A quick price-based look shows us a lengthy, overextended rally scraping above the upper Bollinger (volatility) Band near $105.

We can see historically how two similar overextended rallies ended – with a clean retracement back to the rising 20 month EMA (which was a buying opportunity).

So unless the structure changes dramatically with a sudden upsurge in bond prices – and yes that could happen – the simple chart-based odds seem to favor weakness for bond prices, particularly on a trigger under the daily chart trendlines and EMAs shown above.

Watch closely to see if indeed this outcome develops.

Corey Rosenbloom, CMT

Martin Armstrong: The Evolution of the US Dollar

2012-01-21T00:06:00.000-05:00

The Evolution of the US Dollar

Detailed history of the dollar

*2012 World Conference

click here to read in pdf

John Williams: No Way Out–Hyperinflation by 2014

2012-01-21T00:05:00.002-05:00

RealPlayer WinAmp Windows Media MP3

James J Puplava CFP with John Williams

Jim welcomes back John Williams from Shadow Government Statistics. John sees no way to avoid hyperinflation, as some of the warning signs are getting worse: rising real inflation rates, massive Fed monetization, foreign nations dumping dollars, and the US losing its triple A credit rating.

Market Reaching Short-term Overbought Levels

2012-01-21T00:05:00.001-05:00

Despite a handful of economic reports that didn’t quite measure up to expectations, stocks gained for the third consecutive session. The catalyst for the rise was a drop in jobless claims and better-than-expected earnings from Bank of America (NYSE:BAC). And the euro rose by 0.8% against the U.S. dollar, which also had a positive impact on stocks.

At the close, the Dow Jones Industrial Average was up 46 points to 12,625, the S&P 500 rose 6 points to 1,315, and the Nasdaq gained 19 points at 2,788. The Big Board traded 805 million shares and the Nasdaq crossed 497 million. Advancers beat decliners by 2-to-1 on the NYSE and by 1.4-to-1 on the Nasdaq.

Click to Enlarge

There is much to study in today’s chart of the Dow Jones Transportation Index, which broke to a new high yesterday. It is considered to be the measuring tape for expected economic growth, and so a dramatic move by this index is noteworthy. The transports have been in a bull channel since November, and we confirmed a triple-top breakout in our Jan. 4 Daily Market Outlook.

This is a powerful chart with not only a visible bull channel but a new confirming high from its Relative Strength Index (RSI) and a pending golden cross (bullish crossover of 50-day moving average through the 200-day moving average) possibly just a day away. But a spike like yesterday’s 84-point (1.6%) advance is often followed by profit-taking.

Note that the index has advanced to almost the exact midpoint of the October 2010 to July 2011 consolidation — a thick zone of potential sellers. And also note that its RSI, though confirming the uptrend, is at its highest level since October 2010.

Short-term conclusion: The market, though still very strong, is reaching overbought levels. And with January options expiring today anything can happen. Rather than chasing stocks at this level it would be more prudent to buy on pullbacks. And if you’re looking for help making quick profits, you may want to check out my colleague Joe Burns.

Longer term conclusion: The Dow Jones Transportation Index may be telling us that a breakout will eventually occur — remember, it is this index that is most efficient in predicting future economic growth. And, it is an accepted fact that presidents will use their power to boost the economy in the election year concluding their first term in office. This record of the performance of the S&P 500 confirms the power of the presidency in economic matters.

1936, Roosevelt vs. Landon: +33.9%
1956, Eisenhower vs. Stevenson: +6.5%
1964, Johnson (surrogate for Kennedy) vs. Goldwater: +16.5%
1972, Nixon vs. McGovern: +19%
1984, Reagan vs. Mondale: +6.3%
1996, Clinton vs. Dole: +23.1%
2004, Bush vs. Kerry: +10.9%

How to Make Money Off Analysts' Stock Recommendations

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

If Wall Street's stock tips were reliable, portfolio selection would be easy. Investors could simply load up on Apple (AAPL: 427.75, -1.36, -0.32%) because analysts give it more positive ratings like "buy" and "outperform" than any other stock, according to Thomson Reuters (TRI: 28.85, 0.39, 1.37%) data.

Alas, the historical evidence shows stocks with lots of "buys" don't do better than the broad market, on average.

Perhaps that is because so many companies are showered with love. Among those in the Standard & Poor's 500-stock index, there are 10 times as many "buys" as "sells."

But new research suggests a way for investors to tell which "buys" are worth heeding and which ones aren't.

Professional stock-pickers have had an image problem at least since a 1933 study by economist Alfred Cowles confirmed what the market crash of 1929 had amply demonstrated: Stock forecasters can't forecast with any accuracy.

A landmark paper published 16 years ago in the Journal of Finance offered some redemption for analyst recommendations. It divided returns into two components: an initial pop when a new recommendation is announced, and a gradual drift in the months that follow. The distinction matters because ordinary slow-poke investors can take advantage of drifts but not pops.

Two key findings: First, analyst recommendations are like dairy products in that it is best to use them quickly or not at all. Shares tend to drift in the direction of recommendation changes, but for weeks or months, not years.

Second, "sells" tend to be far more prescient than "buys." According to study author Kent Womack, a former Goldman Sachs executive who now teaches finance at the University of Toronto, analysts face little resistance to their "buy" recommendations but risk angering companies and investors with their "sells," so they tend to issue sell calls much more judiciously.

That takes some of the shine off of Apple. It has received no fresh "buys" within the past four weeks among firms polled by Thomson Reuters.

Other members of the S&P 500 index have received multiple "buy" recommendations of late, including upgrades and coverage initiations. Among them are web retailing giant Amazon.com (AMZN: 194.45, 5.01, 2.64%) and Devon Energy (DVN: 64.15, -0.25, -0.39%), an oil-and-gas producer.

There are fresh "sell" ratings, too, received by companies like Pall (PLL: 60.22, 0.47, 0.79%), a Long Island, N.Y., maker of industrial products whose shares have gained in recent weeks, and clothing chain Gap (GPS: 19.37, 0.73, 3.92%), whose stock has sagged. Be warned, however, that betting against stocks -- using, say, options contracts or "short selling" -- carries considerable risk for ordinary long-term investors.

What's needed is a way to find better "buy" ratings. Mr. Womack presents some new thoughts on that in a working paper with Ambrus Kecskes at Virginia Tech and Roni Michaely at Cornell University.

To form their recommendations, analysts often begin with something called discounted-cash-flow analysis, which uses forecasts of revenues, margins and many other factors to determine a fair share price for investors to pay today. Some factors are difficult to measure (like riskiness), others are impossible to know (like distant growth rates) and subtle changes in the assumptions can produce sharply different results.

In other words, with a pinch here and a prod there, analysts can make the math say anything about a stock.

The three authors theorize that the best recommendation changes are ones that stem from concrete new information, and that changes in near-term earnings forecasts are a good sign of such information. In the study, they find that stock prices drift much more when recommendation changes are accompanied by earnings-forecast revisions.

The authors calculate that between 1994 and 2007, a trading strategy of buying stocks following raised ratings and earnings estimates and holding for a month, while doing the opposite (short selling) for stocks following lowered ratings and estimates, would have returned more than 45% a year. That is several times what an S&P 500 index fund would have returned over the same period.

Ross Stores (ROST: 51.13, -0.36, -0.70%), a clothing chain, Broadcom (BRCM: 34.99, 1.64, 4.92%), a chip developer, and Discover Financial Services (DFS: 27.13, 0.21, 0.78%) have gained new analyst endorsements within the past four weeks and seen their earnings forecasts raised. Their shares are off to a strong start this year, up 7.6%, 8.4% and 9.5%, respectively, through Friday.

There is another way investors might be able to improve on analyst picks. That is by using analyst math in reverse, says Julian Koski, co-chief executive of Guggenheim Transparent Value, an investment firm.

"We start with the admission that the future is unknowable, and then we base our math on known measures," Mr. Koski says.

That means starting with the actual stock price rather than constructing a theoretical one. Mr. Koski's method involves calculating the number of widgets a company must sell to justify its current share price, called its required business performance, or RBP. The analyst uses the company's recent results as a guide in determining the probability it will achieve its RBP.

