Wednesday, December 1, 2010

Smart Money Preparing For Sell Off Like Never Before

Zero Hedge readers already know that in the latest week the insider selling to buying ratio hit unprecedented levels. Obviously, corporate officers and insiders have decided to take advantage of the artificial wealth effect and bail, especially since it is still unclear whether capital gains taxes will be the same in the following year. However, it is not only insiders who see between the lines. As the following charts demonstrate, the smart money is now either bailing from the stock market in droves or hedging for a market crash like never before...

First, from Sentiment Trader, here is the put/call ratio. Self-explanatory: (more)

10 Investing Facts You Probably Don't Know -- but Should

The securities industry spends hundreds of millions of dollars a year in advertising, but that doesn't mean the general public is getting the straight scoop. Nor does the blanket coverage from the financial media ensure that the public is shielded from misinformation. So, as you contemplate investing for the New Year, here are 10 facts you probably don't know (but should):

1. This wasn't the "lost decade": All the talk about the "lost decade" is complete nonsense. Investors who bought and held a globally diversified portfolio of low-cost stock and bond index funds did just fine. Dividing that portfolio into 60% stocks and 40% bonds, while not suitable for everyone, is an average asset allocation and is routinely used by defined-benefit retirement plans. The annualized return for that asset allocation for the past decade was approximately 6%. Investors in a portfolio of 100% stocks, invested in the same globally diversified manner, had an annualized return of almost 8%. But, yes, it was a "lost decade" for those who invested all of their assets just in the S&P 500. I don't know why anyone would do that. I also don't understand why any "expert" would use that index as a benchmark for the entire market. It isn't.

2. "Great" companies can be lousy investments: Consider Lehman Brothers, WorldCom, General Motors, Conseco and Chrysler. Companies that are "great" one day can tank the next. There's no way to tell who's next. (more)

Jay Taylor: Turning Hard Times Into Good times

click here for audio

As The Euro Goes The Way Of The Dodo, Where Does That Leave The Dollar?

The Eurozone is heading for a crash—anyone saying otherwise is either stoned, works in Brussels, or hasn’t checked the European bond market action lately: All hell is breaking loose there.

The Euro:
A famed, flightless bird, now extinct.
And if, as I have argued here, the Irish Parliament decides not to pass the austerity budget next December 7—that is, decides not to take the European Central Bank bailout—then hell is going to break out in Europe just in time for Christmas: Satan and Santa Claus just might be squaring off on the Rue Belliard before year’s end.

Therefore, the smart money starts thinking about what’s going to happen after the euro-crisis-climax happens.

In other words, what’s going to happen to the dollar, once the euro goes the way of the dodo.

First, we have to understand how we got here, in order to figure out what’s going to happen next. (more)

BNN: Top Picks

Derek Webb, Chairman and CIO, Webb Asset Management, shares his top picks.

click here for audio

Uranium Price Hits 2 Year High

The new yellow metal In town

In 1883, an historic cataclysm of 10 days that shook the world and vaporized Krakatoa, an island between Java and Sumatra. An umbrella of ash rose 50 miles high and sent sonic reverberations 7 times around the world. Deaths numbered 120,000. Scientists of that time were awed by the magnitude of nature’s forces that were being unleashed. They speculated that one day ways would be found to harness this energy. Even The Bible concurred with the physicists that all inert matter contained particles of energy that if harnessed could provide inexpensive and abundant energy to replace the coal, steam and oil that fueled the industrial revolution of that era. Now if Faraday’s and Boyle’s could return to 2010 they could witness the fulfillment of their most visionary dreams with the advent of The Nuclear Age.

International demand for U2O6 is rising. Knowledgeable investors who made a killing when uranium reached a $136 a pound in June 2007, are once again in the accumulation mode. The Russians, Koreans, and particularly The Chinese are investing in joint ventures all over the world to gain control of future supply. In fact our contract for Russia dismantled nuclear warheads expires in 2013, not far away. This will further exacerbate the supply and demand deficit. China is likely to purchase off take agreements with uranium miners who do not have any. It is important to find the miners who are in the driver’s seat. This is the miners market to catch a solid big at higher levels. Certain miners who are close to production with uranium that is not yet purchased are setup to reap the benefits of this hot sector. (more)

US Real Estate Prices

Time to Sell Bonds

Every time a frightening headline jolts the financial markets, investors flock to the relative “safety” of US Treasury bonds. But just how safe is a “safe” Treasury bond?

