Wednesday, August 31, 2011

Volatility Is The Highest In A Long Time: Charting The Decades

Bloomberg Pro often has great charts that tell a story in a simple frame. We know that the recent swings in markets are unusual, but just how unusual are we talking about?

Thinking back to 2008/2009, there were 700 point days – that seemed pretty wild. But the fact is that the last few week’s action actually tops that from a volatility standpoint.

From Bloomberg:

By Cecile Vannucci and Jeff Kearns
Aug. 25 (Bloomberg) — U.S. stock price swings are widening at the fastest rate since the 1987 crash as concern the economy is stalling and optimism the Federal Reserve will try to spur growth whipsaw investors.

The CHART OF THE DAY shows a measure known as three-month historical volatility for the Standard & Poor’s 500 Index jumped 119 percent between July 22 and Aug. 23, the biggest rise over the same amount of time in almost 24 years, according to data compiled by Bloomberg. Excluding that year, the current increase is the biggest in at least four decades.

“We’re going to remember these times for the rest of our lives,” Brenna Hardman, a derivatives broker at MEB Options LLC, said in a phone interview yesterday from the Chicago Board Options Exchange. “People are scared. And I’d say bars around here are seeing their bottom lines increase. I’ve never spent such long days on the floor, and you don’t see anyone walking down here smiling very big.”

The Dow Jones Industrial Average rallied or declined 400 points on four straight days this month, the longest streak ever, as S&P’s reduction of the U.S. government’s credit rating fueled concern the economy will falter. Harvard University economics professor Martin Feldstein, a member of the National Bureau of Economic Research that measures recessions, said this month that the odds of a contraction are 50 percent…

HUI / Gold Ratio

Protect Yourself From Rising Food Prices : AGU, COW, CROP, MOO, PAGG

Many consumers have recently felt the effects of rising oil prices in their wallets. With turmoil continuing to rage in the Middle East, oil prices have been volatile. Funds like the United States Brent Oil (NYSE:BNO) have rallied in the face of higher prices. Analysts predict that this trend of higher oil prices could continue for awhile as the political situation in the Middle East remains in a quagmire. However, while consumers focus on the gas in their tanks, a potentially more serious problem is still brewing - rampant food inflation.

Biggest Increase
The United Nations Food and Agriculture Organization's (FAO) latest report showed that global food prices rose 39% in June versus June 2010. So far, consumers in the United States have not really felt the full effects of this rising food price inflation. Recent weather calamities such as a drought in Russia and flooding Australia, have disrupted harvests and helped push food prices higher. In addition, long term demand from emerging nations for new sources of food and biofuels is putting continued pressure on food prices. The USDA estimates that throughout 2011, its all-food CPI will increase 3 to 4%, with food at home (grocery store) prices forecast to rise 3.5 to 4.5%. The USDA forecasts are based on strengthening global food demand, mostly in the developing world.

Emerging World Demand
That demand in the emerging world is growing quite rapidly. The FAO projects that global populations will increase nearly 11% by 2020 and 20% by 2030. Analysts at Goldman Sachs expect the global middle class to expand considerably over the same time frame, to over 3.5 billion by 2030. Worldwide demand for beef is at all time highs, with beef exports surging by 19% in 2010. Wheat imports in China will need to rise by more than 30% this year. Last year, China was a net importer of corn for the first time in 14 years. Unlike developed nations such as the United States, citizens of emerging nations can spend as much as 40 to 50% of their income on food.

Sowing the Seeds
With the trends pointing in the favorable direction, investing in agriculture has been a big hit. While many agricultural commodity prices have climbed already, investors with a long term focus should consider adding the sector to a portfolio. Both the Market Vectors Agribusiness ETF (NYSE:MOO) and the PowerShares Global Agriculture (Nasdaq:PAGG) offer broad global exposure to some of agriculture's biggest companies like Deere (NYSE:DE) and fertilizer maker Agrium (NYSE:AGU). These two funds can form a great base in sector. However, there are other ways to play the growth in Ag.

The agricultural sector accounts for a big portion of total economic activity in both New Zealand and Argentina. Argentina is the second largest corn exporter and third largest soy exporter in the world. The nation is also top beef and lamb producer. New Zealand has seen its milk exports to China rise more than five times since 2008 as rising incomes increase demand. Both the iShares MSCI New Zealand (Nasdaq:ENZL) and Global X FTSE Argentina 20 ETF (NYSE:ARGT) should do well as the Ag sector grows.

Higher beef prices may be here for awhile as it takes two to three years for a cattle rancher to substantially increase herd. The U.S. currently has the smallest cattle herd since the 1950s, even though exports are surging. The iPath DJ-UBS Livestock ETN (NYSE:COW) and UBS E-TRACS CMCI Livestock ETN (NYSE:UBC) allow investors to bet on the prices of livestock.

Bottom Line
With global demand surging, higher food prices are here to stay. Investors with long term timelines should consider the sector. Growing populations, coupled with the newly minted middle classes desire for new sources of protein makes the sector a great place to be for the next few years. Funds like the new IQ Global Agribusiness Small Cap (Nasdaq:CROP) should continue to do well as global populations increase exponentially.

Kudlow Interviews PIMCO's Bill Gross

Quite a good interview tonight with Bill Gross on CNBC; I'd say I agree with much more of what Gross says in this interview than many of his other interviews. Bill says some things here that probably many do not want to hear....

U.S. Home Prices Tumble 4.5% in June

By Steve Schaefer
August 30, 2011

A closely-watched gauge of U.S. housing was down sharply from a year ago in June, but the measure of home prices across the country is showing signs that the deterioration in the market is slowing.

The S&P/Case-Shiller index of home prices in 20 major cities was down 4.5% in June from a year ago, a hair less than the 4.6% annual decline in May. Nineteen of the 20 cities showed improvement from May – Portland was flat – while 12 showed a third-consecutive monthly increase. Perhaps more importantly, even the cities that saw the biggest year-over year declines – Minneapolis (-10.8%) and Portland (-9.6%) – did not make fresh lows.
11 images Gallery: 10 Big Cities Where Buying Is Cheaper Than Renting
15 images Gallery: Where Home Prices Are Making A Comeback

On a national scale, S&P/Case-Shiller reported home prices were down 5.9% in the second quarter from the corresponding three-month period in 2010, but up 3.6% from the previous quarter.

S&P Indices’ David Blitzer, chairman of the index committee, said eight cities bottomed in 2009 (California cities plus Dallas, Denver and Washington D.C.), while five set fresh lows in 2011 (Las Vegas, Miami, Phoenix, Tampa and Detroit). “These shifts,” Blitzer said, “suggest that we are back to regional housing markets, rather than a national housing market where everything rose and fell together. (See “Ryland Pulls Up Stakes In Jacksonville, Dallas.”)

The housing recovery has proceeded at a snail’s pace, largely due to the lack of substantial employment growth – August’s nonfarm payrolls due out Friday are expected to add just 75,000 jobs – but also factors like the foreclosure overhang that is keeping a lid on prices and sales. (See “U.S. Cities Where Buyers Do Better Than Renters.”)

Much-maligned banks are also a factor, with many still working through mortgage issues from the housing bubble and exercising far stricter lending standards. Just Monday, the FDIC objected to Bank of America’s proposed $8.5 billion settlement with investors in mortgage-backed securities sold by its subsidiaries. The latest delay to BofA’s efforts to put mortgage issues in the rearview mirror is just one example of how conditions are tilted against a big comeback for housing anytime soon.