The RBP percentages change daily according to stock price. Mr. Koski points to Netflix (NFLX: 103.46, 4.92, 4.99%) as an example of a recent success. It had an RBP probability of below 5% last summer, when the stock price was over $280, but shares have since plunged below $100, and the stock recently had an RBP probability of nearly 90%.

An index that selects 100 stocks with the highest RBP probabilities, the Dow Jones RBP U.S. Large-Cap Core Index, has returned 10.8% a year in back-testing since 1998, versus 2.1% for its benchmark, the Dow Jones U.S. Large-Cap Total Stock Market Index.

A mutual fund that follows that approach, Transparent Value Dow Jones RBP U.S. Large Cap Market Index, launched in April 2010. It has since returned 6.5%, beating its benchmark by about 0.5 percentage point, despite expenses of $150 a year per $10,000 invested.

Among more than 2,200 stocks Transparent Value covers, Netgear (NTGR: 40.53, 1.54, 3.95%), DuPont (DD: 49.40, -0.05, -0.10%) and Eli Lilly (LLY: 40.17, -0.01, -0.02%) have RBP probabilities in the high 90s. Yahoo (THOO) and Office Depot (ODP: 2.56, 0.08, 3.23%)have probabilities in single digits.

The other CA bubble – Canadian housing bubble ripe for popping.

2012-01-21T00:04:00.002-05:00

In the last few years I’ve noticed that many of the cable finance and housing shows highlight families in Canada. Shows that talk about debt or home buyers are usually focused on families in Canada which is rather odd given that we are here in Southern California. Yet the funny thing about these shows is that they rarely identify that they are in Canada although I recognize locations like Vancouver. If one simply tuned into the show it would appear that a bubble was still going on in the states. This is probably the point. After all, the cable shows focused on flipping houses or making quick bucks on real estate started going off the air yet another bubble was still going on up north. Obviously these shows had an audience otherwise they would not be on the air. Now the focus is on the Canadian bubble and American audiences can swim in the nostalgic dreams of the glory days of domestic housing. Yet the shows rarely mention their location as if English-speaking families and cookie-cutter condos and homes are so easily interchangeable that they will fool an audience. Yet one thing the shows fail to acknowledge is that the Canadian housing bubble is even more pronounced than that in the United States.

Canadian housing bubble set to burst

Let us first get one thing out of the way; the Canadian housing bubble will burst. Just like real estate bubbles in Ireland, Spain, England, and the United States real estate bubbles do burst. Timing is always hard to predict but undoubtedly these bubbles pop because they are fueled by easy and hot money. Even at the apex here in California arguments were bandied around regarding foreign money, low interest rates, and other nonsense trying to support a ludicrous bubble. Once the ego was put on the shelf and the credit markets imploded, the housing market came crashing down. Canada seems to be where the United States was in 2007. Let us examine a couple of charts:

Source: World Housing Bubble

The U.S. housing market peaked in 2006 and it looks like Canada is five-years behind the curve. The rise in Canadian real estate is simply unjustified. Household incomes in Canada have not come close to keeping pace with real estate values in each respective market. Take a look at the insane Vancouver market:

Real estate values in Vancouver have shot up by 142 percent since 2002. There is absolutely no justifiable reason for this except for massive speculation. Let us look at household incomes for this area:

The median household income in Vancouver is $67,550 yet the average detached home price is above $1 million. That is simply madness and even makes the California housing bubble look modest in comparison.

Internal warnings of a bust are already running rampant:

“(CBC) The influx of multi-unit builds has led some economists to warn of overbuilding in the Canadian housing market, which could leave a glut of unsold homes on the market in the case of a downturn.

A downturn in demand would also likely lead to an easing of Canadian home prices, which The Economist magazine recently declared are about 25 per cent overvalued.

Interest rates are not expected to increase in the coming year, but analysts noted that Canadian households are already at record high debt levels, and the growth of both jobs and income has stalled.”

Canadian households are in deep debt just like U.S. households. Even some of the “financial rescue” shows highlight Canadian families that suffer from the same delusions as many American households. You see the same patterns that led us into this crisis:

-“I can’t give up our home!” – a person in massive debt who really can’t afford their home

-“But we can’t give up our condo!” – trying to buy a $600,000 condo with a $60,000 household income

-“We are doing fine.” – a family in deep credit card debt and a negative net worth

It is little wonder why television programmers have merely swapped out American families for Canadian families. The pattern is the same and aside from a few glances at Canadian cash, these families are replicating the same debt hunger of American families during the bubble heyday.

Canada bubble locations use same bubble logic as peak U.S. locations

The bubble talk is similar in locations with major bubbles like Vancouver. By the way, I think Vancouver is a great place but it is in a major bubble. A lot of hot money from outside has inflated values:

“(The Province) Cam Good, president of The Key, a Vancouver-based real estate marketing firm that caters to Asian buyers, said that about 60 per cent of the estimated 1,500 condos he sold this year, in Vancouver and Toronto, were to Chinese buyers.

While an October report by Royal LePage recorded a 16.9per-cent price increase of a standard two-storey house in Vancouver ($1.142 million) compared to the same time last year, local realtors and experts think restrictions are the last thing Vancouver’s market needs.

The report, which defined Vancouver as composed of the city’s east and west sides, West Vancouver and North Vancouver, pegged the average price of bungalows and condominiums at $1.02 million and $513,500, respectively.”

Patterns like this are short-term just like Japanese buying in California during a previous bubble. These bubbles will burst because any housing market is going to be supported over the long-term by local households and what they can afford. These short-term speculative bubbles simply become landing grounds for hot money. The home price-to-rent ratio is already absurd in Canada:

Source: Gluskin Sheff

While many in Canada and places like Vancouver would like to deny a real estate bubble it is rather obvious to most outsiders. The bubble will burst and is looking very close to reaching a peak already. All the arguments and justifications were played out here in California as well. This is something that is very familiar especially now that we enter year five of the housing market crashing here in California. And just like the U.S. fringe markets pop first:

“(The Globe and Mail) What drives the housing cycle up, inevitably drives the market down as well. Builders in the multi-unit segment are currently responding to elevated home prices and robust pre-construction sales. Anecdotal evidence suggests the vast majority of pre-construction sales are to investors who intend to sell the units on completion or rent them out. As these condos in the construction pipeline are completed, this inventory of units will be dumped on to the rental and/or re-sale market just as sales momentum and housing demand ebbs. Our estimates indicate there will not be enough renters in Toronto to occupy these units as they are completed. As a result, some investors will be left holding vacant units. Since most investors are unlikely to hold onto negative-carry investments without a reasonable prospect of price appreciation; this will put downward pressure on home prices. We have already seen this dynamic play out in some smaller markets on Canada’s west coast where prices have corrected 15 per cent.”

Welcome to your housing peak Canada. The good news is that things will continue even after your real estate bubble pops. In fact from data I have seen and stories I have heard, many of those harmed by the current real estate bubble are your local families who are unable to purchase without going deep into debt.

http://www.doctorhousingbubble.com/canada-housing-bubble-ripe-for-popping-vancouver-housing-bubble-2012-pop-real-estate-canada/

Euro Currency At 1.2000?

2012-01-21T00:04:00.001-05:00

By Alan Bush, Archer Financial Services

Last week's selling in the euro currency, due to increasing worries that the euro zone economy will continue to weaken, took prices to more than a 16-month low against the U.S. dollar. Pressure on the euro resulted after the Federal Statistics Office said Germany's economy probably contracted in the fourth quarter by .25% from the third quarter, while the European Union reduced their euro zone growth estimate to .1% in the third quarter from the .2% growth they had previously estimated. In addition, a Bloomberg survey showed the euro zone economy will probably shrink by .2% this year.

EURO CURRENCY FUTURES - MONTHLY CONTINUATION

Chart provided by APEX

Another ominous indicator of the future of the euro zone's economic outlook was the shocking results of a German Treasury bill auction. Germany sold six-month Treasury bills at a negative yield for the first time ever. The 3.9 billion euro offering, maturing this July, was sold at a negative .01% yield. This unprecedented negative yield is a clear sign that investors are attempting to preserve wealth, rather than to maximize income, as evidence grows that the euro zone will enter into a recession. In addition, some of the recent weakness in the currency of the euro zone was attributed to last week's lukewarm demand for the 10-year German bund auction.

