Wednesday, January 12, 2011

Gold Must Exceed $2,000 to Be Considered in a Bubble, Deutsche Bank Says

Gold would have to exceed $2,000 an ounce to be considered in a bubble, and the metal will gain this year on investment in exchange-traded funds and central-bank buying, Deutsche Bank AG said.

Gold will “perform strongly” on investor demand and low real interest rates in the U.S., Michael Lewis, London-based head of commodities research at Deutsche Bank, said in a report today. A bubble may form because investors are buying gold as a hedge against both inflation and deflation, he said.

“Given these risks, we believe gold will continue to compete aggressively for investment capital,” Lewis said. “On our estimates, the gold price would need to move above $2,000 to represent a bubble.”

Bullion for immediate delivery climbed $6.43, or 0.5 percent, to $1,382.10 an ounce at 11:45 a.m. London time. Prices rose yesterday, ending a string of five declines, on concern that Europe’s sovereign-debt crisis may worsen. Gold for February delivery climbed 0.6 percent to $1,382.20 on the Comex in New York. (more)

3 Stocks That Are Cheaper Than They Look Read more: 3 Stocks That Are Cheaper Than They Look: GE, VZ, VFC

Company earnings have always been prone to sudden spikes and swoons. That's why it's a bad idea for stock investors to rely too heavily on value signals the price-to-earnings ratios.

Some changes to earnings, however, are less surprising than others. In the mid-1990s, an accounting professor named Richard Sloan uncovered something called the accrual anomaly. "Anomaly" is a word researchers have long used to describe clues that predict stock returns, on the belief that in an efficient market, such clues aren't supposed to exist. "Accrual" is an accounting term that's central to how earnings are calculated.

Earnings are sometimes thought of as the money a company has left each quarter after the bills are paid, but that's not quite accurate. Earnings are a bookkeeping construct that shows how much cash a company would generate if its costs lined up neatly with its expenses each quarter (say, if it didn't have to pay $100 million all at once for a factory that will produce revenues for decades, and if the $3 million it paid for raw materials one quarter were sold as finished goods in the same quarter instead of a later one). In other words, earnings are profits that have accrued but haven't necessarily been pocketed. (more)

Five 'Dogs of the Dow' Worth Betting On: CVX , INTC, MCD , T, VZ

The “Dogs of the Dow” strategy zeroes in on the 10 Stocks in the Dow Jones Industrial Average (DIA) with the highest dividend yield. This stock-picking strategy depends for its success on the fact that out of a select list of 30 large-cap blue chip stocks, a portfolio of the 10 highest yielding components is likely to outperform the Index over the ensuing 12 months.Research from 1973 to 1991, when Michael O’Higgins first published the “Dogs of the Dow” strategy, showed that it significantly outperformed the DIA. Since 1996, the strategy has had mixed results, but performed quite well in 2010, with the 10 stocks showing a gain of 15.5% vs. a gain of 11% for the DIA. With dividends factored in, the overall return was 21% vs. 14% for the DIA.

Since we expect large-cap stocks to do quite well in 2011, a theme we have explored in previous Seeking Alpha posts, we decided to look at this year’s 10 “Dogs of the Dow” candidates. Five of those stocks currently have a Bullish rating. Since we like large-cap stocks in 2011 -- and these stocks have an average dividend yield of 4.3% -- we think that as a group they represent an attractive portfolio for the first six months of 2011. Please note that two of these stocks AT&T (T) and Verizon (VZ) are in the Telecommunications Group and will likely be vying for iPhone customers.

Our rating is based on a 20-factor model incorporating Financial Metrics, Earnings Performance, Price/Volume activity and Expert Opinions to determine a stock’s potential over the next three-to-six months. (more)

10 Things That Would Be Different If The Federal Reserve Had Never Been Created

The vast majority of Americans, including many of those who believe that they are "educated" about the Federal Reserve, do not really understand how the Federal Reserve really makes money for the international banking elite. Many of those opposed to the Federal Reserve will point to the record $80.9 billion in profits that the Federal Reserve made last year as evidence that they are robbing the American people blind. But then those defending the Federal Reserve will point out that the Fed returned $78.4 billion to the U.S. Treasury. As a result, the Fed only made a couple billion dollars last year. Pretty harmless, eh? Well, actually no. You see, the money that the Federal Reserve directly makes is not the issue. Rather, the "magic" of the Federal Reserve system is that it took the power of money creation away from the U.S. government and gave it to the bankers. Now, the only way that the U.S. government can inject more money into the economy is by going into more debt. But when new government debt is created, the amount of money to pay the interest on that debt is not also created. In this way, it was intended by the international bankers that U.S. government debt would expand indefinitely and the U.S. money supply would also expand indefinitely. In the process, the international bankers would become insanely wealthy by lending money to the U.S. government.