Home builders and retailers that have substantial exposure to housing – Home Depot and Lowe’s being the two biggest examples – were a mixed bag Tuesday. The retailers started the day in the red, while builders like KB Home and PulteGroup shot up more than 5% apiece. (See “Toll Brothers: Thanks For Nothing Mr. Market.”)

The broader market opened modestly lower Tuesday, with the Dow Jones industrial average off 27 points to 11,513, the S&P 500 5 points to 1,206 and the Nasdaq 8 points to 2,554.

According To JPM There Is Now A "Better-Than-Even Chance" Of Fed Action On September 21

For now it was just Jan Hatzius calling for QE3 now if not sooner. With the addition of JPM to the list of banks now implicitly expecting (read demanding) QE3, it is now quite clear how Wall Street feels - after all someone has to pay those Wall Street bonuses - it sure won't come from M&A activity, underwriting of Chinese IPO frauds, or trading volume. Here is the key sentence from a just released note by JPM's Michael Feroli: "We believe the minutes lend themselves to our view that there is a somewhat better-than-even chance the Fed takes action at the next meeting to increase the average maturity of assets on their balance sheet." Keep an eye on the market tomorrow for confirmation: a third day of the same low volume meltup we have seen this week should make the open QE3 question into case closed.

From JPM:

Sometimes the squeaky wheel doesn't get the oil

The hawks on the FOMC may generate a fair amount of media attention, but today's minutes to the August 9th meeting remind us that there is a less vocal dovish faction that favors even more aggressive policy easing, and their view has been winning out over time. This contingent of "a few" favored a "more substantial move" at the recent FOMC meeting, "but they were willing to accept" the mid-2013 rate guidance "as a step in the direction of additional accommodation." While the change to forward guidance was one such step, other steps discussed included the usual three: further enhancements to forward guidance, further asset purchases, and lowering the interest on excess reserve rate. Inflation targeting, price level targeting, and other more extreme measures were not discussed. We believe the minutes lend themselves to our view that there is a somewhat better-than-even chance the Fed takes action at the next meeting to increase the average maturity of assets on their balance sheet.

Regarding enhanced communications, there was a relatively lengthy discussion of conditioning the fed funds rate guidance on explicit numerical values for the unemployment rate or the inflation rate. A similar policy was undertaken by the BoJ several years back, when they conditioned the continuance of zero interest rate policy (ZIRP) on inflation remaining negative. While some on the FOMC argued in favor of this strategy, the only downside that was mentioned in the minutes was "questions about how an appropriate numerical value might be chosen." Given the Committee added a day to the next meeting to discuss easing options, some further communications enhancement at the next meeting cannot be ruled out.

On balance sheet policy, "some participants noted that additional asset purchases could be used to provide more accommodation." The minutes then went on to note that "others" favored an Operation Twist, perhaps of the active version, to extend the maturity of the Fed's assets holdings by actively selling short maturity assets from the Fed's balance sheet and buying more longer maturity assets. It was noted that this "would have a similar effect" on long term rates as more outright purchases, but would "not boost the size of the Federal Reserve's balance sheet and the quantity of reserve balances." It was not explicitly spelled out why either of these latter two variables should matter, but reading between the lines it could be the case that concern about the adverse political and public reaction to an increase in the monetary base may be leaving Fed policymakers hesitant to undertake another large expansion of the balance sheet. The discussion on lowering IOER was very terse, as "a few participants noted" that it could be "helpful in easing financial conditions."

Stepping away from the discussion of policy options, the Committee's discussion of current conditions and the economic outlook was an exercise in dreariness. The economy's performance so far "was considerably slower than they had expected," uncertainty has "risen appreciably," and "most participants saw increased downside risks to the outlook for economic growth."

Jay Taylor: Turning Hard Times Into Good Times

8/30/2011: Is our Systemic Financial Markets Malaise Nearing an End?

Pick Stocks Like Peter Lynch: COLM, KO, PEP

Legendary Fidelity mutual fund manager Peter Lynch believed individual investors should buy stocks in companies they understood. His rationale was simple, "If you stay half-alert, you can pick the spectacular performers right from your place of business or out of the neighborhood shopping mall, and long before Wall Street discovers them." It was simply a matter of keeping your eyes open to the opportunities around you. (For background reading, check out The Greatest Investors: Peter Lynch.)Go With What You Know
Each of us uses products and services on a daily basis with little thought given to their investment potential. That's perfectly normal - we are usually too busy enjoying them to put two-and-two together.

When we step back, however, we realize that we're far more qualified to make educated investment decisions about products we actually use than ones we don't. That's just common sense, and when applied to thorough stock research, provides the foundation for a sound and successful portfolio.

By researching companies whose products and services you use on a daily basis and understanding their financial situation, you'll be able to determine if they meet your criteria for investment. It takes a little legwork, but it's well worth it. (You've got the market research down, to learn the financial side, check out Due Diligence In 10 Easy Steps.)

Three Peter Picks
Thinking like Peter Lynch for a moment then, here are three companies you are likely familiar with that you might want to follow up on:

PepsiCo (NYSE:PEP)
This global consumer-goods powerhouse produced sales of approximately $62.5 billion in the last twelve months. Some of the brands that most of us use every day include Quaker Oats hot cereal, Tropicana orange tangerine juice and Lay's potato chips. Operating margins for the latest twelve months are 15.2%. Although not as strong as its biggest direct competitor, Coca Cola (NYSE:KO), PepsiCo is still an extremely profitable company operating in 200 markets around the world. With a market cap well over $100 billion, you're not likely to have a larger company in your portfolio.

Columbia Sportswear (Nasdaq:COLM)
Columbia knows its market - outdoor apparel - and it knows it well. Many investors can't help but wonder why Nike (NYSE:NKE) hasn't already bought Columbia Sportswear yet. The two companies' products rarely overlap and both headquarters are located in Oregon. Nike and its $20 billion in sales could probably buy Columbia (sales of $1.5 billion) with ease.

Whirlpool (NYSE:WHR)
In 2005, the company bought out Maytag, its closest rival, creating a home appliance dynamo. Its brands include Whirlpool, Maytag, KitchenAid, Jenn-Air and many others. In addition, it supplies Sears with appliances under the department store's own brand name, Kenmore. Many investors have no doubt owned or used an appliance under one of these brand names.

The Bottom Line
The three stocks listed above are just a small sample of the companies that spring forth if you keep your eyes open the way Peter Lynch became famous for doing. Rather than putting your head in the sand and giving up on investing, consider adopting an investment plan that takes advantage of your built-in knowledge as a consumer. There are opportunities all around us if we take the time to look.

Palladium Price Lags Gold

Unlike gold, which has rallied recently, the price of palladium has underperformed other precious metals over the past few months. Although palladium wsa one of the best performing commodities last year, signs of an end to its rapid price recovery are growing. According to the latest report of the German precious metals trading group Heraeus, Exchange Traded Funds (ETFs) got rid of nearly four tons of palladium in the last four weeks. While global demand for palladium bars for investment purposes has slightly increased, the total volume remains at relatively low levels.