The future of the euro currency came more into question on Monday when the euro zone's bailout fund, the European Financial Stability Facility, lost its top credit rating. This took place after Standard and Poor's downgraded the debt of France and Austria by one level on January 13. The new rating from S&P for the EFSF is now AA+, which compares to their previous rating of AAA. In addition, the German retail sales report last week, reinforced ideas that the euro zone is headed for recession. German retail sales declined .9% in November, when a .2% increase was anticipated.

Recent employment news has been mixed. The November unemployment rate in Italy increased to 8.6% and joblessness in Spain advanced to a record 22.9% in November. On the bullish side, German unemployment declined in December by more than analysts expected. The Federal Labor Agency reported unemployment in Germany declined 22,000 to total 2.89 million. A 10,000 decline in unemployment had been predicted by economists.

Not all of the euro zone sovereign debt auctions have been bearish. For example, several of the more recent euro zone sovereign debt auctions were well received. Spain sold 9.98 billion euros of debt, which was almost two times the target of 5 billion euros that had been planned and Italy sold 8.5 billion euros of debt at a yield that was much lower than dealers had anticipated.

Some traders have been encouraged by the recent well-received debt auctions in the euro area. However, much of the demand for all of this debt is probably coming from banks that have recently accepted massive amounts of three-year loans from the European Central Bank. Therefore, the recent better than expected euro area debt offerings may not be that bullish for the euro after all. Some of the strength in the debt offerings was due to comments from European Central Bank President Mario Draghi when he said his strategy to avert the euro area's financial crisis is working.

Also supportive, at least on a short-term basis, to the euro were some of the economic reports that were stronger that analysts had anticipated. For example, there was news that German investor confidence improved from a very low level in January. The ZEW Center for European Economic Research said its index of expectations for business conditions improved to -21.6 from -53.8 in December. A reading of -49.4 was anticipated. In spite of the better number, the economic outlook remains dire.

CONCLUSION

Although there is no shortage of economic and political problems in the U.S., it appears that the strains on the financial system in the euro area are much more severe. The ongoing financial problems in the euro area, including fears that the euro zone economy will enter into a recession are likely to remain well into 2012. There is likely to be increased motivation for market participants to move out of the euro currency and into the relative safety of the U.S. dollar. In the longer term, the euro is likely to continue to be pressured by increasing prospects of a recession in Europe, sovereign debt downgrades, along with bearish interest rate differentials.

The main trend for the euro currency is lower, with the next downside psychological chart objective coming in at 1.2500 to be followed by a test of the 1.2000 level.

Chart of the Day - American Water Works (AWK)

2012-01-21T00:04:00.000-05:00

The "Chart of the Day" is American Water Works (AWK), which showed up on Thursday's Barchart "All Time High." AWK on Thursday posted a new all-time high of $32.98 and closed up 1.51%. TrendSpotter has been Long since Dec 21 at $31.80. In recent news on the stock, AWK management offered guidance for FY2011 EPS of $1.75-$1.82 versus the consensus of $1.78 and FY2012 guidance of $1.90-2.00 versus the consensus of $1.91. Ladenburg on Jan 11 upgraded AWK to Buy from Neutral. American Water Works, with a market cap of $5.7 billion, is the largest investor-owned U.S. water and wastewater utility company.

Marc Faber: Far Better Off in Precious Metals and Global Stocks Rather Than Bonds

2012-01-21T00:03:00.001-05:00

Marc Faber, publisher of the Gloom, Boom & Doom report, talks about the outlook for stocks versus bonds and his investment strategy. He speaks with Sara Eisen and Erik Schatzker on Bloomberg Television’s “InsideTrack.” (Source: Bloomberg)

Faber said in the interview, that given the choice between U.S. Treasurys and European bonds, he would choose the U.S. Treasurys; given the choice between equities, real estate, bonds and precious metals, he would choose precious metals and equities.

Eric Schatzker calls Faber out on his bearish 2009 call on U.S. Treasurys, and laughably, Faber admits that David Rosenberg was right, and he owes him a bottle of whiskey.

A 100-Year Plus Look at Inflation

2012-01-21T00:03:00.000-05:00

The January 2011 Consumer Price Index for Urban Consumers (CPI-U) released today puts the December year-over-year inflation rate at 2.96%, which is a full percent below the 3.96% average since the end of World War II.

For a comparison of headline inflation with core inflation, which is based on the CPI excluding food and energy, see this monthly feature.

For better understanding of how CPI is measured and how it impacts your household, see my Inside Look at CPI components.

For an even closer look at how the components are behaving, see this X-Ray View of the data for the past five months.

The Bureau of Labor Statistics (BLS) has compiled CPI data since 1913, and numbers are conveniently available from the FRED repository (here). My long-term inflation charts reach back to 1872 by adding Warren and Pearson's price index for the earlier years. The spliced series is available at Yale Professor Robert Shiller's website. This look further back into the past dramatically illustrates the extreme oscillation between inflation and deflation during the first 70 years of our timeline. Click here for additional perspectives on inflation and the shrinking value of the dollar.

Alternate Inflation Data

The ShadowStats Alternate annualized rate of inflation is 10.57%.

The chart below (click here for a larger version) includes an alternate look at inflation *without* the calculation modifications the 1980s and 1990s (Data from www.shadowstats.com).

On a personal note, the more I study inflation the more convinced I am that the current BLS method of calculating inflation is reasonably sound. As a first-wave Boomer who raised a family during the double-digit inflation years of the 1970s and early 1980s, I see nothing today that is remotely like the inflation we endured at that time. Moreover, government policy, the Federal Funds Rate, interest rates in general and decades of major business decisions have been fundamentally driven by the official BLS inflation data, not the alternate CPI. For this reason I view the alternate inflation data as an interesting but ultimately useless statistical series.

That said, I think that economist John Williams, the founder of Shadow Government Statistics, offers provocative analysis on a range of government statistics. While I do not share his hyperinflationary expectations, at least not based on current economic conditions, I find his skeptical view of government data to be filled with thoughtful insights.

Source: Advisor Perspectives

Chart of the Day - Apple (AAPL)

2012-01-20T00:06:00.001-05:00

The "Chart of the Day" is Apple (AAPL), which showed up on Wednesday's Barchart "All Time High" and the "Gap Up" list. Apple on Wednesday posted a new all-time high of $429.47 and closed up 1.04%. TrendSpotter has been Long since Dec 23 at $403.33. In recent news on the stock, WSJ on Wednesday reported that Apple's computer use is growing in corporate offices. Piper Jaffray on Tuesday lowered its Q4 MAC sales estimates but that was offset by strong iPhone sales, leading Piper Jaffray to reiterate its Overweight rating on Apple. Apple, with a market cap of $390 billion, designs, manufactures and markets personal computers and related personal computing and communicating solutions for sale primarily to education, creative, consumer, and business customers.

Marc Faber: U.S. Bonds Are ‘Junk’

2012-01-20T00:06:00.000-05:00

James Paulsen: Investment Outlook (January 17, 2012)

2012-01-20T00:05:00.003-05:00

James Paulsen: Investment Outlook (January 17, 2012)

For Domestic Investors, is the Euro Crisis Really About Europe?

by James Paulsen, Chief Investment Strategist, Wells Capital Management (Wells Fargo)

The ratings downgrade of France last Friday reminds investors how sensitive the U.S. stock market has been to the daily news flow emanating from the euro zone. Recently however, U.S. economic momentum has increasingly delinked with euro-zone economic performance and, as it has, the U.S. stock market has been much less vulnerable to European news.

Actually, the sensitivity of the U.S. stock market to the European crisis has varied widely since it first arrived on the global scene in January 2010. While crisis news surrounding the euro zone has produced dramatic stock market volatility whenever U.S. economic growth has been sluggish, the stock market has also exhibited remarkable resiliency and indifference towards euro-zone news whenever U.S. economic reports were strengthening. Consequently, what should domestic stock investors be most focused on when accessing the potential impact of the European crisis? Should the primary focus be the euro zone or is the performance of the U.S. economy (not developments in Europe) more important in determining the riskreward outcome of the U.S. stock market?

