Dow `Super Boom' to Drive Average to 38,820 by 2025, Hirsch Says

Bloomberg,

The Dow Jones Industrial Average will surge to 38,820 in an eight-year “super boom” beginning in 2017, according to Jeffrey A. Hirsch, editor in chief of the “Stock Trader’s Almanac.”

“All previous major economic booms and secular bull markets were driven by peace, inflation from war and crisis spending, and ubiquitous enabling technologies that created major cultural paradigm shifts and sustained prosperity,” he wrote in a press release sent with the 44th edition of the book.

Hirsch’s forecast comes more than a decade after James K. Glassman and Kevin A. Hassett predicted the Dow would rise to 36,000 by 2005 in “Dow 36,000,” a New York Times bestseller. The 114-year-old average ended 1999 at 11,497.12 and sank as low as 7,286.27 in 2002 following the Internet bubble. The Dow then jumped to a record 14,164.53 in 2007 and fell to 6,547.05 in March 2009 after the worst financial crisis since the 1930s.

“He’s got some crazy number on there,” said Frank Ingarra, a Stamford, Connecticut-based money manager at Hennessy Advisors Inc., which oversees about $900 million. “We’ve had probably one of the worst 10-year periods in history, and I think there’s just too much overhang with the government for it to get to those numbers.” (more)

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Gold’s next hurdle is 1980’s inflation-adjusted peak

(MarketWatch) — Gold hit a long-anticipated high-water mark Friday, briefly breaking through $1,300 an ounce. But the precious metal still has a long way to go to reclaim its inflation-adjusted all-time highs.

A gold investor who bought an ounce of the metal at its January 1980 peak would need gold to advance by more than $1,000 an ounce from today’s record levels to come out ahead when 30 years of inflation are taken into account.

People who bought gold in 1980 “have not even halfway broken even,” said Jon Nadler, a senior analyst with Kitco Metals.

On Friday, gold for December delivery, the most active contract, posted an intraday high of $1,301.60 an ounce and closed at $1,298.10 an ounce on the Comex division of the New York Mercantile Exchange. That was its sixth record high in the past seven sessions. Read more on metals stocks.

The $1,300 mark “was the line in the sand between bulls and bears,” said Adam Klopfenstein, a senior market strategist at Lind-Waldock in Chicago.

Gold bulls had been yearning to cross that mark since gold first made forays into record high territory in May, amid the flare-up of the European debt crisis. Even many gold bears had admitted gold was on track to hit $1,300 an ounce later this year or next year. (more)

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Rare Earth Investment Potential Is Great... If You Are Patient

Rare earth metals are becoming all the rage in investing circles. It began with James Dines’ recommendation in May 2009.

Europium

Dines has been known to forecast long term bull markets before they begin with surprising accuracy, so it was no surprise that his recommendation to invest in Rare Earth minerals jump started the buzz and put rare earth investing on the map for the general public.

Since that newsletter was published, several rare earth stocks have taken off. Most notably, Molycorp (MCP) has spiked to 28.49 since the IPO in August. Clearly investors are front running the stock since domestic development of rare earths lags that of Chinese competitors. China accounts for 95% of rare earth mineral supply. Here is a chart showing crucial mineral production areas, including rare earth. (more)

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Japan: the next global time bomb?

We try to avoid hyperbole as much as possible at Hedgeye, the research firm where I work as an analyst. But after researching Japanese demographics and pension obligations, we have to say that in our opinion, they present one of the most dangerous potential risks to global investing over the next 10-20 years.

For background, let's explain Japan's demographic headwinds, which often get bandied about without much supporting data. For starters, with 22.7% of its population above the age of 65 (as of 2009), Japan has the world's oldest population. That figure will continue to grow; Japanese government projections raise the ratio to 29.2% by 2020 and 39.6% by 2050.

Currently, the ratio of retirees to working-age Japanese is 35.5%. In just 10 years time, retirees will make up 48%. In a society notorious for luxurious pension packages, going from a 3-to-1 to almost a 2-to-1 ratio in contributors-to-retirees in a matter of just a decade is frightening to say the least. And it doesn't get any better: By 2050, the ratio of retirees to working-age population will reach 76.4%, according to projections from Japan's Ministry of Health, Labour and Welfare. (more)

Watch out for bond mines

by Andrew Pyle, Wealth Advisor ScotiaMcLeod,
Last week, the Federal Reserve did something it had done 13 times prior. It kept its official fed funds target rate unchanged at 0 to 0.25 per cent.

I know – a big snore. But wait, the Fed also repeated the less common promise to unveil the sequel to quantitative easing, the so-called QE2.

Yes, that stimulative tease was conditional on things in the economy not getting any better and, more importantly, on inflation staying below what the Fed considers satisfactory.

However, even though there was no date set for when the Fed might engage in bond buying, nor how it would do so, the fixed income market ate it up all the same.