Palladium was one of last year´s biggest winners after the global automobile industry had significantly recovered again. While the global financial crisis caused a heavy setback in worldwide car production numbers, the industry was able to rebound in the last two years. Even if sales figures in many regions could not reach their pre-crisis levels again, palladium demand among industrial end-users turned out to be strong. This development contributed to palladium price rally, after hitting a low of $161 per ounce in the fall of 2008. Palladium reached a new record high of $855 per ounce in February of 2011; more than a fourfold increase compared to its bottom at the height of the global financial crisis.

In addition, the rally in the palladium market has been fueled by growing concerns over future supply shortages of the white metal. After the mining giant Norilsk Nickel warned of depleting Russian state inventories of palladium in autumn 2010 followed by strikes in South Africa, the largest producer, this contributed to a tightening of the supply situation in global palladium markets. However, the resulting fears among global capital investors have given way to greatly increasing concerns over a new recession in the United States and a significantly slowing global economy in recent weeks. A shrinking demand from the automobile industry would have a highly negative impact, which is primarily used in the manufacture of catalytic converters.

The report from Heraeus also stated that sales in Europe´s automotive sector decreased by 2% from January to July of 2011. While Germany´s car market has proven to be a stabilizing factor for European car sales in the respective period, new vehicle registrations severely fell in those countries most affected by the region´s sovereign debt crisis. Spain, Italy and Great Britain suffered a slump of 24%, 13%, and 6.7% respectively. While vehicle sales in the U.S. rose by 11% compared to July 2010, new car registrations only increased by 1% month-on-month. Similarly in China – the world´s fastest-growing car market – vehicle sales recently posted a drop. Should this situation not change soon, the risk for a continued decline in palladium prices is high. Thus, investors should be extremely cautious were the technically relevant support level of $720 per ounce to be lost.

Focus on Stocks, Not the Overall Market: Technical Analyst: DE, CAT, DG, TGT, NKE, TIF, BBBY, CERN, AET, POT, IPI, MOS, DE

Amidst the noise of economic recessions versus slow patches, and technical bottoms versus temporary market retracements, it's important for investors to remember that the stock market consists of hundreds and thousands of individual stocks. Ignoring the macro noise is what technical analysis is all about, which is why Breakout welcomed RBC's Rob Sluymer to help viewers find the stocks working on both a relative and absolute basis.

An investing "focus on stocks versus the market is going to keep us out of trouble," Sluymer says. He likes names which, taken as a basket, go beyond counter-intuitive and into the land of bizzaro stock picking. Sluymer likes Deere (DE), but not Caterpillar (CAT), and consumer discretionary names like Dollar General (DG), but not staples like Target (TGT), and Hamsters (RAT) but not Goldfish (BAIT).

Sluymer acknowledges it's a "hodge podge" but he gives a ton of names to consider. Checking them out for yourself is probably a better use of your time than taking a stab at whether the S&P 500's next move takes us to 1,300 or 1,100. As always, you're welcome to debate and argue amongst yourselves in the comment section:

Consumer Discretionary:

Nike (NKE), Tiffany (TIF), Bed Bath & Beyond (BBBY)


Cerner Corp. (CERN), Aetna (AET)

Agriculture (It's own sector because "Materials" or "Industrials" doesn't quite cut it):

Potash (POT), Intrepid Potash (IPI), Mosaic (MOS), Deere (DE)

S&P 500 Annual PE Ratios

Tuesday, August 30, 2011

Exclusive: SGT Speaks With GATA’s Bill Murphy About Gold & Silver

Value Play: Arch Coal (ACI)

In the last 2 days, stocks have come back to claim almost half of the value that was lost in the August correction. However, there are still some stocks out there that took such a beat-down that they still present a valuable buying opportunity. One such stock is Arch Coal (ACI).

After today's rally, shares are currently trading at $20.27 a share. Over the past 12 months, Arch Coal Inc (ACI) shares have traded between $16.91 and its 52-week high of $36.99. Arch Coal Inc shares are now trading with a P/E Ratio of 19.4 and EPS of 0.98.

Dahlman Rose & Co. analyst Daniel Scott wrote in a note to investors that the sector should see gradually increasing volumes for its products. He expects to see rising prices for thermal coal in the U.S., which is used to generate electricity. Prices for hot-burning metallurgical coal used to make steel will remain flat in 2013 after dropping from current high levels into 2012, Scott wrote:

"We see future thermal export volumes helping offset potential eastern volume declines stemming from new sulfur regulations on coal (electricity) generation facilities," Scott wrote.

Scott wrote that producers suffered from high costs, but he sees cost inflation moderating from current levels.

He released his 2013 earnings forecasts, ratings and 12-month price targets for U.S. coal producers:

-- Arch Coal Inc.: Reiterated "Buy" rating and price target of $38. Estimated earnings per share of $1.82 in 2011, $3.88 in 2012 and $4.29 in 2013.

Another Bear Market Coming? Here’s How To Avoid Its Bite

Recent stock market action has brought the major indexes into at least a correction zone, if not an outright new bear market. So, if this is a new bear market, how can you dodge another bear bite?

So says John Nyaradi ( in an article* which Lorimer Wilson, editor of (It’s all about Money!), has further edited ([ ]), abridged (…) and reformatted below for the sake of clarity and brevity to ensure a fast and easy read. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement. Nyaradi goes on to explain:

click to enlarge
S&P 500

Chart courtesy of

In the chart of the S&P 500, above, you can see how the index has taken a sharp decline since the highs of mid-July. It is now below its 200 day and 50 day moving averages (red and blue lines) and has broken several long term trend lines. Furthermore, the 50 ma has crossed below the 200 day ma, forming what is widely known as the “death cross” which is a quite reliable statistically proven technical indicator [see here (1) for a recent article on the current "death cross" event]. While not perfect, as no indicator is, the “death cross” has managed to sidestep the biggest part of every recent bear market, while its counterpart, the “golden cross” has captured significant gains during bull markets.

However, it should also be noted that support at the 1120 level has been tested several times and so now the bears will have to push through that level to confirm that we are actually in the beginning days of a new bear market.

It is my opinion that this trading range will not continue for very long and that we’ll see a directional breakout, either up or down, within the next few weeks. Technical and fundamental conditions would indicate that the likely probability of that move would be down. If that turns out to be the case, as investors and traders, we have several choices if we believe a new bear market is upon us:

  1. to “buy and hold” which is the conventional wisdom and which I believe is quite ineffective in today’s volatile markets since the major indexes are still far below where they were in 2000 at the beginning of the “tech wreck” more than 11 years ago.
  2. to head for the safety of cash which many investors have done or to head for the safety of Treasury bonds and bills which have also seen a huge influx of funds in recent months and days. This strategy gets you out of harm’s way if the market indeed does continue its downward trajectory.
  3. to actually attempt to profit from declining markets and to do that, investors/traders today can use inverse exchange traded funds that move opposite to the action of the underlying index…
  4. to use put options, either as portfolio insurance on currently held positions or as directional bets in search of profits.

So from the above discussion we can conclude that we are at the very least in a significant correction of an ongoing bull market or either in or close to entering a new bear market. Coming days will tell us which way things will go and confirm this one way or other.


Whatever happens, exchange traded funds offer the power and flexibility to seek profits in any market environment.