How Sensitive is the U.S. Stock Market to the Euro Crisis?

The solid line in the accompanying exhibit illustrates how closely and significantly the ebb and flow of European crisis news has impacted the daily volatility and performance of the U.S. stock market. It displays a rolling 41-day trailing correlation coefficient of daily percent changes in the S&P 500 Stock Price Index with the daily percent changes in the euro-dollar currency rate. Relating movements in the U.S. stock market to changes in the euro currency is a proxy for the sensitivity of the U.S. stock market to European crisis events. A coefficient about zero indicates no relationship whereas the more positive (negative) the coefficient, the stronger is the direct (inverse) relationship exhibited by the two variables.

When the European crisis first broke on the world scene in January 2010, the correlation between the U.S. stock market and the euro currency was around 0.5. This positive relationship did not change much (even though events in the euro zone became recognized as a “crisis” in early 2010) until the summer of 2010 when it rose substantially reaching a level above 0.7 by fall 2010. Then, the correlation steadily declined during the next seven months reaching about 0.15 (a reading suggesting virtually no relationship between the euro zone and the U.S. stock market) by the early spring of 2011. However, from April 2011 until October 2011, the impact of the euro zone on the U.S. stock market strengthened considerably—the correlation coefficient rose steadily reaching a peak near 0.9 in October (a coefficient suggesting a near perfect and strong daily relationship). Finally, since last October, the correlation has persistently diminished and most recently the speed of its collapse is similar to its drop in early 2011.

Obviously, the sensitivity of the U.S. stock market to problems in the euro zone has oscillated widely during the last two years. However, as the accompanying exhibit insinuates, U.S. stock market sensitivity may depend more on the performance of the U.S. economy than on problems in the euro zone. The dotted line shows the Citigroup U.S. Economic Surprise Index. It is shown on an inverse scale so when the dotted line rises (falls) U.S. economic reports are disappointing (surpassing) expectations.

Although not perfect, the relationship between the U.S. stock market and the euro currency seems highly connected to “U.S. economic momentum.” While the euro-zone crisis emerged in January 2010, events in this region did not materially impact the U.S. stock market until the U.S. economy began to disappoint in the spring. Thereafter, European crisis news increasingly dominated U.S. stock market performance until the U.S. economy began reaccelerating again in the last part of 2010. As the U.S. economy continued to outpace expectation into early 2011, the relationship between the U.S. stock market and the eurozone crisis noticeably calmed (even though the European crisis never went away). However, euro-zone news again became “the only news” which seemed to matter for the U.S. stock market during the late summer/early fall of 2011. Why? Because U.S. economic reports weakened considerably and persistently between April and October 2011 culminating in a widespread outbreak of imminent U.S. recession fears in September. As U.S. recession fears intensified, the correlation between the euro and the U.S. stock market surged to about 0.9! Finally, as U.S. economic reports have again improved substantially in recent months, the correlation between the U.S. stock market and euro-zone news has weakened considerably.

Should Investors Fixate on Euro Zone News or Remain Focused on the U.S. Economy?

For domestic investors, is the daily news flow emanating from the euro zone really of paramount importance? Or, is the momentum of the U.S. economic recovery much more crucial in determining the performance of the stock market? Undoubtedly, the euro-zone crisis is important and will certainly impact the future of both the global and U.S. economic recoveries. However, as the accompanying chart illustrates, the euro-zone crisis seems to dominate the U.S. stock market “only when and only because” U.S. economic momentum proves disappointing.

It seems European fears will likely be part of the global fabric for years, but should not be overly significant for U.S. stock investors as long as the U.S. economic recovery remains healthy. Currently, in our view, the U.S. economic outlook appears reasonably favorable. Job creation is now strong enough to produce a slow but steady decline in the U.S. unemployment rate which should boost confidence throughout the economy this year. Moreover, plenty of economic stimulus has been added to the U.S. economy in the last year. The 30-year mortgage rate was above 5 percent a year ago and is now below 4 percent. The annual growth in the M2 money supply was only about 5 percent last summer and is now about 11 percent. The U.S. dollar is still about 10 percent below where it peaked in 2010 boosting U.S. export competitiveness. Finally, because commodity prices declined last year, particularly food and energy costs, the rate of consumer price inflation is set to decelerate this year potentially providing a large boost to “real” household income growth during 2012.

It’s been two years since the European crisis first arrived on the global scene and along the way, many investors have been scared out of the stock market. The S&P 500 has risen by about 200 points during this time (from about 1100 in January 2010 to about 1300 today) and with dividends included, has provided investors with about a 10 percent annualized return! Although the euro-zone crisis has certainly been associated with “high drama,” it has also provided ongoing solid stock returns. So, worry about Europe, but stay invested while you worry!

4 ETFs To Play 4 "Left For Dead" Sectors: EGPT, NM, NUCL, ORSCY, PLTM, SEA, TGP, URA, VTV

2012-01-20T00:05:00.002-05:00

While funds like the Vanguard Value ETF (NYS:VTV) have allowed everyone to be "value" investors, going against the grain is the hallmark of many premier investors in the style. Often waiting years, if not decades, for their ideas to pan out, true value investors see the long-term picture for what it is. Generally, the stock market overreacts to both good and bad news, resulting in stock price movements that do not correspond with the company's or sector's long-term fundamentals. This results in an opportunity for value investors to profit when prices are depressed. Warren Buffet's famous "be greedy, when others are fearful," quote highlights this fact. For those looking for extreme, left for dead values, the following ETFs and sectors may be up your alley.

Downhill Since Fukushima
In the wake of Japan's Fukushima disaster, a variety of nations have begun plans to wind down their nuclear operations and stall new reactor projects. However, as the developed world begins its nuclear phase-out, the emerging world is under-going a massive building binge. Overall, The International Atomic Energy Agency predicts that by 2030, the world will have up to 803 GW worth of generation capacity. If the upper range is met, it would mean an 113% increase versus 2010s generation numbers.

However, despite nuclear's long-term potential, stocks within the sector have fallen hard since Japan's woes. The Global X Uranium ETF (ARCA:URA), which tracks a basket of uranium mining stocks, fell more than 60% during 2011, but still represents a great long-term play on the emerging world's love affair with atomic power. Similarly, the iShares S&P Global Nuclear Energy Index (ARCA:NUCL) is a good broad choice to play the sector.

The Arab Spring
Given the riots, social upheaval and political problems facing Egypt, it's no wonder why investors have shunned the battered nation. However, the nation is one of the largest economies in the Middle East and many analysts predict that Egypt will be one of the replacement nations for the BRICs. While the short-term road is bumpy, the elimination of the Mubarak regime is expected to be a long-term positive for the country. The Market Vectors Egypt Index ETF (ARCA:EGPT) fell around 50% during 2011 and tracks 28 different firms including Orascom Construction (OTCBB:ORSCY).

Capsized Growth
Slowing raw material demand from the emerging world, coupled with decreasing economic activity in the developed, has hurt the global shippers. Acting as a leveraged play on global growth, a variety of shipping firms like Navios Maritime (NYSE:NM) saw their fortunes sink along with the global economy. However, many firms within the sector are trading for less than their book values, and the Baltic dry index has been steadily increasing since the start of 2011. The Guggenheim Shipping ETF (ARCA:SEA) tracks a basket of 25 global shippers across both the dry bulk and liquids categories. Top holdings include Teekay LNG Partners (NYSE:TGP) and Nippon Yusen. The fund dropped about 46% during 2011, but now yields a delicious 6.65%.

A Platinum Play
As global uncertainty remains high, investors have stuffed their portfolios with gold. In doing so, an ounce of gold now trades for more than platinum. Historically, platinum has been the "money" metal, usually trading for a wide premium over gold; since 1997 platinum has often cost 50 to 100% more than gold, due to its scarcity of supply and sheer expense in mining it. However, as platinum prices have dipped, so have shares in its miners. The First Trust ISE Global Platinum Index (ARCA:PLTM) sunk about 50% in 2011, but should be great long-term bet. Platinum is seeing increased demand from both industrial and investment purposes. Analysts estimate that long-term platinum demand will grow, outstripping supply.

