How Did Those Dogs (of the Dow) Do in 2011? Lineup for 2012

The Dogs of the Dow is one of the easiest screens to run. Simply find the 10 highest yielding stocks in the DJIA and viola, you have the Dogs.

So far in 2011, the Dogs have returned a whopping 17% on average. Not bad considering all of the things that went wrong this year. Let’s take a look at the names from the most recent litter.

As it stands now, the list for 2012 has only a few new names that have changed. Chevron (CHV) is out and Proctor & Gamble is in. McDonald’s (MCD) is also out and will be replaced by General Electric (GE).

It is a simple strategy that is rotated/rebalanced once a year and has done a decent job of beating the DJIA over time.

For more, check out Dogsofthedow.com.

George Soros Sees Gold as the “Ultimate Asset Bubble”

Gold is set to finish its 11th consecutive year of gains, the longest winning streak in at ninety years, and is on the brink of a bear market, says George Soros. The billionaire who called it the “ultimate asset bubble” two years ago, reduced his gold and gold related by 99 percent in the first quarter of 2011, according to the Securities and Exchange Commission data.

Betty Liu reports on Bloomberg Television’s “In the Loop.”

Gold Bubble Seen by Soros on Brink of Bear Market

Source: Dec. 29 (Bloomberg)~~~

See also

George Soros Says Markets Are `Always Fallible’

Billionaire investor George Soros talks about global financial markets and his philanthropy. He speaks with Francine Lacqua on Bloomberg Television’s “Eye To Eye.” (Source: Bloomberg)Oct. 10 (Bloomberg)

Avoid The Generation Debt Trap

There is a worldwide generation that is marked by young, highly educated individuals who are often mired in unmanageable debt. In the United States it is called "Generation Debt," a phrase coined by author Anya Kamenetz. In Europe, it is called the "1,000 Euro Generation," a moniker credited to an internet novel published in Italy. How can young people all over the globe avoid this trap? Read on to find out.

Unmanageable Debt
Unmanageable debt is debt that can't be serviced without significant hardship to the borrower. More technically, it refers to non-housing related debt in excess of 8% of a person's gross income. The figure often comes into play when calculating eligibility for loans, particularly housing.

When it comes to housing loans, your front-end ratio , which consists of the four components of your mortgage: payment principal, interest, taxes and insurance (often collectively referred to as PITI), should not exceed 28% of your gross income. Your back-end ratio, also known as the debt-to-income ratio, should not exceed 36% of your gross income. The difference between the two is where the 8% figure comes from.

To calculate your maximum monthly debt based on these numbers, multiply your gross income by 0.36 and divide by 12. For example, if you earn $35,000 per year, your maximum monthly debt expenses should not exceed $1,050, of which not more than $816.60 should be dedicated to housing. That gives you about $233 a month to cover your car payment, school loans, credit cards and all other forms of debt. For those just starting out in the working world and earning a small salary, this really doesn't provide much room to service debts.

How Does it Happen?
There are many factors that lead to unmanageable debt. For one, there is the high cost of a college education, which CollegeBoard.org cites as $28,500 for one year at a f our-year private institution and $8,244 for one year at four-year public school, during the 20011-2012 school year. Students pay the price in the hope of securing high-paying jobs.

Some students are lucky enough to have their parents' help or scholarships to cover the cost, but many students are not this fortunate. According the FinAid.org, two-thirds of students graduate with some debt; the average undergraduate student loan debt is nearly $23,186, while graduate students, depending on the degree, end up owing an average of between $42,898 and $118,500.

If students accumulate credit card debt or lines of credit during school to pay for rent, food, car leases and other living expenses, their total debt upon graduation can really add up. As a result, many students start their careers with a considerable debt burden.

Housing: Buy, Rent or Move Back Home?
After crunching the numbers to address the question of where to live once they graduate, many young people realize that they can't afford to pay a mortgage on top of servicing their existing debt. Others decide to buy and end up house poor, and more than a few move back in with mom and dad, ending up as boomerangs.

Unrealistic Expectations
In addition to the costs of education and housing, a pervasive culture of consumerism encourages additional consumption, turning luxury items into necessities. Travel, cell phones and computers are among the possessions everyone seems to have. Everyone wants to live "the good life," but because not everyone can afford these items, particularly young people who are already carrying significant student debt loads, credit cards and borrowing often fill the gap.

Few people remember that things weren't always this way. In the not-so-distant past, people worked a lifetime to achieve their financial goals, and their goals were often modest. A house in the suburbs (not a McMansion ) was a huge achievement; in 1950, that home was about 983 square feet, but by 2011 the average size had ballooned to 1,800 square feet, according to the National Association of Home Builders. Similarly, baby boomers may recall that their parents' vacations were infrequent and often involved domestic travel. Other luxury items such as high-end cars and designer clothes have also become more common; in fact, marketers frequently refer to the "under-40 luxury consumer" as a key demographic.

Today, the affordability of travel, easy access to credit and heavy marketing efforts have changed the dynamic. Young people grow up seeing the lifestyles that their parents enjoy, and they want to live that way too, but without working for decades to achieve it. The end result is often unmanageable debt.

The Bottom Line
In our fast-paced consumer culture, the truth is that slow and steady still wins the race. Simple decisions, such as not spending more than you earn and learning to delay purchases until you can pay for them in cash, go a long way toward getting your financial house in order. In most cases, the biggest challenge you face isn't financial, but the need to curb your desire to spend.

While the lure of spending can be hard to resist, take your grandmother's advice and appreciate what you have instead of complaining about the things you lack.

2011: A Year in Review (video)

The Economist - 31 December 2011

The Economist - 31 December 2011
English | PDF | 76 Pages | 67.6 Mb


read it here

Closing Out 2011 — Six Graphs

Source: Decline of the Empire

As we enter the final weekend of 2011, it seems appropriate to look at some data which sums up our position. Believe it or not, this was a pretty good year. Count your lucky stars. There was a small oil price shock, but not a really big one. According to the official data, we did not have a recession. We didn't have another financial crisis. This has been called muddling through.