Gold and Gold Mining Shares in % of Global Assets

Rice May Rally 22% by Yearend as Thai Buying Elevates Costs, Curbs Exports

Rice may rally 22 percent by yearend as Thailand, the world’s largest exporter, buys the grain from farmers at above-market rates, pushing up costs for importers and fanning global inflation even as economic growth slows.

The price of 100 percent grade-B Thai rice, the regional benchmark, may rally to $750 per metric ton by Dec. 31, according to the median estimate in a Bloomberg News survey of seven exporters, traders and millers conducted last week. That target is $50 higher than the median estimate in a separate Bloomberg survey undertaken in the first half of this month.

The surge may complicate matters for central bankers and policy makers around Asia who are already struggling to cool rising prices. Rice was the only grain separating the world from a food crisis, Abdolreza Abbassian, senior economist at the United Nations Food & Agriculture Organization, or FAO, said in February when worldwide food costs rallied to a record.

“If the sources of supply are actually inflating the prices for their commodities, regardless whether there’s supply or not, that’s going to keep prices elevated,” Abah Ofon, an analyst at Standard Chartered Plc, said by phone from Singapore. “That would keep risks for food inflation elevated.” (more)

Is the S&P500 Cheap?

I was somewhat surprised by a Bloomberg article discussing how cheap the S&P is (mentioned here this AM). Its not that Bloomie has suddenly become a cheerleader, but rather, this piece reflects the beliefs of a large chunk of classically trained value mutual fund managers.

Here’s a Bloomberg excerpt:

“At 1,176.80, the S&P 500 is trading at 10.8 times analysts’ forecast for profits in the next 12 months of $109.12 a share. For the P/E ratio to reach its five-decade average of 16.4 without shares appreciating, earnings would have to fall to about $71.76 a share, 22 percent below the last 12 months, data compiled by Bloomberg show.

Should companies meet analysts’ profit estimates, the S&P 500 must advance to about 1,790 to trade at the average multiple of 16.4 since 1954, according to data compiled by Bloomberg. That’s more than 50 percent above its last close. Futures on the S&P 500 expiring next month gained 1 percent to 1,185.9 at 7:48 a.m. in London today.” (emphasis added)

Of course, left unsaid is what if analysts estimates are too high; Historically, the fundie community has overestimated earnings growth by a factor of 2X.

Also unsaid was the impact of recession on earnings. A 22% drop during a recession is hardly a Great Depression collapse; its not even a Great Recession drop. Indeed, that line of thinking ignores the overhang of housing, the deleveraging consumer, and tight credit conditions — all of which could easily persist for years to come.

Bottom line: The Reagan Recession came at the end of a 16 year bear market, plus benefited from Volcker breaking the back of inflation. The threat today is a Japan like deflationary spiral, including falling asset prices and an unwillingness for investors to buy up for a dollar of earnings.

In other words, a falling P/E could be evidence of an ongoing deflationary phase, and not proof that markets are cheap.

The World’s Supreme Test for Gold

gold is money“Gold is now at its supreme test of desirability. Either it will become much more valuable, or the trend will be away from it altogether. And today economists are not agreed on which will happen; but the opinion is strong that there will be a drastically revised conception of the virtues of gold.”

This excerpt comes from The Vancouver Sun of October 1933. It is a fascinating article. I strongly recommend that you read it in its entirety here. (It should take you no more than 3 minutes to do so.)

The article wrestled with one economically-perplexing question: Did gold become money because people wanted gold in a “special way” or is gold wanted by people just because gold is considered (legal) money? The article remarked that some economists believe it is the former, while others believe it is the latter.

The article---and its question posed---must be understood in context, however. In April of 1933, U.S. President Franklin D. Roosevelt ordered that all gold held by American citizens was property of the United States Treasury and, as such, by May 1933 all American citizens must turn in their gold to the Federal Reserve and/or an affiliate banks.

In other words, gold was no longer deemed (lawful) money in the United States. The article, therefore, pondered the question: Would the demand for gold remain even though the metal was no longer considered money?

The article’s author took the position that, regardless of if gold is deemed legal money, people want gold and that is what ultimately drives its demand. But gold was still considered money in other countries like France, Italy, Belgium, Germany, Holland, and Switzerland. In fact, the author noted that “Frenchmen” were regularly entering into the London Gold market to purchase gold even though it cost those business men a heavy premium compared to simply redemption at their own Bank of France. Why pay this premium?, the author asked. No need to ask why; just note that it is happening, the author said.

But what if the above-mentioned countries followed suit with the US and Britain and made gold “not money” anymore? What then for the demand for gold?

Time will tell, the author concluded.

Let us hope that if [the test of gold] materializes we shall profit by its lesson, for that lesson will be of great importance in clearing people’s minds upon some fundamental principles concerning the nature of “money”---and its “management.”

The author would be satisfied to know that history has answered this question and, in addition, has vindicated his position---that gold is desired and wanted by the people not because it is deemed legal money but because it is the truest money. After 70 years, history has proved that people desire gold regardless of what governments call it or deem it.

And right now---at a gold spot price at about $1900 per ounce---the people are showing their strong desire for gold is only beginning to be rekindled. The “supreme test” of gold has been completed. But it has not ended. Not until, that is, gold has been deemed “legal” money once again.

Gold is money.

Low Rates Are Goodand Bad

Borrowers breathed a collective sigh of relief when the Federal Reserve said earlier this month that it would hold interest rates at rock bottom for the next two years. But savers were far from happy.

"The news was a little depressing" for savers, says Jim Chessen, chief economist at the American Bankers Association. "It means low savings rates will be par for the course for the next couple of years."

A divided Federal Reserve conceded Aug. 9 that the economy was weak, with "downside risks" on the rise, and announced, surprisingly, that it would extend near-zero short-term interest rates another two years.

The Fed sets a "target rate" that banks follow closely when setting the "federal-funds rate" they charge each other for overnight loans as well as the competitive interest rates they charge consumers and businesses.

The Fed's move was aimed at goading consumers and businesses to look again at leverage as a means of investing in the economy -- either through big-ticket purchases like houses, cars and large appliances, or, for businesses, in equipment, new systems and even workers. The Fed's thinking is that if interest rates stay low enough, people and businesses won't be afraid to borrow, which could shake this stagnant economy back into growth mode.

But it stings if you're on a fixed income facing rising costs for energy and food, or if you're so wary of your money disappearing in the stock market that you're sitting on a bank savings account full of cash. Most bank-savings rates are below 1%.

Low interest rates hurt, too, if your retirement is dependent on interest income from certificates of deposit. Interest rates on a one-year CD have plunged to 0.42% from 2.38% just three years ago, according to Most money-market mutual-fund yields are at 0.01%. And at those rates, there's no wiggle room for inflation, which was 3.6% in the last year.

"It doesn't matter if your money is liquid or tied up in a CD, the yields right now do not compensate you for inflation," says Greg McBride, senior financial analyst at Bankrate.

Though the interest is adding only dimes and nickels to many savings accounts now and for the next two years, a federally insured bank is still a good bet to stash your cash.

If you're a homeowner with, say, a 5-1 adjustable-rate mortgage that's already past five years of the fixed-rate portion, you're in pretty good stead for the next couple of years.

Ditto on those home-equity lines of credit, which carry variable interest rates mostly based on the prime rate, which also trends with the federal-funds rate.