The most insidious and dangerous part of the global debt story is hiding in plain sight. US Federal debt is now roughly 85% of American GDP, according to “official” figures. But after including the present value of future liabilities like Social Security and Medicare, US debt-to-GDP soars to nearly 500%.

This kind of debt could push even the world’s most powerful nation down the slippery slope to default. If China, Japan and other big foreign American creditors abandoned the Treasury market, bond prices would plunge and bond yields (which move inversely to price) would soar. Tellingly, bond prices have been dropping already, despite the Fed’s massive $900 billion quantitative easing ($600 billion of new money and $300 billion from maturing securities) initiative designed to keep bond prices high and yields low.

US Treasury debt was once regarded as the safest in the world, but that is changing faster than most realize. Earlier this month the yield on 30-year Treasury bonds climbed briefly above 30-year fixed-rate mortgage securities. This bizarre configuration still persists, which means that the market views John Q. Mortgage-Holder as a safer credit than Uncle Sam. This is not a bullish development. (more)

Bonds, commodities & equities: they can't all go up


Emerging market government bonds have been in a bull market for nearly two years, but then, so have emerging market equities, and dollar commodity prices. This trifecta has a number of parallels, not least rallies in many other indices, particularly on the equities front.

Overlooking a few exceptions in exotic places like Greece and Ireland, most equity markets have been on the rise since early 2009, after investors conceded that the world did not end during the 2008 "global financial crisis".

Emerging market equities have outperformed those in the developed world. Portfolio flows have been attracted by higher growth prospects in emerging markets, along with relatively well-managed macroeconomies, benign inflation, balanced government finances, and generally prevalent trade surpluses. The general trends have encouraged strong flows into emerging market bonds, and dollar commodity prices have been firmly supported by heavy raw materials growth in developing nations. (more)

5 ETFs paying fat dividends

If you’re an income investor, your primary concern is finding solid investment vehicles paying out impressive high dividend yields. Sure, there are a lot of individual stocks out there paying good dividends, but trying to determine which stocks are best is often a trying task. Fortunately, the exchange-traded fund (ETF) landscape is wide enough now that you don’t have to venture into individual equities to get a diversified basket of high dividend yield stocks. Today, there are many ETFs that do just that, and the following five are the highest-yielding of the bunch. (See our recent article on 9 dividend paying stocks).

PowerShares Preferred (PGX)

Topping our list of high dividend yield ETFs is the PowerShares Preferred (PGX). This fund seeks investment results that correspond generally to the price and yield performance of an index called The BofA Merrill Lynch Core Fixed Rate Preferred Securities Index. Basically, with PGX you own preferred stock in some of the best financial companies around, including JP Morgan Chase (JPM), Barclays (BCS) and Wells Fargo (WFC). As of Septmeber 30, PGX paid an annual dividend yield of 6.98%. (more)

Bank on Financials’ Sell-off Buy SKF below $19 for a short-term trade

ProShares UltraShort Financials ETF (NYSE: SKF) — This exchange-traded fund (ETF) seeks to achieve results that are twice the inverse of the daily performance of the Dow Jones U.S. Financial Index.

SKF is extremely volatile. In March 2009, this inverse ETF traded at over $260, but is now below $20.

The recent jump through its 50-day moving average means that a challenge to the bearish resistance line at $22.50 is possible, and a small head-and-shoulders break on the S&P 500 would give SKF a push. Since the stochastic is overbought, try to buy SKF below $19 with a target of $22 to $23.

This leveraged ETF is only suitable for short-term trading, not long-term investing. Please check with your broker regarding possible margin requirements. And, recognizing the high risk of this trade, place a stop-loss order at the time of execution.

Stocks end November with a whimper

( -- Stocks started November with a bang but ended it with a whimper, as all three major indexes closed the day and month lower on Tuesday.

A stronger-than-expected report on consumer confidence muffled some losses, but the market couldn't fully recover from a weak housing report and concerns about Europe's economy.

The Dow Jones industrial average (INDU) lost 46 points, or 0.4%, but remained barely above the 11,000 mark at 11,006.02. The S&P 500 (SPX) fell 7 points, or 0.6%, to close at 1,180.55, and the Nasdaq (COMP) dropped 27 points, or 1.1%, to end at 2,498.83.

It was a downbeat end to a month that started out strong. The Dow and Nasdaq shot to two-year highs in early November after the Republican success in the Congressional election and the Federal Reserve's announcement of a second round of economy-boosting asset purchases. (more)