Nonetheless, there is no reason to feel good about our prospects, as the next six graphs demonstrate.

Click to enlarge. From Doug Short's The Divergence Between Gasoline And Oil Prices Can't Last For Long. The "official" CPI, which is almost certainly understated, is on the left. Look at the items circled in red. Energy costs have increased 114%, medical care has gone up 58%, and college tuitions have risen 112%. By various measurements, like median household income, incomes for all but the top-tier earners have declined since 2000.

From Gregor MacDonald's Under the Surface of Non-OPEC Supply. You can see that oil production outside of OPEC is flat. Gregor says "In 2002 Non-OPEC oil production contributed 60.75% of the world’s total oil supply... So far in 2011, Non-OPEC oil production now accounts for 57.12% of global supply, with nearly 1/4 of that now coming from Russia... Technology, competition, and access to capital ... have not been able to overcome the limits of geology. Global giants such as Royal Dutch Shell and Exxon Mobil have essentially abandoned the effort to meaningfully expand their oil reserves. Instead, they are now shifting course in favor of a strong, natural gas emphasis."

From Zillow's U.S. Homes Expected to Lose Nearly $700 Billion in Value in 2011. "Homes in the United States are expected to lose more than $681 billion in value during 2011... While homeowners suffered through another year of steep losses, the good news is that homes are losing value at a substantially slower pace as the market works its way towards the bottom ... Compared to last year when we saw sharp declines following the expiration of the homebuyer tax credits, this year we saw some organic improvement in home values, in terms of a slowed depreciation rate, which resulted in a smaller total value loss for the year. Zillow’s analysis shows less value was lost in the latter half of the year due to increased stabilization of home values." Now look at the next graph.

Click to enlarge. From Barry Ritholtz's Case Shiller 100 Year Chart (2011 Update). Do you see that dotted red line? If home values revert to their historical level (since the early 1950s), we can expect home prices to follow that red line. In so far as the value of one's home is the largest factor by far in household net worth, we can expect large wealth declines over the next several years.

Click to enlarge. Household debt levels as of 2011Q3 from Calculated Risk as presented in my post Household Debt Mountain Grows, Nobody Cares. Total debt, including the revised student loan balance, is now $11.66 trillion. Total student loan debt probably surpassed 1 trillion dollars this year. Total household debt is not as high as it was in 2008, but student loan debt is growing by leaps and bounds. See college tuition inflation in the 1st graph above.

If there was any good news, I would report it. For example, some have been encouraged by the recent downward trend in jobless claims. We'll see if that continues. I am waiting for to see what happens when holiday workers are fired in January and February. All such trends must be seen in context. Here's the 6th and final graph.

From Mish's Unemployment Rate Dips to 8.6% as 487,000 Drop Out of Labor Force (December 2, 2011). There are fewer nonfarm payroll jobs now than there were prior to the 2001 recession.

Muddling through must eventually end. Many think 2012 will be the year it does. That's what I think too. See my DOTE Predictions For 2012.

How The U.S. Government Formulates Monetary Policy

A monetary policy is the means by which a central bank (also known as the "bank's bank" or the "bank of last resort") influences the demand, supply and, hence, price of money and credit, in order to direct a nation's economic objectives. Following the Federal Reserve Act of 1913, the Federal Reserve (the U.S. central bank) was given the authority to formulate U.S. monetary policy. To do this, the Federal Reserve uses three tools: open market operations, the discount rate and reserve requirements.

Within the Federal Reserve, the Federal Open Market Committee (FOMC) is responsible for implementing open market operations, while the Board of Governors looks after the discount rate and reserve requirements.

The Federal Fund Rate
The three instruments we mentioned above are used together to determine the demand and supply of the money balances that depository institutions, such as commercial banks, hold at Federal Reserve banks. The dollar amount placed with the Federal Reserve in turn changes the federal fund rate. This is the interest rate at which banks and other depository institutions lend their Federal Bank deposits to other depository institutions; banks will often borrow money from each other to cover their customers' demands from one day to the next. So, the federal fund rate is essentially the interest rate that one bank charges another for borrowing money overnight. The money loaned out has been deposited into the Federal Reserve based on the country's monetary policy.

The federal fund rate is what establishes other short-term and long-term interest rates and foreign currency exchange rates. It also influences other economic phenomena, such as inflation. To determine any adjustments that may be made to monetary policy and the federal fund rate, the FOMC meets eight times a year to review the nation's economic situation in relation to economic goals and the global financial situation. (To learn about the relationship between inflation and bonds read Understanding Interest Rates, Inflation And The Bond Market.)

Open Market Operations
Open market operations are essentially the buying and selling of government-issued securities (such as U.S. T-bills) by the Federal Reserve. It is the primary method by which monetary policy is formulated. The short-term purpose of these operations is to obtain a preferred amount of reserves held by the central bank and/or to alter the price of money through the federal fund rate.

When the Federal Reserve decides to buy T-bills from the market, its aim is to increase liquidity in the market, or the supply of money, which decreases the cost of borrowing, or the interest rate.

On the other hand, a decision to sell T-bills to the market is a signal that the interest rate will be increased. This is because the action will take money out of the market (too much liquidity can result in inflation), therefore increasing the demand for money and its cost of borrowing. (To learn more read How The Federal Reserve Manages Money Supply.)

The Discount Rate
The discount rate is essentially the interest rate that banks and other depository institutions are charged to borrow from the Federal Reserve. Under the federal program, qualified depository institutions can receive credit under three different facilities: primary credit, secondary credit and seasonal credit. Each form of credit has its own interest rate, but the primary rate is generally referred to as the discount rate.