Low interest rates also have contributed to 50-year troughs in mortgage rates, which are determined by a variety of interest-rate benchmarks. Freddie Mac reported the average rate on a 30-year fixed-rate mortgage rose modestly last week to 4.22%, after seven straight weeks of declines. A year ago, the 30-year fixed-rate mortgage stood at 4.36%. The 5-1 ARM slipped to 3.07%, a record low.

Low interest rates are a positive for credit-card holders, unless, of course, you don't pay your bills on time and get slapped with high penalty rates. Thanks to the Credit Card Accountability, Responsibility and Disclosure Act, most banks reset their annual percentage rates to variable terms, meaning they could rise -- and fall -- along with the prime rate.

"It doesn't look like there's going to be any cost-of-funds pressure on credit-card issuers to increase" annual percentage rates, says Ben Woolsey, director of consumer research at The cost of funds refers to the rates banks charge each other on overnight loans. "It appears that banks are opening up more credit to people with excellent credit."

A low-interest environment makes it even more important that you pay off your credit-card balances, however. Because you're earning very little return on savings accounts and CDs, the amount you pay in interest-rate charges has more impact on your total budget and cash flow. Generally, interest earned on savings accounts can help offset the interest paid on credit cards.

The U.S. Dollar is a BUY (So The Calculations and Experts Say…)

By most “standard” calculations, the U.S. Dollar (USD) is undervalued by close to 20%. Using the Effective Exchange Rate methodology, the USD may be due for a rise in the near future.

However, even with the recent market slide and persistent worries over potential defaults within the EuroZone, traders have been avoiding the USD to a point where it is close to the lowest relative value that has been observed in decades.

Calculation methodology: An effective exchange rate is a measure of the value of a currency against a `basket’ of other currencies, relative to a base date. It is calculated as a weighted geometric average of the exchange rates, expressed in the form of an index. The effective exchange rate indices for sterling and other currencies published by the Bank are based on the method the IMF uses to calculate effective exchange rates for a number of industrialized countries.

The weights used are designed to measure, for an individual country, the relative importance of each of the other countries as a competitor to its manufacturing sector. The trade weights reflect aggregated trade flows in manufactured goods for the period 1989 to 1991 and cover 21 countries. The base date for the index is 1990, and is set at 100.

Now that additional QE appears to be off the table (or at least postponed for some time), gains on the USD may no longer be met with knee-jerk selling. If Bernanke and the team are discontinuing their support for a quick debasing of the currency, the safety net may have been pulled away.

There was an interesting story that appeared in Bloomberg that may provide an additional argument for the potential for the USD to rise:

The dollar is poised for its biggest monthly gain since May, reclaiming its status as a haven while Switzerland and Japan boost efforts to weaken their currencies. The U.S. currency has appreciated 1.2 percent in August against a basket of the developed world’s nine most-traded exchange rates, according to data compiled by Bloomberg. That compares with a decline of 14 percent in the world’s reserve currency from this time last year through July.

Demand for America’s assets is rising even though the Federal Reserve has pledged to keep its benchmark interest rate near zero through mid-2013 and Standard & Poor’s cut the nation’s credit rating from AAA. The two other currencies considered havens in times of financial and political strife — the Swiss franc and yen — are under siege by their governments and central banks after rising to records.

“The dollar is a buy through the end of the third quarter,” Nick Bennenbroek, head of currency strategy in New York at Wells Fargo & Co., the third-most accurate forecaster in the last six quarters as measured by Bloomberg, said in an Aug.

Currency forecast survey by Bloomberg:

Richard Poulden talks with James Turk

Richard Poulden, Director of Power Capital Financial Trading (PCFT), and James Turk, Director of the GoldMoney Foundation, talk about the new Pan Asia Gold Exchange (PAGE) and its potential to change the gold market with its allocated gold contracts.

They talk about PAGE’s plan to start trading in standardized 10 troy ounce gold bar contracts. Poulden expects local contracts to start trading in Q4 2011 and international contracts to follow in Q1 2012.

Monday, August 29, 2011

Soros and Rogers Agree: Greater Returns from Farmland Than Gold! Here’s Why: MOO, BARN

Question: What asset has appreciated more than any asset since the year 2000? Answer: Farmland – by 1,200%! [George Soros and Jim Rogers have recognized that fact and invested accordingly. Here is what you need to know to do likewise.] Words: 974

So asked George Maniere ( in an article* which Lorimer Wilson, editor of (It’s all about Money!), has further edited ([ ]), abridged (…) and reformatted below for the sake of clarity and brevity to ensure a fast and easy read. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement. Maniere goes on to explain:

Food Prices Skyrocketing

Food prices are skyrocketing all across the globe, and there’s no end in sight. The United Nations says food inflation is currently at 30% a year, and the fast-eroding value of the [U.S.] dollar is causing food prices to appear even higher in contrast to a weakening currency. As the dollar drops in value due to runaway money printing at the Federal Reserve, the cost to import foods from other nations looks to double in just the next two years — and possibly every two years thereafter.

That’s probably why investors around the globe are flocking to farmland as the new growth industry. Investors are pouring into farmland in the U.S. and parts of Europe, Latin America and Africa as global food prices soar. A fund controlled by George Soros, the billionaire hedge-fund manager, owns 23.4 percent of a South American farmland venture Adecoagro.

Commodities are still the best play for the long term and legendary investor guru Jim Rogers confessed that he has been buying farmland himself [see article 1 below].

People are still going to eat. Mother Nature has taken her wrath out on the world as of late to such an extent that farmers cannot get loans for fertilizers right now without putting their land up as collateral and with too little rain or too much rain the farmland that has been in a family for generations could be wiped away in a trick of fate. Therefore the supplies of food are going to continue to be under pressure. This leads me to conclude that agriculture is going to be one of the greatest industries in the next 20 years, 30 years.

That’s because demand for food is accelerating even as radical climate changes, a loss of fossil water supplies, and the failure of genetically engineered crops is actually reducing food yields around the globe.

South America: Agricultural Commodity Exports Growing Rapidly

Ceres Partners, which invests in farmland, has produced astonishing 16% annual returns since its launch in 2008 – and this is during a depressed economy when most other industries are showing losses – with investments in dairy, green house vegetable, beef cattle and rice plantation operations. Ceres reported that most commodity exporting countries of South America are facing highly favorable conditions, particularly those with stronger fundamentals that have easiest access to external financing and stand to benefit the most from low global interest rates. Foreign direct investment in the economies of the region increased almost 20% during 2010 compared with the same period a year ago.

The region’s economy expanded 6% in 2010 and according to ECLAC´s latest report, South America will grow 5.1% in 2011. In terms of countries, the fastest growing this year will be Argentina (8.3%), Peru (7.1%). Uruguay (6.8%), Ecuador (6.4%), Chile (6.3%), Paraguay (5.7%) followed by Colombia (5.3%), Venezuela (4.5%) and Brazil (4%).

For its soils and weather conditions, abundance of natural resources, good infrastructure and the unique possibility of acquiring large extension of productive farmland, South America is considered a top place to buy, lease and manage agricultural lands for profit. The region accounts for 59% of global exports of oil seeds, 11% of grains and 37% of meat, with Argentina, Brazil, Chile and Uruguay being among the top 10 food exporters.

