Thursday, July 15, 2010

DJ TAKING STOCK: Investors Shouldnt Be Fooled By Another Breakout

Being fooled twice is enough to shame any investor, but how about three, or even four times?

The current rally marks the fourth time since early May that the Dow Jones
Industrial Average has bounced more than 5%. Previous bounces have taken the
Dow above key resistance levels, and yet subsequent declines have resulted in
even lower lows. Essentially, the recent pattern surrounding key technical
breakdowns and breakouts suggests the Dow is nearing yet another turning point.

It is easy for bulls to fall into another technical trap, since the Dow has
climbed above the 50-day simple moving average, which has acted as resistance
since the Dow first fell below it in early May, and is now peeking above a
downward sloping line that started at the April 26 high and connects the June
21 high. But rather than embolden bulls, the apparent breakout should actually
make them skeptical, especially following a six-session rally.

McAlvany Weekly Commentary, July 14, 2010

Know When to Hold-Em, Know When to Fold-Em: Munis, Mortgage Backs, & Vegas (Know When to Run)

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Autos and Gasoline Drag Retail Sales Lower in June



Sales at U.S. retailers fell for a second straight month in June and businesses wary of ebbing demand barely raised inventories in May, more evidence the economic recovery has slowed in recent months.

Retail sales slipped 0.5 percent last month, pulled down by weak receipts at automotive dealers and gasoline stations, the Commerce Department said on Wednesday. The decline outstripped the 0.2 percent fall economists had expected and followed a 1.1 percent drop in May.

The data comes on the heels of an unexpectedly wider trade deficit in May and prompted economists to trim growth forecasts for the second quarter.

"Activity at the end of the quarter was much weaker than at the start," said Paul Dales, a U.S. economist at Capital Economics in Toronto. "It has therefore become much more likely that private sector demand will not be able to offset the fading fiscal stimulus." (more)

BNN: Top Pikcs of Gordon Reid, president and CEO, Goodreid Investment Counsel Corp.,

click here for video

The Bearish Bull

By Neil Charnock

I have taken some excerpts from our new GoldOz Newsletter service to construct this article. Even the hedge funds boys are reportedly dazed by market action after their worst performance in 18 months during May. Has it been difficult to assess the markets this year? No it has been extremely hard. This is firstly because of the political and regulatory changes that are clouding the picture. The second difficulty is that we are transitioning into a new financial world and I do not say this lightly.

Take Greece for example where there are riots in the streets and default hangs directly overhead. They need strong growth to provide an economy that can pay back debt and thereby overcome chronic deficits. Yet SME’s (Small to Medium Enterprises) have only been able to borrow €85M in the past 6 months to end June this year and at a whopping 22% average interest rate. In 2009 by contrast they borrowed €900M.

Changes are part of the system and quite normal. What we refer to is different I assure you. In general terms most people are chronically bad at change therefore the adjustment will be confusing and painful for many. What was the old normal and why am I talking about this? It has huge ramifications for gold that’s why. I am discussing an essential reason for gold to go up and the timing of such an event. (more)

Pimco Turns to Stocks, Alternative Assets

By: Dan Weil

Pimco, the bond fund management firm led by Mohamed El-Erian and Bill Gross, is taking a crack at stocks and alternative assets.

The duo expects subpar economic growth in the United States and Europe during the next few years, thanks to governments’ exploding debt burdens. They’ve dubbed this scenario the “new normal.”

The paltry returns available in bonds will send investors to other assets, El-Erian says. So Pimco has started a stock mutual fund and a division to invest in hedge funds, real estate and buyout funds.

“We are living through a remarkable time of change,” El-Erian told Bloomberg Markets. “We want to make sure we navigate the changes for our clients.” (more)

Raising retirement age to 70 touted as needed to save Social Security

Raising the normal retirement age to 70 is a needed first step, leading experts say.

The time has come for the nation to face some facts, and according to Republican U.S. Rep. John Boehner of Ohio, the House minority leader, that means fixing Social Security by raising the normal retirement age to 70 for future retirees, from the current 67.