The primary rate is used for short-term loans, which are basically extended overnight to banking and depository facilities with a solid financial reputation. This rate is usually put above the short-term market-rate levels. The secondary credit rate is slightly higher than the primary rate and is extended to facilities that have liquidity problems or severe financial crises. Finally, seasonal credit is for institutions that need extra support on a seasonal basis, such as a farmer's bank. Seasonal credit rates are established from an average of chosen market rates. (For more read Internal Rate of Return: An Inside Look.)

Reserve Requirements
The reserve requirement is the amount of money that a depository institution is obligated to keep in Federal Reserve vaults, in order to cover its liabilities against customer deposits. The Board of Governors decides the ratio of reserves that must be held against liabilities that fall under reserve regulations. Thus, the actual dollar amount of reserves held in the vault depends on the amount of the depository institution's liabilities.

Liabilities that must have reserves against them include net transactions accounts, non-personal time deposits and euro-currency liabilities; however, as of Dec. 1990, the latter two have had reserve ratio requirements of zero (meaning no reserves have to be held for these types of accounts).

The Bottom Line
By influencing the supply, demand and cost of money, the central bank's monetary policy affects the state of a country's economic affairs. By using any of its three methods - open market operations, discount rate or reserve requirements - the Federal Reserve becomes directly responsible for prevailing interest rates and other related economic situations that affect almost every financial aspect of our daily lives. (Want more information on how the Fed influences the economy? Read The Fed's New Tools For Manipulating The Economy.)

Summarizing 2011 In Nine Easy Charts

If one had to summarize 2011 in one sentence, it probably would be: "a year in which the market ended unchanged, in which the world got within seconds of global coordinated bankruptcy, and in which central planning finally took over everything." Simple. On the other hand, conveying a comparably concise message full of hope and despair at the same time, using charts would actually be slightly more problematic. But not for the Economist, which has managed to do just that, however not in one but nine discrete charts. Here is what they did.

From the Economist:

IN 2008 banks were saved by governments. The question that dominated 2011 was how to save governments. The euro-area sovereign-debt crisis metastasised from a problem affecting small, peripheral states to one that threatens the single currency itself. The rise in Italian bond yields in particular marked a dangerous new stage in the saga (chart 1). European banks, stuffed full of government bonds, have suffered a severe funding squeeze since the summer (chart 2). The euro was oddly resilient against the dollar, but Switzerland and Japan intervened to hold down their currencies as investors sought shelter (chart 3).

Faced with skittish creditors, countries in Europe tried to instil confidence by cutting spending (chart 4). Austerity and growth do not mix, however. Euro-area GDP remains below its pre-crisis level. American output did at least regain that mark in 2011 (chart 5) but US unemployment remained very high.

The emerging economies again outshone their rich-world counterparts in terms of growth and jobs. But fears about inflation (chart 6) slowly gave way to fears about growth as the year went on and Europe’s problems worsened. Emerging-market stocks dropped sharply in the summer as investors put their money into less risky assets (chart 7). Gold also benefited from another year of fear. The metal was set to post its 11th consecutive annual gain in 2011 (chart 8). Google searches for “gold price” rose whenever measures of market uncertainty did (chart 9). If governments aren’t safe, after all, what is?

Chart 1

Chart 2

Chart 3

Chart 4

Chart 5

Chart 6

Chart 7

Chart 8

Chart 9

Martin Armstrong: 2011 Year End Outlook

2011 Year End Outlook

The Immediate Outlook


click here to read PDF

Bollinger Bands 22 Basic Rules

Bollinger Bands were created by John Bollinger, CFA, CMT and published in 1983. They were developed in an effort to create fully-adaptive trading bands. The following rules covering the use of Bollinger Bands were gleaned from the questions users have asked most often and our experience over 25 years with Bollinger Bands.

1. Bollinger Bands provide a relative definition of high and low. By definition price is high at the upper band and low at the lower band.


2. That relative definition can be used to compare price action and indicator action to arrive at rigorous buy and sell decisions.


3. Appropriate indicators can be derived from momentum, volume, sentiment, open interest, inter-market data, etc.


4. If more than one indicator is used the indicators should not be directly related to one another. For example, a momentum indicator might complement a volume indicator successfully, but two momentum indicators aren't better than one.


5. Bollinger Bands can be used in pattern recognition to define/clarify pure price patterns such as "M" tops and "W" bottoms, momentum shifts, etc.


6. Tags of the bands are just that, tags not signals. A tag of the upper Bollinger Band is NOT in-and-of-itself a sell signal. A tag of the lower Bollinger Band is NOT in-and-of-itself a buy signal.


7. In trending markets price can, and does, walk up the upper Bollinger Band and down the lower Bollinger Band.


8. Closes outside the Bollinger Bands are initially continuation signals, not reversal signals. (This has been the basis for many successful volatility breakout systems.)


9. The default parameters of 20 periods for the moving average and standard deviation calculations, and two standard deviations for the width of the bands are just that, defaults. The actual parameters needed for any given market/task may be different.


10. The average deployed as the middle Bollinger Band should not be the best one for crossovers. Rather, it should be descriptive of the intermediate-term trend.


11. For consistent price containment: If the average is lengthened the number of standard deviations needs to be increased; from 2 at 20 periods, to 2.1 at 50 periods. Likewise, if the average is shortened the number of standard deviations should be reduced; from 2 at 20 periods, to 1.9 at 10 periods.


12. Traditional Bollinger Bands are based upon a simple moving average. This is because a simple average is used in the standard deviation calculation and we wish to be logically consistent.


13. Exponential Bollinger Bands eliminate sudden changes in the width of the bands caused by large price changes exiting the back of the calculation window. Exponential averages must be used for BOTH the middle band and in the calculation of standard deviation.