How to Invest in Farmland

While it does not invest in farmland directly, the Market Vectors Agribusiness ETF (MOO) is the closest thing to a farmland ETF. MOO seeks to replicate the price and yield performance of global agricultural business. It is a modified market capitalization-weighted index consisting of publicly traded companies engaged in the agriculture business that are traded on global exchanges. It provides exposure to companies worldwide that derive at least 50% of their revenue from agriculture business. Another interesting agribusiness ETF is BARN. Barn offers global exposure to the farmland industry, focusing exclusively on companies involved in agricultural products, livestock operations and the manufacturing of farming equiptment.

Market crash 'could hit within weeks', warn bankers

A more severe crash than the one triggered by the collapse of Lehman Brothers could be on the way, according to alarm signals in the credit markets.

Insurance on the debt of several major European banks has now hit historic levels, higher even than those recorded during financial crisis caused by the US financial group's implosion nearly three years ago.

Credit default swaps on the bonds of Royal Bank of Scotland, BNP Paribas, Deutsche Bank and Intesa Sanpaolo, among others, flashed warning signals on Wednesday. Credit default swaps (CDS) on RBS were trading at 343.54 basis points, meaning the annual cost to insure £10m of the state-backed lender's bonds against default is now £343,540.

The cost of insuring RBS bonds is now higher than before the taxpayer was forced to step in and rescue the bank in October 2008, and shows the recent dramatic downturn in sentiment among credit investors towards banks.

"The problem is a shortage of liquidity – that is what is causing the problems with the banks. It feels exactly as it felt in 2008," said one senior London-based bank executive.

"I think we are heading for a market shock in September or October that will match anything we have ever seen before," said a senior credit banker at a major European bank.

Despite this, bank shares rebounded on Wednesday, showing the growing disconnect between equity and credit investors. RBS closed up 9pc at 21.87p, while Barclays put on 3pc to 149.6p despite credit default swaps on the bank hitting a 12-month high. This mirrored the US trend, with Bank of America shares up 10pc in late Wall Street trade after a hitting a 12-month low on Tuesday over fears that it might have to raise as much as $200bn (£121bn). As with the European banks, the rebound in the share price was not reflected in the credit markets, where its CDS reached a 12-month high of 384.42 basis points.

European stock markets joined in the rally. The FTSE closed up 1.5pc at 5,206 on hopes the chance of a global recession had diminished. European shares hit a one-week high, with Germany's DAX closing up 2.7pc and France's CAC 1.8pc higher. The Dow Jones index edged higher on strong durable goods orders data as markets began to accept that the US Federal Reserve is unlikely to signal fresh stimulus at Jackson Hole this Friday.

Even Moody's decision to downgrade Japan's sovereign credit rating by one notch to Aa3 did little to damage global sentiment, although Tokyo's Nikkei closed down just over 1pc.

As stock market nerves settled, gold - which has recorded steady gains recently as investors seek a safe haven - fell 5.3pc to $1,777 in London.

9 Steps to Take If You Fear a Job Layoff

If you notice warning signs at your company that clearly say, "Somebody's going to be leaving here on short notice," don't wait until you're handed a pink slip to start thinking about your next career move.

Here are nine tips that can help make a layoff less traumatic, and put you on track to quickly land a new job.

Assess Your Next Move

It can be unnerving to show up for work every day knowing that a layoff is looming. Help relieve some of that tension by taking stock of your professional situation. Ask yourself:

1) If you had to change jobs quickly, would you pursue the same type of assignment you have now?

2) Where would you focus your job search and how would brand yourself for the next project?

3) What have you learned on your current job that could be beneficial in your next venture?

4) Would you consider independent consulting — perhaps even for your soon-to-be former employer?

Revive Your Resume

An effective resume nowadays draws a smooth line between your background (highlighting your entire career, not just your current role) and the positions you're targeting in your job search. If a layoff is, indeed, in the works at your company, you'll want to rewrite your resume to focus on the relevance of your previous jobs in relation to the positions you're pursuing now.

For example, if you've spent several years in human resources, but prefer accounting and want to highlight that aspect of your skill set, under your current job functions, showcase the accounting-related work you've done.

Update (or Create) Your LinkedIn Profile

New users should get comfortable with, which is a social networking site targeted towards professionals, by joining a group, answering a question on LinkedIn Answers, adding a blog or other content to your profile, and using the search capabilities of the site's massive database.

Before you change anything on your profile, however, go to the settings and turn off outgoing notifications to your network. Doing this allows you to work on your profile without alerting the whole world. Update your profile with details on your current job, update your picture if it needs freshening and cultivate some new connections while you're at it.

Expand Your Network

Most employed people (sans entrepreneurs) don't network nearly as much as they should. If your senses are telling you that a job change is likely -- whether you want it or not -- it's time to reconnect with former colleagues and make new professional acquaintances.

That means at least one breakfast or lunch per week with someone you know. Remember to talk about what's new in both of your lives, and if you're comfortable, gently request an introduction to second-degree friends who should be a part of your professional network.

Get to Know a Respected Headhunter

Every white-collar job-seeker needs a headhunter in their corner. If you're not already on the short list of at least one search pro in your industry, make a new friend who fits that description. You can meet them through friends or find one online and initiate contact.

Headhunters will be able to provide you with feedback about your resume, let you know what your background is likely to fetch in the marketplace and tell you about local firms with open positions in your field. As long as you respect their time and remember that job-seekers don't pay their salary -- employers do -- you'll find a search partner that's a valuable ally.

Determine Your Value

Most people who've been employed at one company for many years have no clue how much they're worth in the current job market. Use sites such as, and to help determine an appropriate salary amount for your experience level. You'll need that information when an employer asks what you're looking to earn. Many industry-specific publications, such as InfoWorld (for IT pros) and Adweek (advertising folks), publish an annual salary survey that can help provide a better idea of what your asking price should be.

Mobilize Your References

Even if a layoff is in the very near future, your current employer can still give you something incredibly valuable in the form of references from fellow colleagues. Start cultivating your reference list now, and include at least one co-worker, a customer or vendor you've done business with over the years and a subordinate. If you can make contact with a former boss, that's even better. If there are colleagues you'd hope to stay close with assuming the worst, get their personal e-mail addresses and phone numbers, too.

Start Your Job Search

Take a look at and, two major job aggregation sites, to see what employers in your area are looking for. Research specific employers by trolling LinkedIn to see who's working where, how certain employers fare in their competitive arenas and what companies are looking for as they grow their teams.

Once you've figured out what direction you want your job search to take, test the waters by applying to positions online. Remember, employers prefer job candidates who are already employed.

Don't Be Afraid to Ask

If you do learn that your position has been eliminated, immediately discuss critical details, such as severance pay and health benefits coverage, with your manager. Determine whether terms are negotiable. Keep your cool during this conversation, but insist on complete answers. If your manager can't give them, then ask who can. While getting laid off can be an emotional and confusing time, it can be made even worse if you fail to ask questions and take the necessary steps to prepare.

Storm Pennants Are Flying In Stocks And The Dollar

Storm Pennants Are Flying In Stocks and the Dollar

If we look only at charts and ignore the "news," we see storm pennants are flying in both the stock market and the U.S. dollar.