Every single year, hundreds of billions of dollars in profits are made lending money to the U.S. government.

But why in the world should the U.S. government be going into debt to anyone?

Why can't the U.S. government just print more money whenever it wants?

Well, that is not the way our system works. The U.S. government has given the power of money creation over to a consortium of international private bankers. (more)

Australia's "Tulip Mania" About to Crash; 44% Jump in Property Listings Proves the Proposed Housing Shortage is Gargantuan Myth; Playable Actions

For years I have been hear­ing about a hous­ing “short­age” in Aus­tralia. That myth has been shat­tered by lat­est stats that show a 44% jump in prop­erty list­ings.

The prop­erty mar­ket could be set for early-year price falls due to a build up of unsold prop­er­ties, with new fig­ures by prop­erty research com­pany SQM Research show­ing the num­ber of list­ings swelled 44% over 2010.

Man­ag­ing direc­tor Louis Christo­pher says over­all the huge num­ber of list­ings means prices are now hang­ing by a thread and a mar­ket down­turn is imminent.

It’s still very clear to us that they are now at lev­els that would sug­gest a down­turn in the hous­ing mar­ket, although the stock lev­els have fallen sea­son­ally. The over­all num­ber is up now by 44% across the nation.”

I wouldn’t like to see another inter­est rate rise any­time soon – it will accel­er­ate the downturn.”

The new fig­ures sug­gest that the short­age has been overblown. Res­i­den­tial prop­erty list­ings were 328,270 dur­ing Decem­ber, rep­re­sent­ing an increase of 44.9% over the year.

In Surfer’s Par­adise, for instance, I know there are now over 2,000 prop­er­ties on the mar­ket in one post­code – just one. That area is really strug­gling at the moment, and it is now the equiv­a­lent of Florida in the United States.”

Christo­pher also says he is con­cerned about Dar­win, which recorded the largest increase out of all cap­i­tal cities at 57.3%. List­ings increased in Bris­bane by 59.4% and Perth by 54.8%. Mel­bourne fol­lowed closely with a 42.7% rise, although Can­berra recorded a rise of 46.5% as well.

The region with the high­est growth in stock lev­els was North Queens­land, with an increase of 216.3%. The region with the high­est month-on-month stock growth was Launce­s­ton, with 18.1%.

Uranium Stocks Pull Back – Shaking Out Weak Hands: U.TO, DML.TO

The recent pullback in Uranium stocks looks like it is nothing more than a healthy pullback to shake out weak hands. As much as it might hurt when stocks pull back, the recent pullback looks to be a healthy one. As I’ve written a few days ago, the fact we might be in the earliest stage of a potential bull market in Uranium makes it highly likely we witnessed a huge opportunity to add to existing positions or to initiate new positions as opposed to being fearful about a potential top forming. A few other things that make me feel pretty confident about my assumptions is the fact most traders missed the first run-up.

DNN – Denison Mines’ price recovery indicates decent buying pressure. It also validates my assumption entering strong stocks is typically rather difficult as windows of opportunity tend to close very quickly. One more thing that corroborates my bullish assumptions is U.TO’s price behaviour. I anticipated and outlined this price behaviour months ago. The fact U.TO is acting more or less exactly as I thought it would makes me extremely bullish. The reason is simple. Whenever a stock or sector acts as expected I consider to be trading in a ‘flow state of mind’. When stocks ‘act right’ it is the market’s way of telling me to push it. I have 4 Uranium sector overview charts on my public list. The message I want to convey should be unambiguous. I believe Uranium stocks offer outstanding price appreciation potential going forward. As long as the charts act well and as long as I don’t get stopped out I have no reason to change my mind. (more)

Why Momentum Works: Theory says that the past performance of share prices is no guide to the future. Practice says otherwise

WHAT goes up must come down. It is natural to assume that the law of gravity should also apply in financial markets. After all, isn’t the oldest piece of investment advice to buy low and sell high? But in 2010 European investors would have prospered by following a different rule. Anyone who bought the best-performing stocks of the previous year would have enjoyed returns more than 12 percentage points higher than someone who bought 2009’s worst performers.