14. Make no statistical assumptions based on the use of the standard deviation calculation in the construction of the bands. The distribution of security prices is non-normal and the typical sample size in most deployments of Bollinger Bands is too small for statistical significance. (In practice we typically find 90%, not 95%, of the data inside Bollinger Bands with the default parameters)


15. %b tells us where we are in relation to the Bollinger Bands. The position within the bands is calculated using an adaptation of the formula for Stochastics


16. %b has many uses; among the more important are identification of divergences, pattern recognition and the coding of trading systems using Bollinger Bands.


17. Indicators can be normalized with %b, eliminating fixed thresholds in the process. To do this plot 50-period or longer Bollinger Bands on an indicator and then calculate %b of the indicator.


18. BandWidth tells us how wide the Bollinger Bands are. The raw width is normalized using the middle band. Using the default parameters BandWidth is four times the coefficient of variation.


19. BandWidth has many uses. Its most popular use is to indentify "The Squeeze", but is also useful in identifying trend changes...


20. Bollinger Bands can be used on most financial time series, including equities, indices, foreign exchange, commodities, futures, options and bonds.


21. Bollinger Bands can be used on bars of any length, 5 minutes, one hour, daily, weekly, etc. The key is that the bars must contain enough activity to give a robust picture of the price-formation mechanism at work.


22. Bollinger Bands do not provide continuous advice; rather they help indentify setups where the odds may be in your favor.

A note from John Bollinger:
One of the great joys of having invented an analytical technique such as Bollinger Bands is seeing what other people do with it. These rules covering the use of Bollinger Bands were assembled in response to questions often asked by users and our experience over 25 years of using the bands. While there are many ways to use Bollinger Bands, these rules should serve as a good beginning point.

Jim Rogers: Why He’s Shorting Stocks and Favouring Commodities

Jim Rogers discusses his outlook for the economy, stocks, and commodities.

Call Notes:

Jim Rogers: I’m not optimistic about 2012, and maybe even not 2013.”

Favouring agricultural commodities – huge shortages developing of just about everything, and even, particularly, a shortage of farmers. Agriculture’s going to be a great place the next 10-20 years.

Shorting emerging markets stocks, American technology, European stocks;

JR: “I don’t see much reason to own stocks, when one can own commodities. If the world gets better, i’m going to make a lot of money in commodities because of the shortages, and if the world doesn’t get better, governments will print money. Whenever governments have printed money, the only way to protect one’s self is to own real assets.”

China: Hard or Soft Landing?

JR: “Some parts of the Chinese economy will have a very hard landing; the Chinese government has been trying to kill the real estate boom for 2 1/2 years. They’ve raised interest rates 6 times, raised reserve requirements a dozen times; they’re gonna pop the real estate bubble, but that’s not the whole China story. There’s gonna be parts of the Chinese economy that are gonna boom no matter what happens to real estate in Shanghai and Beijing.”

How about beaten down stocks like Potash and Mosaic?

JR: “I’m not familiar enough to give you a good comment; I just remember in the 70s, stocks went down and did nothing, and economies did nothing, and yet commodities themselves went through the roof. Some commodities stocks did well in the 70s; A recent Yale study showed that you would have made 300% more investing in commodities themselves rather than commodities stocks, unless you were a very good stock picker. So I’m sticking with the real commodities.”

Comment: Jim Rogers travels everywhere in the world with his family, and he eats his own cooking.

What about the other BRIC nations? What about Brazil and its dependency on China? Would you short Brazil?

JR: “I’m short India, I’m short Russia. Brazil is a huge natural resource based economy, and in commodity bull markets they do well. Fortunately, I’m not long, I don’t have any positions – Unfortunately, the new Brazilian government is starting to do some pretty foolish things which I think will not make them participate as much as they could.”

Jim Rogers is long gold, long silver, expects correction to continue down to the $1300/oz. level.

JR: “I’m a terrible market timer, I’m a terrible trader. It would not surprise me if gold went down to $1,300-$1,200. If it goes that low, I’m going to buy a lot more. I’m not selling any ofo my gold or silver, but I’m not a good market timer. I’m just saying that gold has been up 11 years in a row, it deserves a substantial correction. Substantial corrections are not unusual in bull markets. If it goes that low, I’ll buy a lot more.”

Lindsey Williams The Middle East will be in flames in 2012

Lindsey Williams is back on the Alex Jones with some new breaking news from his elite sources who are starting to spill the beans are they get older and can't care less , and also because their code of ethics is to tell us what they are doing before they do it , Lindsey Williams says that what the elites are planning can all be found in Mr Ben Bernanke's speech of 21 Nov 2002 before he became FED's chairman

Dr. Stephen Leeb on Goldseek Radio 28.Dec.2011

Chris Waltzek of GoldSeek Radio talks to Dr. Stephen Leeb.

Click Here to Listen to the Interview

Silver Chart Analysis 12.29.2011

A Big Bet On Hard Asset Producers: BHP, CRBQ, DBC, GCC, GNAT, GNR, GRES, GSG, HAP, XOM

Throughout 2010 and the beginning half of this year, commodities were one of the strongest performing asset classes. Then the bottom dropped out. Worries about China's slowing appetite for natural resources, coupled with growing concerns about Europe's burgeoning debt crisis, took the wind out of the sails of the sector. Investors dumped risk assets and flocked to the U.S. dollar and treasuries, which exacerbated the fall in hard assets. However, while the headlines continue to focus on the problems with the PIIGS, slow growth and debt issues, longer focused investors can now add some quality exposure to commodities at real fire sale prices.

Cheap Prices, Strong Demand
For portfolios, the commodities sector continues to offer a bargain relative to long term demand trends. The recent short- to medium-term global macroeconomic worries has caused both the producers and physical goods to crater. Overall, the GreenHaven Continuous Commodity Index (ARCA:GCC), which tracks 17 equally-weighted commodity futures, is down around 5.4% this year.