The stock market is wearing a T-shirt that reads, "I broke a downtrend and all I got was this lousy pennant." Having just returned from nine glorious days camping in Washington State, I have no idea what "news" has effected the markets ("news" in quotes because the news is managed for its PR effect--the real news is what has been suppressed lest it undermine the Status Quo's carefully cultivated propaganda campaign), and so I have marked up the chart of the Dow Jones Industrial Average (DJIA) and the U.S. dollar without the "benefit" of the news flow.

What pops out is a big fat pennant in both charts. Pennants can be continuation patterns--mere way points in a continuing up or down trend--or they can indicate points of trend reversals.

The key feature of a pennant is the compression of price into a narrowing channel, as the relative indecision of buyers and sellers alike causes price to fluctuate less and less.

At the apex of the pennant (note the triangle shape), the irresolution is resolved, usually in a big way up or down.

If we look at the indicators in the chart of the Dow Industrials (Indoos), we note that the oversold conditions have been worked off, and a very bullish divergence in the MACD indicator (and a positive cross in MACD) has yielded up a meager pennant rather than a clear breakout or trend reversal.

Even if you discount the "death cross" of the 50-day moving average (MA) dropping below the 200-day MA, a declining 50-day MA does not suggest a Bullish resolution to the pennant.

That intersection of the 50-day and 200-day MAs offers up a tempting target for market Bulls. What should worry Bulls is that these positive moves in the indicators have yielded up such modest results--a pennant that is a week or two away from a potentially major break up or down.

As for the dollar, the pennant may well be a sign of strength, as the Federal Reserve has been trying mightily to push the USD to a new low while propping up the euro at 1.44.

The basic reason is that a weakening dollar is the primary engine of U.S. corporate profits, as I explained in About Those Permanently Rising Corporate Profits... (August 12, 2011). If the Fed is unable to suppress the dollar via propping up the euro, then the entire stock market rally built on a falling dollar will collapse is a heap, shattering Wall Street's PR of permanently rising corporate profits.

As noted in that entry, the euro and the dollar (as measured by the DXY index of weighted currencies) are on a see-saw; if the euro breaks down as a result of the eurozone's irreversable structural dilemmas, then the dollar will strengthen and the Fed's master plan of pushing stocks up via a weakening dollar will have failed.

We have no idea how much treasure is being thrown into the fire to maintain the euro at 1.44 to the dollar, and that is the "news" which we must not be allowed to know, lest the extreme vulnerability of the eurozone financial Status Quo and the global rally were reflected in the foreign exchange and stock markets.

Being completely out of the news cycle is a blessing, in more ways than one: not only is one's mind untwisted by propaganda passing as "news," one is free to look at charts without the carefully designed biases implicit in the "news."

Canadian Dollar To Retreat Versus the USD?

For the past year or so, the Canadian dollar or the Loonie as some traders call it has overtaken the USD. However, it appears that the USDCAD pair could already be bottoming.

As you can see from the chart above, the pair has already moved out of its year-long downtrend. Now, this could be taken as a good sign for the US dollar. Also, notice that from March of this year onwards, the pair seems to have been forming a double bottom pattern, which technical analysts consider as a bullish reversal formation. Moreover, a presence of another bullish pattern in the form of a pennant could catapult the USD back above par. However, it should considerably move above and break the 1.000 marker for it to have a chance of reaching its 1.0500 target (assuming it breaks out from the pennant). In case the 1.0000 price level holds and does not break then the USDCAD could continue to just drift sideways. Worse for the US dollar, the pair could even revisit its former lows at 0.9500 or even at 0.9400.

Technically Precious With Merv Burack

Gold Blow Off May Have Arrived

Best Financial Markets Analysis ArticleBoy, some of these moves are getting kind of scary. To keep your balance about things it might be very beneficial to watch the long term chart. It does not roller coaster like a short term one. On the other hand there may be just too much action missed between a short term and a long term trend.


Way behind time so once again it’s just the facts. Maximum information with minimum time spent.


Trend: Although it looks like the blow-off suggested here last week has arrived. Still, the long term trend has not changed. Gold remains above its long term positive sloping moving average line and above its long term up trend line (that lower channel support line shown here a couple of weeks back).

Strength: The long term momentum indicator remains in its positive zone but the action of early this past week has knocked some steam out of it. It is now below its negative sloping trigger line for the first early warning of possible trend change sometime ahead.

Volume: The volume indicator remains one strong long term indicator and remains above its positive sloping long term trigger line.

Despite a minor early warning from the momentum indicator the long term rating remains BULLISH at the Friday close.


Trend: If I can easily draw three Accelerating FAN trend lines then I have the criteria for my blow-off period. The breaking of that third FAN trend line is the end of the blow-off trend and the end of the present bullish trend, intermediate term wise. Watch for the price to move within those last two FAN lines for a while but inevitably drop into the area between the first and second FAN trend lines. So much for “predicting”. On the Friday close gold remains above its intermediate term positive sloping moving average line so from the indicators the intermediate term trend is still on-going. The FAN line (blow-off) break is a very early reversal indicator.

Strength: The intermediate term momentum indicator entered its overbought zone and quickly backed off. It remains in its positive zone but below its negative sloping trigger line. This reversal of the momentum indicator back below its overbought line is another indicator of an end of trend for a while. Friday’s price reversal had very little effect on the momentum indicator, at least at this time.

Volume: Still one of the strong indicators, the volume indicator has been consistently making new highs and remains above its positive sloping trigger line.

Despite the early reversal signal from the FAN lines and the momentum indicator the overall intermediate term indicators still give us a BULLISH rating at the Friday close. This bull is confirmed by the short term moving average line remaining above the intermediate term line.


Trend: The third FAN trend line may be assumed as a short term trend line. This trend line was broken on Wednesday and the price of gold remains below the line. On Wednesday the price of gold also closed below its short term moving average line turning the moving average line towards the down side. By Friday gold looked like it was back on the up move but closed on Friday just below its moving average line. The line itself has turned back to the up side on Friday.

Strength: On Wednesday the short term momentum indicator broke below its overbought line (it was basically in the overbought zone for a few weeks) and below support going back to early July. It remained in its positive zone, however, and is turning back to the up side but still below its negative trigger line.

Volume: The daily volume action is telling us a somewhat different story than the intermediate and long term volume indicators are telling us. With the price advance starting two weeks ago the volume has been pretty low. It started to improver at the top of the move peaking on the two down days. The advance on Thursday and Friday was once more on decreasing volume. Not the volume action one likes to see.

Putting it all together I cannot give the short term rating a bull or a bear rating. It is close to a bear but comes in as a – NEUTRAL rating, one level above a full bear. The very short term moving average line is confirming this neutrality. It is heading lower fast and is very, very close to moving below the short term line, but not quite yet. Possibly another day will do it.


Briefly, the P&F chart almost says it all. The long term bull remains in force but getting close to reversing. That would come on a move to the $37 level. However, a more important support would be at the $33 level.

Time limitations once more have caused me to cut the silver commentary short but suffice it to say that all three time periods are rated as BULLISH as of the Friday close.


Looking over the various major North American and Merv’s gold Indices they are still all (except for the Merv’s Qual-Gold Index) below their previous highs. It would take another good week for some of the major Indices to get back to new highs while it would require more than a week for the Merv’s Indices to do so.