The Bottom Line
Value can be had in some pretty nasty places. The previous ideas are some of the most beaten down and unloved sectors currently on the market. However, each offers great long-term fundamentals and potential. For patient portfolios and investors, going against the herd can mean long-term profits.

The Economic Outlook for Canada is Dire Says the Bank of Canada

2012-01-20T00:05:00.001-05:00

by Chris Horlacher, MapleLeafMetals.ca via DollarVigilante.com:

One typically doesn’t look to government bureaucracies for hard-nosed, objective discussions on the economy. Far too often official reports are skewed to paint a much rosier picture than what is unfolding in reality. Case in point, the repeated denials from Ben Bernanke and the Federal Reserve, Fannie Mae and various oversight committees circa 2006 that the US housing market was anything but an excellent place to invest your money.

So, imagine my surprise when the December 2011 Financial System Review, published quarterly by the Bank of Canada (BoC), landed in my inbox and I discovered that it contained a very sobering look at Canada’s economy and the many systemic risks we are facing! It’s not surprising that this report was not picked up by the main stream news, because if they did the popular opinion of Canada’s invincible, recession-proof economy, may begin to crumble.

Read More @ DollarVigilante.com

Barron’s Confidence Index Takes a Worrying Turn

2012-01-20T00:04:00.001-05:00

When reporting on the unfolding of the credit crisis I often referred to the Barron’s Confidence Index. This Index is calculated by dividing the average yield on high-grade bonds by the average yield on intermediate-grade bonds.

The difference between the yields is indicative of investor confidence. A rising ratio indicates bond investors are growing more confident, in other words preferring more speculative bonds over high-grade bonds. On the other hand, a declining ratio indicates investors are demanding a lower premium in yield for increased risk. That shows a waning confidence in the economy.

Since hitting an all-time low in December 2008, the Index was almost back to pre-crisis levels in January this year as investors grew increasingly confident. But that was when investors started focusing on sovereigns that were starting to get into trouble.

Since the start of 2011 the Index has given up more than 40% of its gains. This puts us back at levels experienced during mid-2008 – just prior to confidence falling off a cliff. Based purely on this chart, one has to conclude that confidence remains fragile.

Jim Sinclair: There Will Be a Run on Gold Stored in the US

2012-01-20T00:04:00.000-05:00

from King World News:

With gold remaining firm above $1,650, today King World News interviewed legendary Jim Sinclair, to get his take on where things are headed. Sinclair surprised KWN by telling us there would be a run, by European countries, on the gold they have stored at the New York Fed. Here is what Sinclair had to say when we asked him if the IMF would be selling any gold: “No. The role of gold has changed and gold is moving more toward the central bank then away from it. On top of that you have seen a significant amount of media attention towards, ‘Where is our gold?’ This is taking place in the European press.”

Jim Sinclair continues: Read More @ KingWorldNews.com

Solar Stocks On Fire: CSIQ, FSLR, JKS, STP, YGE

2012-01-20T00:03:00.001-05:00

The solar energy sector has been decimated over the past year and in fact, they are one of the few groups that has continued to decline after the general markets bottomed in 2009. The leader in this space, First Solar Inc. (Nasdaq:FSLR) has now experienced two savage corrections that have taken it from over $300 per share in 2008, to under $30 just late last year. There is no question this group has fallen out of favor, and a long-term downtrend still persists as the primary trend. However, the group has started to perk up recently after attempting to consolidate over the past several months. It is possible that this group could catch fire again, even if it is short lived.

Suntech Power Holdings Co., LTD (NYSE:STP) was one of the first stocks in this sector to catch my eye recently, as volume poured into it over the past few days. STP has been trying to bottom since October of last year and recently cleared the $3 level. After clearing the level, it began to trade in a flag pattern just above $3 and blasted higher after only a few days. While STP is likely not worth chasing higher, it could fuel sympathy moves in other solar stocks. (Making money in a pressure-cooker environment is all about minimizing risk on hot picks. For more, see Mastering Short-Term Trading.)

One such stock is Canadian Solar Inc. (Nasdaq:CSIQ). CSIQ has also been trying to build a base and may have formed a double bottom over the past few months (November and December lows). Volume has really poured into this stock over the past few days, and it was able to clear the bottoming pattern in mid January. It is now forming a similar bull flag to STP and could clear the pattern if the sector continues to attract attention. (For related reading, see How To Interpret Technical Analysis Price Patterns: Triple Tops And Bottoms.)

Yingli Green Energy (NYSE:YGE) is another solar stock to keep an eye on. It is also trying to form a bottoming pattern after a horrific decline. It has been trading sideways for the better part of the last five months and has tested $5 on a few occasions. It recently cleared this level and is now trading in a tight rage just at the level. Volume has also sharply increased, lending credence to the breakout attempt. (Trading range breakouts is unprofitable for most novice traders; here are some alternatives that can be used. For more, see 3 Reasons Not To Trade Range Breakouts.)

While JinkoSolar Holding Company Limited (NYSE:JKS) may not be as close to bottoming as its peers, it is also following the near-term pattern of flagging after a high volume rally attempt. It appears that $5 has held as clear support and JKS may be headed for a test of the top of its established range near $10. This is still over 30% away and not farfetched as a short-term target. (Use of support and resistance zones can be a key to successful trades. For more, see Interpreting Support And Resistance Zones.)

The Bottom Line
While the allure of fast profits is certainly tempting, I must warn traders that this is still a very risky sector to place bets on. The established downtrend is one of the nastiest currently occurring in the markets, and this means that even if this is a bottom that is forming, there will be many false moves and volatile price swings. Traders need to clearly understand where they would stop out and not fall into the trap of “doubling down” in the inevitable shakeout or reversal. However, for disciplined traders, there is a real chance that this group offers a good trading opportunity in the near future.

Breakout Should Lead to Quick Run in OC

2012-01-20T00:03:00.000-05:00

Owens Corning (NYSE:OC) — This producer of glass-fiber reinforcements and building materials, including roofing materials, has predicted that roofing demand could reach the highest levels in 15 years.

Wall-board shipments rose 4% in Q3, the first year-to-year increase since 2006. And a 35% increase in wall-board prices will take effect this year, according to Fitch.

The results of an increase in home construction would directly benefit OC with a dramatic increase in earnings from the estimate of $2.30 in 2011.

This was on our list of Top Stocks to Buy for January, when we said, “Technically the stock has formed a ‘V’ bottom and a break through the resistance band at $30 to $32 should result in a quick run to $36-$38.”

That breakout occurred yesterday. Longer term expect much higher prices that should track an economic recovery.

Volatility Index: Why This VIX ETF Should Be On Your Radar (VXX, VIXY, TVIX, XIV, VXZ)

2012-01-19T00:06:00.000-05:00

In the world of market volatility, what goes down, must come up. And the most likely time for that to happen is when the bulls and bears are sleepily resting on their laurels. Or, as it’s called on the Volatility Index (.VIX), “Complacency”. In the past, the average investor had no way to get exposure to the Volatility Index—which was reserved for the pit bulls in Chicago. Now with a plethora of ETFs and ETNs available, average investors have the ability to trade volatility, commodities and other market elements.

iPath S&P500 Short Term Futures (NYSEARCA:VXX) is an ETN for average investors to capitalize on the Volatility Index.

WOW! Why would anybody want to buy an ETF with all those negative performance numbers? The answer to that question is the price range. From its low to high, it nearly tripled. But this ETF (actually an ETN) moves fast. For anybody who’s ever been blindsided by a sell-off, you know that the price goes down much faster than it goes up. Because the Volatility Index is a close inverse correlation to the equities market (S&P500), VXX goes up much faster than it goes down. For this reason, you have to make your move before the market makes its move. The market is currently overbought and prime for a pullback.

To better understand volatility, let’s look at the S&P500 Volatility Index (.VIX) before we get to the chart of (NYSEARCA:VXX).

There are two generally recognized significant levels of the VIX: 30, which above that is considered “Fear” in the market, and 20, which below that is considered “Complacency” in the market. Much of the 2nd half of 2011 was in extreme levels of fear of the European Debt Crisis, our own (Congress) inability to adjust the debt ceiling in a reasonable fashion and possibilities of sinking back into a global recession. Much of that market anxiety has calmed, for now.