Despite the short term stumble, the long term picture for the asset class is rosy. The United Nations predicts that the global population will increase by 11% leading up to the year 2020 and will jump by 20% by the time we hit 2030. This population growth will continue to place a greater strain on the limited supplies of the world's natural resources. Metals and other materials will be needed to build vital infrastructure. Vast amounts of energy resources are needed to provide electricity and to power Western-style transportation. Tons of soft and agricultural commodities will be required to meet the world's growing middle class demand for meat and other foods. As emerging and frontier markets continue to grow, it is the commodities sector that will see gains as well.

In addition, various governments' quantitative easing, stimulus and money-printing programs designed to encourage economic growth have produced some unintended consequences; an ever-increasing money supply and raised inflation expectations. Hard assets continue to hold appeal in the long run, as investors are able to protect themselves from price changes in real goods. While inflation has generally been mild, so far, the recent rout in commodities can allow portfolios to add some future inflation production on the cheap.

Gaining Exposure
Making up nearly 15% of the world's market cap, there are plenty of individual hard asset companies to choose from. However, given the vast variety of firms across the various subsectors, a broader approach may be better. Luckily, the recent exchange traded fund boom has opened up a wide variety of ways to play the hard asset sector. Here are a few picks.

Holding roughly 340 securities across six different hard-assets sectors, the Market Vectors RVE Hard Assets Prod ETF (ARCA:HAP) provides one of the widest swaths of commodities funds. Heavy weights such as BHP Billiton (NYSE:BHP) and Exxon (NYSE:XOM) dominate the top holdings, but the fund does include exposure to water and renewable energy firms. This added exposure has helped the fund outperform its two main rivals, the WisdomTree Global Natural Resources (ARCA:GNAT) and the SPDR S&P Global Natural Resources (ARCA:GNR). Expenses run a cheap 0.59% and the index that the fund tracks was developed by hard asset guru Jim Rogers.

One of the more unique offerings in the commodities space is the IQ Global Resources ETF (ARCA:GRES). The fund provides exposure to a basket of hard asset producers, but then shorts the S&P 500 and MSCI EAFE Indexes. This isolates the return generated through movements in commodity prices. In essence, you get a product that tracks commodity futures, but it uses stocks to do so. This eliminates the hassle of dealing with a K-1 statement come tax time, unlike investors in the more popular PowerShares DB Commodity Index (ARCA:DBC) and iShares S&P GSCI Commodity-Index (ARCA:GSG) funds. The IQ fund charges 0.75% in expenses.

The Bottom Line
For investors, the recent rout in the commodity markets can provide just the opportunity they are looking for. With the long term trends still in place, the sector is ripe for the picking. The previous broad exchange traded funds, along with the Jefferies TR/J CRB Global Commodity Equities (ARCA:CRBQ) are great ways to add exposure to the sector.

Chart of the Day - Google (GOOG)

The "Chart of the Day" is Google (GOOG), which showed up on Wednesday's Barchart "52-week High" list. Google on Wednesday posted a new 4-year high of $645.00, although it then showed some weakness by closing slightly lower by 0.09%. TrendSpotter has been Long since Dec 2 at $620.36. In recent news on the stock, Canaccord on Dec 7 initiated coverage on Google with a Buy and a target of $725. Search Engine Land on Dec 6 reported that Google controlled 44% of global online ads in 2010 and Yahoo was a distant second at 8.3%. Google, with a market cap of $205 billion, provides web-based search and advertising services.

Egon Von Greyerz: Gold Will Trade $3,000 – $5,000 in 2012

from King World News:

With the gold price tumbling, along with silver, today King World News interviewed the man who told clients in 2002, when gold was $300, to put up to 50% of their assets into physical gold, held outside of the banking system. Egon von Greyerz is founder and managing partner at Matterhorn Asset Management out of Switzerland. When asked about the plunge in gold, von Greyerz said, “Well, Eric, I’m not really surprised because last time I talked to you I did say gold could go down to $1,550 support and maybe even $1,420. In my view that would be quite normal in a very thin market and I said that would probably happen by the year end.”

Egon von Greyerz continues: Read More @ KingWorldNews.com

Four Stocks On Sale Right Now : AA, ACI, GSH, WHR

This past year has been unkind to the vast majority of global equities. As we turn the page to 2012, it is worth looking at some of the names that have been pushed lower by investors. Some of these stocks may be potential value plays while others could be setting up to be value traps. For better or for worse, here are four stocks on sale right now.

Stocking Full of Coal
It has been anything but an easy year for shareholders of Arch Coal (NYSE:ACI). Investors in this name have been handed about a 60% loss since the beginning of 2011. The beating that this stock has sustained could very well be overdone.

The stock now trades at a price-to-book ratio (P/B Ratio) of around 0.9 and a forward P/E ratio of about 5.6. Over the long term, Arch Coal is positioned well to benefit from coal supply constraints in the U.S. as well as the completed integration of previously acquired International Coal Group. Other aspects of this stock that I find attractive right now are its 3% dividend yield and the fact that officers of the company have been buying shares of Arch Coal in recent weeks.

Moving to the aluminum space, Alcoa (NYSE:AA) has had a similarly rocky year as its stock price has fallen approximately 42% year-to-date. The stock now trades at a price-to-book ratio of about 0.6 and a forward P/E of around 9.3. Alcoa's earnings miss in Q3, however, would leave me inclined to remain on the sidelines on this stock, at least until after the company reports its Q4 results on January 9.

Other Candidates
The appliance maker Whirlpool (NYSE:WHR) has not been able to get out of its own way in 2011. Whirlpool shares have been in a state of freefall for much of year and are now about 47% lower than where they began the year. This stock now trades at a price-to-book ratio of around 0.84 and a forward P/E of approximately 7.7.