What we have here is a clear indication, using the various Merv’s Indices that any upward movement in gold stocks lately has been in the largest company stocks and not the speculative or gambling variety. As mentioned previously, this is more of an indication that the majority of market players are not yet convinced that we are into a new major bull move. Once they are confident that we are in a new major bull move you will see them gravitate towards the more speculative stocks. These will then move and far out perform any gains that the quality stocks may have made to that point.

At this time it just might be more advantageous to sit back and wait for the speculatives to take flight. Of course, if you must be in the market the quality stocks just might be your investment hoping for gains with lower risk.

Merv’s Precious Metals Indices Table

Well, that’s it for this week. Comments are always welcome and should be addressed to

By Merv Burak, CMT

Homelessness and Poverty on the Rise in Britain and America

Homelessness and Poverty on the Rise in Britain nobody is immune not even talented businessmen , Homeless people are just those unable to pay to occupy land, if you remove that concept then things are much easier instead of helping other countries with foreign aid why don't we help the homeless in this country. the trillion dollars spent on useless wars abroad , that are taxes go to pay for like, congressmen pay raise could ultimate homelessness in America. It's a bad two way street can't get a home without a job can't get a job without a home!!!!!!!!!!!!!!!!

"If you had any idea of how people really lived in Western Europe, Australia, New Zealand, Canada and many parts of Asia, you’d be rioting in the streets calling for a better life. In fact, the average Australian or Singaporean taxi driver has a much better standard of living than the typical American white-collar worker. I know this because I am an American, and I escaped from the prison you call home." (exerpt from “America: The Grim Truth” by Lance Freeman)

Gold Stocks At Historically Cheap Levels! Here’s Why

One market trend that seems to be attracting more and more attention is the large performance gap between gold bullion and gold stocks. The price of gold bullion has increased roughly 28 percent in 2011, while the S&P/TSX Gold Index is down [about] 1 percent. [Let me convey why that is the case.]

So says Frank Holmes ( in an article* which Lorimer Wilson, editor of (It’s all about Money!), has further edited ([ ]), abridged (…) and reformatted below for the sake of clarity and brevity to ensure a fast and easy read. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement. Holmes goes on to explain:

BMO Capital Markets have offered one reason behind the performance gap, saying:

“The rate of change in the gold price has been high over the past decade, perhaps too high for investors to gain confidence in that price as sustainable for an equity investment decision” 9and while it was hard to imagine gold prices could sustain a $1,000 an ounce levels five years ago,) “now it’s hard to see the gold price falling to that level.”

Using the implied value of a defined group of global gold stocks, BMO calculated the internal rate of return to measure how gold stocks have underperformed compared to the yellow metal. Over a period of nearly 20 years, BMO’s group of global gold stocks has never been this inexpensive. Only twice—during the Tech bubble in 2000 and the financial crisis of 2008—has the internal rate of return compared so closely with the price of gold bullion.

BMO's Universe of Global Gold Stocks Historically Cheap

RBC Capital Markets also sees potential in unpopular, undervalued gold equities and urges readers to take “a fresh look” at gold companies. RBC says gold companies currently have margins that are at record highs and it believes margins could be approximately $1,200 an ounce for the next 12 to 24 months. This is substantially higher than the 10-year average of $320 an ounce. Comparatively, many current projects were economically sound at $700-$1,000 per ounce gold prices, creating $300-500 an ounce margins.

Right now, BMO calculates the total cost to produce an ounce of gold at roughly $900 an ounce, while the company can turn around and sell that ounce for upwards of $1,400. This puts margins near 40 percent, roughly twice what they were in 2007 and four times higher than in 2000.

Increased profit margins put more money in gold company coffers and this is reflected in the unprecedented amount of free cash flow (FCF), RBC says. The firm says the industry has reached an inflection point with a “substantial wave of free cash flow” coming over the next 1 to 2 years.

You can see this incredible increase in Tier 1 producers, such as Barrick, Goldcorp, Kinross and Newmont Mining. Looking at their trailing 12 months of free cash flow over 10 years, FCF never rose above $2 billion. However, following the trend in gold prices, FCF among these Tier 1 companies stair-stepped up to $4 billion.

Record High Free Cash Flows for Tier I Producers

Looking forward over the next few years, RBC estimates that if the price of gold remains at $1,850, FCF should stair-step even further, reaching nearly $12,000 by the end of December 2013. BMO estimates the global gold companies will accumulate net cash of $120 billion by 2015 if gold prices remain elevated.

Rising FCF is especially relevant to shareholders, as it allows the gold company to use that money to invest in projects that should enhance shareholder value. This could include pursuing new projects, making acquisitions, reducing debt or paying dividends. Many gold companies are opting for the latter and increasing dividends but these increases haven’t kept up with the pace of rising earnings. The average payout ratio was roughly 20 percent in 2008 but currently sits around 10 percent in 2011.

BMO says, “A dividend policy linked to the financial performance of the company offers investors additional leverage to the gold price. The provision of a meaningful and sustained dividend has the potential to broaden investor appeal and to instill fiscal responsibility for management.”

BMO says gold stocks are currently trading at historically cheap levels, which the company sees as an opportunity investors can take advantage of.

RBC attempts to quantify that opportunity by saying:

“if gold prices remain elevated and/or investors accept a higher long-term gold price, we could see 25-50 percent upside in equities.”

US Weekly Economic Calendar

DateTime (ET)StatisticForActualBriefing ForecastMarket ExpectsPriorRevised From
Aug 298:30 AMPersonal IncomeJul-0.4%0.4%0.1%-
Aug 298:30 AMPersonal SpendingJul-0.5%0.5%-0.2%-
Aug 298:30 AMPCE Prices - CoreJul-0.2%0.2%0.1%-
Aug 2910:00 AMPending Home SalesJun--1.0%-1.4%2.4%-
Aug 309:00 AMCase-Shiller 20-city IndexJun--5.0%-4.7%-4.51%-
Aug 3010:00 AMConsumer ConfidenceAug-
Aug 317:00 AMMBA Mortgage Index08/27-NANA-2.4%-
Aug 317:30 AMChallenger Job CutsAug-NANA59.4%-
Aug 318:15 AMADP Employment ChangeAug-100K100K114K-
Aug 319:45 AMChicago PMIAug-51.052.558.8-
Aug 3110:00 AMFactory OrdersJul-2.0%1.8%-0.8%-
Aug 3110:30 AMCrude Inventories08/27-NANA-2.213M-
Sep 18:30 AMInitial Claims08/27-405K408K417K-
Sep 18:30 AMContinuing Claims08/20-3700K3660K3641K-
Sep 18:30 AMProductivity-Rev.Q2--0.4%-0.5%-0.3%-
Sep 18:30 AMUnit Labor Costs - Rev.Q2-2.3%2.4%2.2%-
Sep 110:00 AMISM IndexAug-47.048.550.9-
Sep 110:00 AMConstruction SpendingJul--0.3%0.1%0.2%-
Sep 13:00 PMAuto SalesSep-NANA3.93M-
Sep 13:00 PMTruck SalesSep-NANA5.56M-
Sep 28:30 AMNonfarm PayrollsAug-75K75K117K-
Sep 28:30 AMNonfarm Private PayrollsAug-100K111K154K-
Sep 28:30 AMUnemployment RateAug-9.2%9.1%9.1%-
Sep 28:30 AMHourly EarningsAug-0.2%0.2%0.4%-
Sep 28:30 AMAverage WorkweekAug-34.334.334.3-