Boehner wants to increase the retirement age to 70 for people who have at least 20 years until retirement. He also wants to tie cost-of-living increases to wages rather than the consumer price index and to limit payments so they go to only people who need them, according to published reports. The current Social Security "normal retirement age" for those born in 1960 or later is 67. (more)

Collapse in Living Standards in America: More Poverty By Any Measure

More than 15 million Americans are unemployed, homelessness has increased by 50 percent in some cities, and 38 million people are receiving food stamps, more than at any time in the program’s almost 50-year history.

Evidence of rising economic hardship is ample. There’s one commonly used standard for measuring it: the U.S. Census Bureau’s poverty rate. It guides much of federal and state spending aimed at helping those unable to make a decent living.

But a number of states have become convinced that the federal figures actually understate poverty, and have begun using different criteria in operating state-based social programs. At the same time, conservative economists are warning that a change in the formula to a threshold that counts more people as poor could lead to an unacceptable increase in the cost of federal and state social service programs. (more)

Fear Index rises to 16-year high

The following chart illustrates the Fear Index at the end of each month since December 1967. It also highlights important low points in the Fear Index and the gold price at those points in time.

There are two important conclusions to be made from the above chart.

1) The Fear Index remains in an uptrend. Given the ongoing uncertainty about bank solvency and sovereign debts that cannot be repaid, there is no reason to assume that the Fear Index is about to reverse course any time soon. It is therefore reasonable to expect that the Fear Index will keep climbing higher. Given the formula above, this result can be achieved in two ways. M3 has to decline and/or the gold price must rise. I expect it will be the latter.

2) Do not be misled by today’s seemingly high price of gold. Even though gold was $1,240 at June 30th and near its record high price, gold remains good value. Note that the Fear Index is still less than the 2.49% low it reached in February 1985. The Fear Index is still less than the 2.60% level marked by the dashed line on the above chart that I have used to delineate exceptionally low levels reached by the Fear Index.

Thus, gold remains good value and should continue to be accumulated. The Fear Index makes clear that gold’s high price is simply a result of the debasement of the dollar, and not that gold has become overvalued. (more)

Peter Schiff: Dollar, credit ratings, China, short-term debt

Oxford Research Group Concludes Israeli Attack On Iran Would Start Long War

One wonders how many Ph.D. were consulted in the preparation of this report. Yet aside from the glaringly obvious, there are some other interesting observations. "An Israeli attack on Iran would be the start of a protracted conflict that would be unlikely to prevent the eventual acquisition of nuclear weapons by Iran and might even encourage it. Long-range strike aircraft acquired from the United States, combined with an improved fleet of tanker aircraft, the deployment of long-range drones and the probable availability of support facilities in northeast Iraq and Azerbaijan, all increase Israel's potential for action against Iran." According to the report, it might take three to seven years for Iran to develop a small arsenal of nuclear weapons if it decided to do so. Also, the report wisely states that an Israeli strike would be focused not only on destroying nuclear and missile targets but would also hit factories and research centers and even university laboratories to damage Iranian expertise. Shockingly, this would cause many civilian casualties. Oxford believes Iran's retaliation would include withdrawing from the nuclear Non-Proliferation Treaty and the production of nuclear weapons to deter further attacks. Other recourse would include missile attacks on Israel, closing the Strait of Hormuz to push up oil prices and paramilitary or missile attacks on Western oil facilities in the Gulf. Fun bedside reading. (more)

Taking Advantage of the Oil Refining Slump

Thomas O’Malley, a 68-year-old investor, has made billions for himself and his backers as an investor in oil refineries — those twinkling jungle gyms of pipes and tanks and columns that turn crude oil into useful products like gasoline.

This is O’Malley’s playground. He has probably bought and sold more refineries than any man alive. He knows them like an old chef knows the inside of his kitchen.

O’Malley got rich by following a reliable formula. He bought refineries when they were cheap — castoffs, unloved by Big Oil — trading for less than the cost to build them. Later, he sold them for billions.

For example, in the aftermath of the 1987 crash, he picked up a 26% stake in Tosco, then a tiny refinery. O’Malley eventually turned Tosco into the largest independent refiner in America. He sold it to Phillips Petroleum (now ConocoPhillips) for $7 billion. (more)