The company blind-sided investors in October when it cited higher material costs as a reason for slashing its full-year profit outlook to a range of $4.75 to $5.25 per share versus a previous range of $7.25 to $8.25. Although Whirlpool will face some tough sledding in the coming quarters, I like the stock for some of the same reasons that I like Arch Coal. Whirlpool's 4.4% dividend yield and an insider buying spree that resulted in four different insiders combining to purchase more than $600,000 worth of WHR shares after the lowered guidance are motivating factors for giving this stock a second look.

One other stock that can be debated as a potential value play is Guangshen Railway (NYSE:GSH). GSH trades at a price-to-book ratio of about 0.7 and a trailing P/E of around 8.7. This stock could be trading higher if it were not for the cloud of skepticism that has been cast over the accounting practices of a number of Chinese companies that are listed on U.S. stock exchanges. Unfortunately, I think it could be some time before investors are able to feel confident in relying upon the financial statements that have been put forth by these companies. This sentiment will continue to be a drag on the stock prices of companies that are being punished for the actions of their peers.

The Bottom Line
Each of these four stocks presently trade at valuations that make them likely to be picked up by most value screens. The challenge now is for investors to determine whether these stocks have been unjustly punished or if they have been priced correctly and are headed lower. The answer often lies beyond the numbers and in factors that are not easily quantifiable. The message here is for potential investors to take a deeper look into the operating prospects of these four stocks rather than purchasing any of them strictly on valuation grounds.

Buy the Dip in Silver

I am working furiously right now buying silver and I hope you are too. I have gone to extreme measures to free up capital everything from selling our second car, garage sales, and now dumping all the gold that I can to buy silver. In the past week or so I have made that largest silver purchases since 2005, even more than I bought in the 2008 smackdown. With the Commercial Short position at a decade low, the explosive upside potential is awesome. After the 60% 2008 smackdown silver went up 400%, if we match that we would see $125 silver. Let’s be honest here, if that happens this time with no exponential short position for the banks to worry about, in such a limited physical market, during a paper fiat financial crisis, silver will not be available at any fiat price.

If you need to get a backbone to buy into this market, re read the Silver Bullet and the Silver Shield. The case is even more bullish now than it was last February. I have a few more videos to do for The Greatest Truth Never Told until I get to the Silver Bullet and the Silver Shield video series. The original article was read by over 350,000 people and translated into 7 languages. I believe the video version will do much more than that as silver is the gateway drug into the deeper issues of what is truly at stake here. BTFD!

The Gold to Silver Ratio is VERY BULLISH to dump gold and buy silver.

Read my case for the 1 to 1 Gold to Silver Ratio.

Martin Armstrong: Gold and Reversals

Gold and Reversals

Answering Your Questions


click here for pdf

Five Best Trade Ideas for the Next Two Weeks

The last week of the year volume tends to be light due to the fact that big money traders are busy enjoying the holidays and waiting for their yearend bonuses.

This Wednesday turned out to be an exciting session with all 5 of my trade ideas moving in our favour right on queue.

Charts of the 5 investments moving in the directions we anticipated …
- Dollar bounced off support

- Stocks are topping and selling off today

- Oil looks to have topped and is selling off

- Gold and Silver are moving lower

- VIX (Volatility Index) just bounced

Many of my readers took full advantage of my recent analysis and trade ideas which is great to hear. All the different ways individuals used to make money from Friday’s analysis is mind blowing…

The most common trade is the oil one with most traders adding more to Tuesday when the price reached its key resistance level on the chart. Also many traders took partial profits Wednesday locking in 3% or more in two days using the SCO ETF.

It’s amazing how many people like to trade the vix using ETFs. The best trade from followers thus far was an 8% gain in TVIX which was bought 4 days ago anticipating the pop in volatility which I had been talking about last week. Keep in mind ETFs for trading the vix are not very good in general. I stay away from them, but TVIX is the best I found so far.

Currently stocks are oversold falling sharply from the pre-market highs. Meaning stocks have fallen too far too fast and a bounce is likely to take place Thursday.

Also we saw some panic selling hit the market today with 14 sellers to 1 buyer. That level tells me that the market needs some time to recover and build up strength for another selloff later this week or next. We will see this pause unfold when the SP500 drifts higher for a session or two with light buying volume. This will confirm sellers are in control and give us another short setup.

In my Wednesday morning video I explained how/where to set stops when using leveraged ETFs because I know 90% of traders using them do not have a clue as to how to do this and they get shaken out of their trades just before a top or bottom. So if you want to learn more about it watch this morning’s video please: http://www.youtube.com/watch?v=lDagN5Vpvys

I hope this helps you understand things more… Over time you will pickup on a lot of new trading tips, tools and techniques with this free newsletter so just give it time and keep trades small until you are comfortable with my analysis.

What Are Bollinger Bands and How To Profit With Them

Bollinger Bands

Bollinger bands are used to measure a market's volatility.

Basically, this little tool tells us whether the market is quiet or whether the market is LOUD! When the market is quiet, the bands contract and when the market is LOUD, the bands expand.

Notice on the chart below that when price is quiet, the bands are close together. When price moves up, the bands spread apart.

That's all there is to it. Yes, we could go on and bore you by going into the history of the Bollinger band, how it is calculated, the mathematical formulas behind it, and so on and so forth, but we really didn't feel like typing it all out.

In all honesty, you don't need to know any of that junk. We think it's more important that we show you some ways you can apply the Bollinger bands to your trading.

Note: If you really want to learn about the calculations of a Bollinger band, then you can go to www.bollingerbands.com.

The Bollinger Bounce

One thing you should know about Bollinger bands is that price tends to return to the middle of the bands. That is the whole idea behind the Bollinger bounce. By looking at the chart below, can you tell us where the price might go next?

If you said down, then you are correct! As you can see, the price settled back down towards the middle area of the bands.

What you just saw was a classic Bollinger bounce. The reason these bounces occur is because Bollinger bands act like dynamic support and resistance levels.

The longer the time frame you are in, the stronger these bands tend to be. Many traders have developed systems that thrive on these bounces and this strategy is best used when the market is ranging and there is no clear trend.