We see that the VIX has bounced off the 20 level twice, but this 2nd bounce was weaker than the first—almost too calm. If we look back to when the VIX was sub-20, we’ll remember that QE2 was still in effect and basically flooding the market with “free” money. That is not the case now and volume has been very light. More like a melt-up than a true rally in December and January.

I’m not going to go all Chicken Little and scream “The sky is falling”. I’m just saying we are due for a pull back—a healthy function of the market.

A prudent move for hedging your portfolio in anticipation of a pullback is buying VXX. (Or buying options on VXX if that’s your methodology)

Two of our indicators (RSI and Stochastic) are showing this position skipping along the bottom. The important indicator is the Money Flow Index (MFI) at the top of the chart. Smart money has already begun flowing into this position. Additionally, the MACD at the bottom of the chart is just about to have a bullish crossover. Although still low, we are seeing a slight increase in volume.

Unfortunately, VXX doesn’t have an exact correlation to the VIX. But we can establish some close correlation of the important price levels.

VIX 20 = VXX 30 (approx)
VIX 30 = VXX 50 (approx)

VXX below 30 would be a prudent position to take for hedging your portfolio. As the VIX tends to move very rapidly, usually the extent of its move in a week or so, setting your sell limit at the time of purchase would be a good idea. A sell trigger at $48 would capture the move of the VIX going almost to 30. It is unlikely for the VIX to go into extreme levels of fear with recent US economic data showing small steps of improvement and a certain degree of numbness to headlines out of Europe. If you want to be a little more conservative on your sell trigger you could increase the probability of a hit at $46. That’s still better than a 50% move off of $30.

Today the market looks to be stalling on low volume. Should we get a little spike on enthusiasm (or the Algo) in the next day or so, it could put VXX in our sub $30 price range. “Hedge to avoid the ledge” as a great trader friend often says.

Related: ProShares VIX Short-Term Futures ETF (NYSEARCA:VIXY), VelocityShares Daily 2x VIX ST ETN (NYSEARCA:TVIX), iPath S&P 500 VIX Short-Term Futures ETN (NYSEARCA:VXX), iPath S&P 500 VIX Mid-Term Futures ETN (NYSEARCA:VXZ), VelocityShares Daily Inverse VIX (NYSEARCA:XIV).

Americans Raid Savings Accounts to Stay Afloat and Maintain the Dream

2012-01-19T00:05:00.004-05:00

by Mac Slavo, SHTFPlan.com:

Retail parking lots may be full and Americans may be buying must-have electronics, home decor products and new cars, but where’s all the money coming from?

As we’ve suggested previously, the economic destruction following the collapse of 2008 is slowly, but surely taking its toll, forcing many people still holding on to a paradigm of consumption to dip into cash savings, retirement accounts and personal credit lines:

More than four years after the United States fell into recession, many Americans have resorted to raiding their savings to get them through the stop-start economic recovery.

In an ominous sign for America’s economic growth prospects, workers are paring back contributions to college funds and growing numbers are borrowing from their retirement accounts.

Read More @ SHTFPlan.com

Why Tops are More Difficult to Call than Bottoms - Why a Top Seems Imminent

2012-01-19T00:05:00.003-05:00

It's said that all good things are worth waiting for. Even though waiting is so yesterday in a world of instant gratification, there's no doubt that patience in investing remains a virtue.

There's one very specific timeframe in the market's boom and bust cycle that requires more patience than any other - the topping process - and I believe we are there right now.

Unfortunately, tops are tougher to call than bottoms. Here's why I think yet another top is forming and why it will be difficult but rewarding to sell stocks and/or go short.

Bottom Fishing ... October 2011

For some reason, calling a bottom comes easier to me than calling a top. This could be due to a variety of reasons; I happen to believe that calling a bottom is more 'scientific' than calling a top.

Using the October 2011 bottom, allow me to explain what I mean by 'scientific'. From May to August, the S&P had lost as much as 270 points. On August 12 the S&P closed at 1,178.

Via the August 14 ETF Profit Strategy update I listed 5 reasons why the S&P will make a new low before the next multi-month rally. The reasons were:

1) Sentiment

2) Seasonality

3) Elliot Wave Theory

4) 200-day SMA death cross

5) The VIX (Chicago Options: ^VIX)

The August 21 ETF Profit Strategy update added # 6) RSI

The two most 'scientific' of the above points where the VIX and RSI. Here's what was stated about the VIX in the August 14 update:

'The VIX high generally does not coincide with an S&P bottom. Neither the October 23, 2008 nor May 21, 2010 VIX highs marked an S&P low. There was a 21-trading day lag time between the VIX high and the S&P bottom in 2008 and a 28-trading day lag time in 2010. Based on this pattern a new price low may occur in 17 - 24 trading days.'

In other words, the VIX suggested a new price low for the S&P () unconfirmed by a new VIX low.

Here's what the August 21 update stated about RSI: 'My analysis shows that there tends to be an RSI and general breadth divergence (see August 8 TF) whenever significant lows are reached. It would therefore make sense to see a new price low unconfirmed by a new RSI low.'

The expected new price low occurred on October 4, 2011 when the S&P briefly dipped as low as 1,075. The October 4, VIX high of 46.88 remained below the September 8 high of 48. The October 4, RSI low of 40 remained far above the September 8 low of 20. The October 4, bottom adhered exactly to all expected parameters. The chart below illustrates the RSI divergence.

In addition to the above-mentioned studies, the S&P was also close to crucial support at 1,088. The October 2 ETF Profit Strategy update outlined the ideal bottoming scenario: 'The ideal market bottom would see the S&P dip below 1,088 intraday followed by a strong recovery and a close above 1,088.'

... March 2009

My call of a major market bottom in March 2009 was mainly based on extremely bearish sentiment. The March 2, 2009 Trend Change Alert recommended to buy the S&P (SNP: ^GSPC - News), Dow Jones (DJI: ^DJI - News), Nasdaq (Nasdaq: ^IXIC - News), Russell 2000 (NYSEArca: IWM - News), financials (NYSEArca: XLF - News) and corresponding leveraged ETFs and stated that:

'This counter trend rally will have to be broad and powerful in order to relieve investor's pinned up urge to buy. Nevertheless, keep in mind this will be a counter trend rally, the down trend will resume once the rally exhausts itself. This point of exhaustion is likely to happen at a point where optimism takes over and investors think that the Q1 2009 lows are here to stay.'

Fishing for a Top

Even though RSI divergences can suggest a market top (in fact there's one right now), they can go on for longer than expected. There is no specific VIX pattern that suggests a top and sentiment can always get more bullish.

QE2 made it difficult to pick a top in 2010/2011. If you subscribe to the ETF Profit Strategy Newsletter or read any of my articles you know that I was early in suggesting a market top until I realized that it's foolish to fight QE2 (I shared my 'aha experience' in the October 15, 2010 Newsletter).

Higher prices were likely in late 2010 and even after the March 2011 Japan earthquake correction, the April 2 ETF Profit Strategy update pinpointed the next target for a top: 'In terms of resistance levels, the 1,369 - 1,382 range is a strong candidate for a reversal of potentially historic proportions.' On May 2, the S&P briefly spiked to 1,371 before assuming its painful 300 point or 22% summer decline.

After finding a bottom, the October 4 update outlined the target of the current rally: 'From a technical point of view this counter trend rally should end somewhere around 1,275 - 1,300.' Via the October 11 update I admitted that: 'This rally from the 1,075 low is a miniature version of the March 2009 - May 2011 rally. I expect some difficulties in forecasting the exact route of this rally.'

The Reward of Fishing for a Top

What's the point of bucking the trend and fishing for a top? All good things are worth waiting for. The 'good thing' for investors willing to buck the prevailing trend/opinion and go short in 2011 was a 22% (300 S&P points) top to bottom decline.

250 of that 300-point loss, or 76% of the entire decline, happened within 12 trading days. Bear markets are faster than bull markets and can be hugely profitable (or devastating if caught on the wrong side). Stocks take the steps up and the elevator down.