Look Out Below

Following the announcement, the U.S. two-year Treasury yield dropped to a record low 0.41 per cent and longer-dated bond yields fell sharply as well. Throw in a sluggish equity market after the FOMC and we saw the 10-year U.S. yield dip back below 2.6 per cent and the 30-year fell under the 3.75 per cent mark - both not too far from the lows seen back in late-August. (more)

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Thriving with Gold and Juniors in the Greater Depression

by Doug Casey,

The Gold Report: Doug, at a recent conference you said that the U.S. ought to default on its national debt now. Why that rather than letting it play out?

Doug Casey: Several other things almost equally radical should be done besides defaulting on the debt. I recognize that an outright default is most unlikely, but the national debt should be defaulted on for several reasons.

To start with, once the U.S. government defaults on its debt, people will think twice before lending it any more money; giving politicians the ability to borrow is like giving a teenager a bottle of whisky and the keys to a Corvette. A second reason is that the debt is an albatross around the necks of the next several generations; it’s criminal to make indentured servants out of people who aren’t even born yet. A third reason would be to overtly punish those who have been lending money to the government, enabling it to do all the stupid and destructive things that the government does with that money.

The debt will be defaulted on one way or another. The trouble is they’re almost certainly going to default on it through inflation, by destroying the currency, which is much worse than defaulting on it overtly. That’s because inflation will wipe out the relatively few people who are prudent in this country, those who are actually saving money. Because they generally save in the form of dollars, they’re going to wipe them out financially.

It’s just horrible. Runaway inflation will reward the profligates who are in debt—people who’ve been living above their means. And punish the producers who’ve been saving and trying to build capital. That’s in addition to the fact it will destroy millions of productive enterprises. A runaway inflation is the worst thing that can happen to a society, short of a major war. They just should default on it honestly, as it were. (more)

When Investors Fail, This Is a Reason Why...

David B. Armstrong/ US News,

It seems obvious, but one way your financial plan or investment strategy will fail is if you buy high and sell low. Simple enough, right? With interest rates at an historical low, it makes you wonder why billions of dollars are flowing out of equity portfolios and into bond portfolios.

To most investors, bonds provide a sense of safety and stability. The problem is that they are subject to market and interest-rate risk. This means that the market prices of bonds do change, a fact that almost anyone who has owned them over the past 12 to 18 months can happily tell you.

The actual math behind bond pricing can quickly become complicated, but remember that there are two primary forces at work every day in the bond market: the demand (or lack of) for bonds and the direction of interest rates. These forces, separately or together, will cause bond prices to move. When interest rates go lower, the prices of bonds go up. When investor demand for bonds increases, so does the price a seller demands to sell them.

The problem is that the converse is true as well. (more)

Central Banks No Longer Selling Gold (Duh Factor: 10/10)

Something funny (and quite revolutionary) happened during the CBGA's (Central Bank Gold Agreement) year ending this Sunday - the group of 15 signatory banks sold a mere 6.2 tonnes of gold, a massive 96% decline from the year earlier, according to provisional data.This means that unlike in the past, when it was central banker prerogative #1 to sell some gold and every year just to keep all the longs on their toes, this year the trend has finally changed. As the FT reports, "the sales are the lowest since the agreement was signed in 1999 and well below the peak of 497 tonnes in 2004-05." And yes, we do love the FT's brilliant summation of the change in mindset: "In the 1990s and 2000s, central banks swapped their non-yielding bullion for sovereign debt, which gives a steady annual return. But now, central banks and investors are seeking the security of gold." Hm, when all of Europe (as well as America) is a smoldering heap of bearer bonds that will never get paid, and China is putting up a building today, only to blow it up yesterday, and boast a GDP growth rate of one gajillion, the FT may want to change the bolded assumption. Back to the Captain Obvious narrative of the original article: "The lack of heavy selling is important for gold prices both because a significant source of supply has been withdrawn from the market, and because it has given psychological support to the gold price. On Friday, bullion hit a record of $1,300 an ounce." So market zero supply, and demand that is growing exponentially, means higher prices, eh? All those Voodoo 101 classes, and Poison Ivy college loans sure are paying off in droves... (more)

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Banks Keep Failing, No End in Sight

Wall Street journal,

The largest number of bank failures in nearly 20 years has eliminated jobs, accelerated a drought in lending and left the industry's survivors with more power to squeeze customers.

Some 279 banks have collapsed since Sept. 25, 2008, when Washington Mutual Inc. became the biggest bank failure on record. That dwarfed the 1984 demise of Continental Illinois, which had only one-seventh of WaMu's assets. The failures of the past two years shattered the pace of the prior six-year period, when only three dozen banks died.

Two more banks went down last Friday, and failures are expected to "persist for some time," according to a report issued Tuesday by Standard & Poor's. In the second quarter of this year, the Federal Deposit Insurance Corp. increased its number of problem banks by 6% to 829.

Between failures and consolidation, the number of U.S. banks could fall to 5,000 over the next decade from the current 7,932, according to the top executive of investment-banking firm Keefe, Bruyette & Woods Inc.

The upside of failures is that they can represent a healthy cleansing of a sector that grew too fast, with bank assets more than doubling to $13.8 trillion in the decade that ended in 2008. Many banks that failed were opportunistic latecomers. Of the failed banks since February 2007, 75 were formed after 1999, according to SNL Financial. (more)