Now let's look at a way to use Bollinger bands when the market does trend.

Bollinger Squeeze

The Bollinger squeeze is pretty self-explanatory. When the bands squeeze together, it usually means that a breakout is getting ready to happen.

If the candles start to break out above the top band, then the move will usually continue to go up. If the candles start to break out below the lower band, then price will usually continue to go down.

Looking at the chart above, you can see the bands squeezing together. The price has just started to break out of the top band. Based on this information, where do you think the price will go?

If you said up, you are correct again!

This is how a typical Bollinger squeeze works.

This strategy is designed for you to catch a move as early as possible. Setups like these don't occur every day, but you can probably spot them a few times a week if you are looking at a 15-minute chart.

There are many other things you can do with Bollinger bands, but these are the 2 most common strategies associated with them.

Got Gold Report – COMEX Futures for Silver Near Extreme Bullish Levels

• Largest combined commercial traders least net short silver since 2001, when silver traded for $4.20 the ounce.
• Traders classed as Swap Dealers report record net long futures position.
• Just since November 15, as silver fell $4.98 or 14.4%, combined commercial traders reduce their collective net short positioning by stunning 43.6%.

Please note: This article originally appeared in our Got Gold Report subscriber pages on Monday, December 26. It is being reprinted here in full for our entire readership as a holiday courtesy.

HOUSTON -- Just below is a holiday look at the COMEX silver futures positioning as of the December 23 Commodity Futures Trading Commission (CFTC) commitments of traders (COT) report, for data as of Tuesday, December 20. We are at a remarkable and very unusual condition that can only occur after a very large change the price structure with one-sided sentiment and with unenthusiastic Spec trader expectations. Very short term, expect anything, but longer term this COT setup is about as bullish as they come. A tremendous amount of bull-side “horsepower” is resting on the sidelines of the New York futures bourse.

We See the COT as Supportive of Our Planned Position Taking Just Ahead

The closest we have seen to the large trader positioning we see now occurred during the heat of the 2008 panic, back when the world thought there was a good chance of a full blown banking collapse. That is to say that this current positioning is extraordinary and likely very meaningful. We are not convinced it is very, very short term bullish (because momentum strongly favors the bears), but we are convinced it is extremely medium to long term bullish. We believe the positioning we see below gives us cover to begin adding in our green target box for silver with reasonable confidence, for the first time in over a year, if only the Trading Gods will allow it. (Vultures refer to our linked silver charts for that box placement.)

Absent a full-blown global meltdown ahead we believe that silver has used up a good deal of its inherent volatility to the downside, and we also believe that trader exhaustion has already begun. Thus the potential for a wild, backbreaker event and potential capitulation and then a major reversal has become much more likely. One can sense traders watching computer screens worldwide looking for it and ready to pounce.

Momentum certainly favors the bears very short term, but the largest of the largest traders of silver futures are definitely not positioning as if they see a great deal more downside for silver. That doesn’t mean they are “right” but we think it does indeed mean the large commercial traders are not piling on the short side of silver following its roughly 47% correction. To the contrary. See if you agree with that assessment given the large trader positioning, charts and a very few comments by us for context just below.

Continued… ***

Lowest LCNS in a Decade, We Kid You Not

As usual we look first at the legacy COT report, which traders have followed for decades. The report combines traders into just three categories, commercial, non-commercial and non-reportable traders.

For the COT week, as silver fell $1.21 or 3.9% Tues/Tues, from $30.74 to $29.53 (the first sub-$30 close in silver on a COT reporting date since February 1, 2011, almost 11 months), the combined COMEX large commercial traders, as a group, strongly reduced their combined collective large commercial net short positioning (LCNS) by 4,940 contracts or a big 25% from an already very low 19,765 to a stunning 14,825 contracts net short.

Just below is the nominal LCNS graph for silver futures.

Source for all charts CFTC for COT data, Cash Market for silver.

The open interest for silver rose 2,854 lots to 101,165 contracts open. (more)

Jim Rogers: “100% Chance” of Another Financial Crisis That Will Be Worse Than 2008

Four S&P Stocks With A 10 P/E Ratio : AAPL, AMZN, BBY, CHK, LLY, WDC

Having a low price-to-earnings ratio is no guarantee of investment success. Nevertheless, all else equal, companies trading at lower multiples to earnings tend to do well over the longer term. During such periods, however, investors should be comfortable with periods of underperformance.

Safety Margin
You won't find sizzling growth and profit numbers from these names like you will from names like Apple (Nasdaq:AAPL) and Amazon (Nasdaq:AMZN). At the same time, you won't find yourself paying P/E multiples of 15 or 91, either. Investors paying such lofty multiples are making extremely confident bets that growth rates of 30-50% can be sustained for a prolonged time. While Apple's innovative products continue to defy the most bullish expectations, as those expectations rise, even great numbers can be disappointing. Nothing is more frustrating to an investor than when a company reports profit growth of 20%, but the stock declines because analysts were expecting 30% instead.

So, with a quality stock trading at a low multiple, many of those hurdles are overcome. The key, of course, is to not get sucked in by a P/E that looks low and only gets lower. Growth is a component of value, and if a company cannot grow its business successfully, the valuation might not matter.

Part Of The Pack
Being members of the S&P 500 index adds credibility that these are no fly-by-night companies. Western Digital (NYSE:WDC) is a $7 billion business with a forward P/E of 5.7. Even better, the company has over $2.5 billion in net cash on the balance sheet. The one question mark for investors is that WDC designs and builds hard drives - products that are always in need of upgrades and innovation. Translated: WDC operates in a very competitive industry. Yet so do many other competitors that trade at greater valuations. (For related reading, check out Cheap Stocks Or Value Traps?)