Regardless of the reward, picking the top remains tricky. The 2011 topping process has taught us some valuable lessons on trading in such a market.

Low-Risk Strategies

The most important rule is to limit risk. The best way to limit risk is to identify strong resistance levels. Resistance levels often work like price traps. They attract their prey and then kill the up trend. In other words, they attract prices before repelling them.

The low-risk strategy is to sell long positions against resistance and initiate short positions with a stop-loss just above resistance. Another low-risk strategy is to go short once a major index falls below support with a stop-loss above support.

2011 - 2012 Comparison

Here's a quick review of year-to-date 2012 market action:

- Trading volume is anemic (YTD daily average is only 750 million shares, about 30% lower than previous years).

- Market breadth is weak (the percentage of stocks above their 10-day SMA and the number of 52-week highs is declining even as prices have reached new recovery highs).

- Sentiment is heating up (51.1% of advisor are bullish and only 17.2% of investors are bearish.

- The market is shrugging off bad news

- Momentum is strong

Isn't that exactly what we saw in early 2011? What happened once momentum was broken?

Chart of the Day - Monster Beverage Corp (MNST)

2012-01-19T00:05:00.001-05:00

The "Chart of the Day" is Monster Beverage Corp (MNST), which showed up on Tuesday's Barchart "All Time High" and the "Gap Up" list. Monster on Tuesday gapped higher to a all-time high of $101.55 and closed up +3.68%. Tuesday's rally was sparked by Goldman Sachs' upgrade for Monster to Conviction Buy from Buy and the hike in the price target to $124 from $95. Monster on Jan 11 declared a two-for-one stock split as of Feb 15. Monster Beverage Corp, with a market cap of $8.3 billion, wells energy drinks, fruit juices, fruit juice smoothies, juice cocktails, iced teas, lemonades, and still water.

McAlvany Weekly Commentary

2012-01-19T00:05:00.000-05:00

Interview with John Williams of Shadow Statistics

A Look At This Week’s Show:
-The United States is insolvent
-The Government will print money until it fails
-Loss of confidence in the dollar is a prerequisite to hyperinflation

About the Guest: “John Williams’ Shadow Government Statistics” is an electronic newsletter service that exposes and analyzes flaws in current U.S. government economic data and reporting, as well as in certain private-sector numbers, and provides an assessment of underlying economic and financial conditions, net of financial-market and political hype. To subscribe to Shadow Government Statistics, Click Here

Clic k Here to Order, When Money Dies

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John Embry: Gold to Rapidly Triple in Price on This Move

2012-01-19T00:04:00.003-05:00

from King World News:

With gold holding on to gains above the $1,650 level, today King World News interviewed John Embry, Chief Investment Strategist of the $10 billion strong Sprott Asset Management, to get his take on where he sees gold headed from here. Embry informed KWN that gold was very close a major breakaway move to the upside. Here is what Embry had to say about the situation: “I’ve been of the mind for a considerable period of time that the gold price really wouldn’t accelerate to the upside until such time as the physical market finally overwhelmed the paper market. But I think we’re reaching the stage now where there is mounting buying of physical because people are starting to realize the paper price is fraudulent.”

John Embry continues: Read More @ KingWorldNews.com

Good Time To Invest In U.S. Oil? : APC, CHK, RDS.A, RDS.B

2012-01-19T00:04:00.001-05:00

The United States has more oil and natural gas resources than previous estimates, according to a study by National Petroleum Council. The study also concluded that development of these resources will reduce but not eliminate dependence on imported energy and production, and delivery of these resources should be done in an environmentally responsible manner.

The National Petroleum Council is a federally-charted but privately-funded organization set up after World War II to advise the government on issues pertaining to oil and gas matters.

The industry is well represented on the National Petroleum Council, with James Hackett, the CEO of Anadarko Petroleum (NYSE:APC), Aubrey McClendon, the CEO of Chesapeake Energy (NYSE:CHK) and Marvin Odum, the director for Upstream operations in the United States for Royal Dutch Shell (NYSE:RDS.A) (NYSE:RDS.B) as members.

Natural Gas
The study's first conclusion is rather obvious given the recent media spotlight on domestic onshore natural gas development. The United States is the world's largest producer of natural gas and has an enormous natural gas resource base that can meet demand for generations if new basins are allowed to be developed.

Although this conclusion seems obvious to us now, just a few short years ago, many observers were climbing over themselves to come up with the direst predictions of falling natural gas supply in the United States. The conventional wisdom at that time was that the United States needed massive investment in liquefied natural gas (LNG) facilities to provide for soaring future domestic demand for natural gas.

Oil
One finding that may surprise some investors and also strike some fear into peak oil advocates is the conclusion that crude oil is much more abundant in the United States than previously thought. This new supply is coming from a number of different areas, including tight oil areas where new technology has been applied to develop resources that were previously not economic to produce. In the long term, supply will come from offshore areas, the Arctic region and even shale oil deposits in Colorado. (For related reading, see Unearth Profits In Oil Exploration And Production.)

A recent report from an analyst at Goldman Sachs (NYSE:GS) predicts that the United States will surpass Saudi Arabia and Russia and becomes the world's largest oil producer by 2017. The firm expects United States production to reach 10.9 million barrels per day by 2017. This production figure includes natural gas liquids in the total.

This level of production is certainly doable given the current level of industry activity in the United States. The U.S. Energy Administration reported that the United States produced 8.95 million barrels per day of crude oil, natural gas liquids and other liquids in May 2011. The 10.9 million barrel projection implies total production growth of 21.8% over the next six years.

Despite the optimism on oil production, the United States will still be a net importer of this commodity even under an unconstrained development scenario under which production rises to approximately 22 million barrels per day by 2035.

Environmentally Responsible Development
The final conclusion was that the oil and gas resources need to be developed in a responsible manner to gain the trust of the public. The study also recommended educating the public on the risks of drilling and quoted a study from MIT that found only 43 gas well accidents out of nearly 20,000 wells drilled over the last decade.

The Bottom Line
The conventional wisdom on the amount of natural gas and oil resources in the United States appears to be incorrect, with the only question being whether we will allow these resources to be developed.

Resource Stocks Breaking Out Of Bases and Forming New Uptrends (GLD, SLV, GDX, GDXJ, URA, UUP, TLT)

2012-01-19T00:04:00.000-05:00

The end of 2011 and the beginning of 2012 greeted investors with spooky market stories to scare investors. A prominent cartoon in the Wall St. Journal depicted a pretty lady shrieking, “The DOW Sank 17%”. Another balloon read “The US Loses Its AAA Rating”. She is screaming, “Who Will Fix Europe?”. Another caption reads, “$71 Billion Yanked From U.S. Stock Mutual Funds”. Another hysterical cry exclaims, “I Want Treasuries!”. As if that cartoon wasn’t enough to scare readers, the headline read, “Spooked Investors Seek Safety: Volatile Quarter Leaves Market Victims Wondering What Is Next”. Another ghastly pronouncement we wrote in early October to the surprise of many was, “Beware Of Stock Market Rallies Ahead”.

There was altogether too much gallows talk in circulation when we sent out the above chart on the S&P500 (NYSEARCA:SPY). We were brief and to the point and expected a potent rally especially in our oversold uranium (NYSEARCA:URA) and rare earth miners (NYSEARCA:REMX). In early October, we noticed positive signals on our indicators suggesting that an impressive rally was in the offing especially in our deeply oversold industrial metal miners (NYSEARCA:DBC).

Cutting straight to the chase we have witnessed a potent rebound where many of the oversold miners rebounded impressively in 2012. This demonstrates that there is plenty of cash waiting on the sidelines to continue supporting a strong rally. As we said, “When the need is sorest, so the answer comes soonest.” Suffice it to say, that the rally in the undervalued junior (NYSEARCA:GDXJ) and industrial (NYSEARCA:REMX) miners has begun and is continuing.

As we write Bernanke is testifying that the “Federal Reserve is ready to take further actions to spur growth”. They are meeting next week and may announce a transparent horizon of accommodative actions. This is in keeping with our expectations of a potent, surprise rally.