Eli Lilly (NYSE:LLY) may be one of the cheapest names in the S&P 500. Aside from a 10 P/E, shares currently yield 4.7 percent. Few, if any, companies have both an attractive valuation and an enormous payout. The company is one of the most significant drug manufacturers in the world with a bond-like yield and equity upside at a decent multiple to future earnings.

As the price of natural gas has recently declined, so have shares of Chesapeake Energy (NYSE:CHK), a $15 billion natural gas giant. Natural gas is an extremely abundant resource in the U.S. and has significant environmental benefits over oil and coal. Trading at around 9.5 times forward earnings, Chesapeake's natural gas assets are worth far more than today's price in a normal environment. Indeed, prolonged periods of low natural gas prices will not bode well for the stock, but value is not a short-term game.

Electronics retailing giant Best Buy (NYSE:BBY) continues to face sales headwinds at its U.S. store base. This $8 billion company is currently trading at 6 times forward earnings. The most recent quarterly earnings report indicated a slight sales declines but if they recover the shares are worth a closer look.

Bottom Line
There are still some quality blue chip-like names that offer decent valuations and, in some cases, excellent yields. That's a recipe for quality returns in exchange.

McAlvany Weekly Commentary

Reminiscences of 2011 – Recap of the Years Amazing Sub Structural Changes

-Substructure change in 2011 will lead to major regime change in 2012-15
-Complexity of current events equals simplicity of investment strategy
-Gold and cash are key to surviving the next wave

• 
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Another Top Banking Buy for 2012 PNC just drove above the upper end of its bull channel

PNC Financial Services (NYSE:PNC) – This retail, institutional and corporate banker provides many of its services nationally but is still considered a member of the regional banking group.

Like BB&T (NYSE:BBT), which we highlighted in yesterday’s Trade of the Day, PNC has maintained profitability throughout the recent financial crisis. Earnings fell to $2.46 in 2008 from $4.35 in 2007, but it earned $4.36 in 2009, $5.02 in 2010, and is estimated to earn $6.33 this year. Earnings for 2012 are estimated to be $6.53.

With a dividend of $1.40 per share (2.39% yield) and a history of regular dividend increases, PNC is targeted by analysts at $65.

Technically the stock is entering a zone of resistance, but yesterday drove above the upper channel of its bull channel and appears capable of going to $65 to $70 sometime in 2012.

Bonds About To Plunge? Implications For Stocks and PM’s

Are Bonds about to plunge? And if so (or if not), what are the implications for stocks and precious metals?

Let’s have a look at TLT, which is the iShares Barclays 20+ Year Treasury Bond Fund.

Back in 2008, at the climax of the financial crisis, TLT was very stretched above the 200MA, and the RSI was very oversold on a weekly basis.
Recently, we had a similar situation, although right now, RSI is not oversold anymore but instead is forming negative divergence, as it sets lower highs and lower lows on the weekly chart, while price recently set a potential double top.

Chart courtesy stockcharts.com

When we look at TLT until 2010, we can see that price retraced exactly back to the 50% Fibonacci Level, where it found strong support.
This level also happend to be a level where the long term trend line came in…

Chart courtesy stockcharts.com

If bonds would top here, that would likely be caused by investors rushing out of this (perceived) risk-free asset class, and into more risky assets like stocks.

That would probably involve a more sustainable (or at least more sustainable as perceived by the market participants) way out of this Euro Crisis, which has been making headlines in recent months, causing investors to rush out of risky assets and into bonds.

We can see from the Commitment Of Traders (COT) reports that Commercials (usually seen as the “Smart Money”) have taken on HUGE long positions in the EURO, while Speculators (usually seen as the “Dumb Money”) have taken on HUGE Short positions:

However, Commercials have deep pockets and can stand the dips (which they usually keep buying)…

If bonds haven’t topped yet, we can expect a potential top around 132 for TLT, based on Fibonacci Retracement levels.
If it would top there, and retrace 50% of its move, it should drop towards 92.5, where once again, the long term uptrend support line comes in…

Chart courtesy stockcharts.com

A continued rise of Bonds would probably mean more worries about the Euro Crisis.
In the EURO chart, we can notice a potential Head & Shoulders pattern, which could send the EURO as low as 1.15 if the pattern holds…

Chart courtesy stockcharts.com

However, on a short term daily basis, the Euro shows (weak) signs of Positive Divergence.
On the other hand, it also seems to be stuck in a bear flag (very short term).

If the MACD would fall below the low of last week, this would probably lead to a further decline in the EURO, meaning we should keep an eye on the Head & Shoulders pattern…

Chart courtesy stockcharts.com

I keep finding it fascinating to look at the similarities between now and 2008, as the SP500 still hasn’t broken that 200MA and heavy resistance at 1265-1280… Once it does, I think we would see new highs pretty soon.

If it doesn’t, look out below…

Chart courtesy stockcharts.com

Last but not least, let’s think about what will happen to Precious Metals if Bonds top here.

We can look at it in 2 ways:

* A top in bonds probably means investors become less risk-averse, meaning Gold could also sell-off (as it is often perceived as a hedge against turmoil)
* However, gold has rather acted as a risky asset lately and has already sold-off quite a lot, meaning investors could start to load up the truck as they see the recent dip as an opportunity to buy…

Let’s have a look at the TLT:GLD chart, which divides the price of TLT by the price of GLD.
We can see that during the last 7 years, TLT has severely underperformed Gold, as the ratio has declined substantially.

When we have a closer look, we can notice 5 times where the ratio showed signs of Negative Divergence.
Everytime this happened, it marked a top in the TLT:GLD ratio, meaning TLT started to underperform GLD soon thereafter (or equivalently, Gold started to outperform TLT). Will this time be any different?

Chart courtesy stockcharts.com

Based on Sentiment in Gold (but especially Silver) and the recent decline, I would assume this time Gold is seen as a “risky” asset, and should thus profit from a top in TLT/Bonds, although the risk of further declines still exists.