The recent rally in the U.S. dollar (NYSEARCA:UUP) and the long term treasuries (NYSEARCA:TLT) represents a thin blanket for a cold night that is not going to last. This liquidity crisis is presenting a buying opportunity for promising, oversold and beaten down natural resource equities which have been pummeled in a merciless market. Since early October, we are continuing to watch this impressive rally and the breaking out of many quality companies into new uptrends.

Gold’s (NYSEARCA:GLD) accelerated move to $1900 prior to the decision past overhead resistance indicated the market was waiting for an inflationary QE3. The market got a surprise as Bernanke announced a tepid twist. Negative news which causes a temporary decline with a rapid recovery indicates resilience. The precious metals market appears to be finding its footing and now may return to close some of those downside gaps created in 2011.

The recent selling panic in gold (NYSEARCA:GLD) and silver (NYSEARCA:SLV) bullion at the end of 2011 has abated and reversals are beginning to occur.

The uranium (NYSEARCA:URA), silver (NYSEARCA:SIL), copper (NYSEARCA:COPX) and rare earth stocks (NYSEARCA:REMX) appear to be breaking downtrends and out of bases. The juniors (NYSEARCA:GDXJ) look like they are beginning to outperform the majors (NYSEARCA:GDX). The smaller miners have reached compelling valuations that long term, contrarian investors can use to their benefit by adding to positions or initiating purchases in favorite stocks or sectors which one has not participated in yet. We must understand the long term trends and realize this is a rare opportunity to pick up resource stocks just beginning new uptrends and breaking out of bases. Don’t ignore this recent rally.

Jay Taylor: Turning Hard Times Into Good Times

2012-01-18T00:06:00.002-05:00

1/17/2012: Ian’s 1012 Forecast. Is this The Year for Dow 1,000 & $4,000 Gold?

London Trader - Staggering Gold Demand Creating Shortages

2012-01-18T00:06:00.001-05:00

With many global investors still concerned about the price of gold and silver, today King World News interviewed the “London Trader” to get his take on these markets. The source stated, “We’ve still got a very, very compressed spring because the shorts are still trying to defend their positions, their naked short positions in both the gold and silver markets. As an example, in the silver market, you saw that type of activity in the silver ETF (SLV). Shorts borrowed another 3 million ounces to cover immediate delivery concerns. There are 25 million ounces now borrowed from SLV. It is getting worse and worse for them.” (more)

Cycles in Dow Market History: Where Are We Now?

2012-01-18T00:06:00.000-05:00

Following on from my overall summary chart of 110 years of the Dow Jones Industrial Average (DJIA) published here last week, further detailed analysis serves to demonstrate that volatility has been reliably consistent for the past 110 years, and now is no different. Leading on from last week's DJIA summary, I discovered on the 10base LOG chart that there was an approximate 16.6 year bounding box with 43% depth that could be repeatedly applied throughout the entire DJIA price history – stacked vertically and added horizontally. I have since discovered this was no accident, and the chart below shows you how it was derived, in both time and price.

The completed annotated DJIA chart – (using LOG based quartiles)

Click for a larger image

Notations show alternating periods, highlighted volatility, and the amount of growth in quartile boxes (in blue). A similar chart can be done using a quintile LOG chart, but the repeating range is predominantly in quartiles.

After a bit of Photoshop pasting with an overlay of Doug Short's Q Ratio analysis (sourced here), we get this interesting result.

Click for a larger image

The chart above shows that the previous growth cycles have all commenced on a Q Ratio low, as it did in 1983, and would also be timed similarly for lows in other market value ratios such as cyclical P/E ratios, etc. It further confirms the current level of the Q Ratio, after the growth period into 2000, is yet to reach anywhere near the low levels of the three previous consolidation periods.

Where do I think we are now?

As of January 2000, we had just completed another ten-fold increase in the DJIA index, as a result of a clear up-leg with excess rate of growth that was almost 3% steeper that the growth out of the 1932 low. This has ended in what appears to be a failed top similar to 1900-1910. So it stands to reason that we are in another sideways consolidation period. Using the 4181 cycle lines, the current cycle period expires approximately October 2015. The rise that has occurred during the previous cycle is the steepest sustained move in the DJIA history analyzed.

One century after the 1900's, it now seems obvious that we are heading back into the equivalent of 1930. The 20th century completed a large expansionary phase of historic technological advance on the back of the industrial revolution of the 19th century. Unfortunately we are now in the stronghold of rampant monetary stupidity, feeding banks with mindless public capital with a net result of simply blowing bubbles. Just as the early 1900's were to the 1800's, so too is this phase of the 21st century to the century past. Nothing has changed.

We are essentially in the 21st century version of 1910 heading into 2030 déjà vu all over again. As per the chart below...

Click for a larger image

...one hundred years later, do we find ourselves back in the same spot?

Baltic Dry Index Slumps To Lowest Since January 2009

2012-01-18T00:05:00.003-05:00

The apparently critical-when-its-going-up-but-ignore-it-when-it-is-falling index of the cost of dry bulk goods transportation has ‘crashed’ in the last few weeks to its lowest level since January 2009 (back below 1000 according to today’s levels). Whether this is seasonal output differences or weather impacts, it seems clear that lower steel output in China and a decline in European imports is having its impact on global trade. The index has fallen for 19 days in a row, down almost 50%, its largest drop since the harrowing period of Q4 2008.

The change over the past 19 days (of freefall) is almost 50%, its largest drop since Q4 2008…

and only the third largest ever monthly percentage drop in dry bulk rates…

http://www.zerohedge.com/news/baltic-dry-index-slumps-lowest-january-2009

Ellis Martin Report With Jim Sinclair – QE3 and Hyperinflation

2012-01-18T00:05:00.002-05:00

Chart of the Day - Chipotle Mexican Grill (CMG)

2012-01-18T00:05:00.000-05:00

The "Chart of the Day" is Chipotle Mexican Grill (CMG), which showed up on Friday's Barchart "All Time High" and the "Gap Up" list. Chipotle on Friday posted a new all-time high of $355.00 and closed up 2.01%. TrendSpotter has been Long since Dec 5 at $336.21. In recent news on the stock, William Blair last Friday upgraded Chipotle to Outperform from Market Perform citing the company's strengthening sales momentum. Goldman on Jan 4 upgraded Chipotle to Conviction Buy from Buy and raised its target to $410 from $390 due to strong EPS growth and lower food costs. Chipotle Mexican Grill, with a market cap of $10.9 billion, is a restaurant chain that offers a menu of burritos, tacos, burrito bowls and salads made from fresh, high-quality raw ingredients, prepared using classic cooking methods and served in a distinctive atmosphere.

Bloomberg Reports That Greek Private Creditor Deal Near, At 32 Cent Recovery, According To Hedge Fund Involved

2012-01-18T00:04:00.002-05:00

Last year it was bank posturing, coupled with Germany and the rest of the Eurocore countries, when it comes to Greece. Now it is the hedge funds. Bloomberg has reported that the Greek private creditors have "reached a deal" with Greece on existing debt which "would give creditors 32 cents per euro", or a 32% recovery according to Marathon Asset Mgmt CEO Bruce Richards, who until recently was a bondholder, but recently has been rumored to have dumped his holdings, which makes one wonder why or how he is talking for the creditor committee. Of course, with Greece now a purely bankruptcy play, we expect various ad hoc splinter "committees" to emerge, coupled with an equity committee as well (yes yes, we jest). Bloomberg reports also that Richards is "highly confident" a deal will get done. Nonetheless, the Marathon CEO expects Greece won’t make the €14.5 billion ($18.5billion) bond repayment scheduled for March 20. However, he does see a deal with creditors to be in place before then. For now the Greek government has declined to comment. We fully expect the IIF's Dalara to hit the airwaves shortly and to make it all too clear that the implied 68% haircut is sheer lunacy. Naturally, should this deal come to happen, we can't possibly see how Portugal, Spain or Italy would then sabotage their economies just so they too can enjoy 68% NPV haircuts on their bonds. Finally, even if Marathon likes the deal, all it takes is for one hedge fund hold out to necessitate the application of Collective Action Clauses which would blow the deal apart, create a two-tiered market, and effectively create the perception that the deal was coercive.