This was not unusual. Since the 1980s academic studies have repeatedly shown that, on average, shares that have performed well in the recent past continue to do so for some time. Longer-term studies have confirmed that this “momentum” effect has been observable for much of the past century. Nor is the phenomenon confined to the stockmarket. Commodity prices and currencies are remarkably persistent, rising or falling for long periods.

The momentum effect drives a juggernaut through one of the tenets of finance theory, the efficient-market hypothesis. In its strongest form this states that past price movements should give no useful information about the future. Investors should have no logical reason to have preferred the winners of 2009 to the losers; both should be fairly priced already. (more)

Jay Taylor: Turning Hard Times Into Good times

Doug Casey is a brilliant, creative thinker who understands how the government’s stupidity wrecks lives and liberty. The Founding Fathers of our Republic knew that the best government is the least government. Like your host, Doug was a young man when the last bull market in gold registered a seismic reading 6.0 on the economic Richter scale. The global monetary earthquake of the late 1970s sent gold to $850 by 1980 and shook some sense in the Fed to put in place policies that forced Americans to save more and spend less. Those sensible policies bought more time for our Republic. But without a gold-backed monetary system, those lessons were quickly forgotten. Now, a 9.0 or even a 9.9 monetary earthquake threatens the very existence of our global fiat currency system. When the system comes tumbling down, where can we hide to save our lives and retain life, liberty and the pursuit of happiness? Mr. Casey will offer some solutions that you can’t afford to miss. click here for audio

What Will the CFTC Do?

Well, something.

The Commodity Futures Trading Commission was given broad powers – by last year’s Dodd-Frank Wall Street Reform and Consumer Protection Act – to restructure the futures and over-the-counter derivatives markets. And Gary Gensler, appointed to chair the commission in May of last year, is known to be something of an activist.

So far, however, there has been a lot of talk, a lot of hearings have been held, but little of consequence has been forthcoming.

That will change. We just don’t know when.

One of the key questions the CFTC has been grappling with is the implementation of position limits in futures trading, designed to put the clamps on speculation in agriculture, metals, and energy.

The proposal for new regulations in this area came about largely because of widespread public outcry over the role speculators played in the huge 2008 run-up in oil prices. Or, rather, the role they were perceived to have played. The leading causes of that price spike are by no means settled. (more)

Precious Metals Enter a Higher Risk, Higher Return Potential Zone

2011 is sure to be a critical year for gold with several analysts predicting an end of the bull market. It may sound very strange, but it appears that the USD Index has been leading the way for precious metals and suggests higher prices are likely to be seen soon. The general stock market may enter a consolidation phase in the near-term but has had little influence on gold, silver and mining stocks recently.

Recent declines in precious metals prices have been clearly seen from a short-term point of view. This may appear scary to some. Note, however, that if price declines are short lived, this means little to speculative long positions. Also, please keep in mind that in the past none of the major upswings ended in a consolidation pattern, which makes it less likely that the rally is completely over now.

The long-term USD Index chart shows that the index level is currently above the declining resistance line. The consolidation has already taken place - in the 79 - 81 range, it is likely that index levels will continue to move up from where they are today - most likely to the area marked with red ellipse on the above chart. (more)

Federal Reserve Earned $81 Billion in 2010

The Federal Reserve system is doing its part to cut the budget deficit. The central bank earned $81 billion in fiscal 2010, of which a bit more than $78 billion will be remitted to the Treasury. That’s $31 billion more than last year.

According to the Fed’s news release yesterday, the following items drove profits:

$76.2 billion in income on securities acquired through open market operations (federal agency and government-sponsored enterprise (GSE) mortgage-backed securities, U.S. Treasury securities, and GSE debt securities) [In short, the Fed is making money on its "quantitative easing" / "credit easing" activities. At least for now.];

$7.1 billion in net income from consolidated limited liability companies (LLCs), which were created in response to the financial crisis [Profits on the Maiden Lane partnerships, etc.];

$2.1 billion in interest income from credit extended to American International Group, Inc.;

$1.3 billion of dividends on preferred interests in AIA Aurora LLC and ALICO Holdings LLC [also related to AIG]; and

$0.8 billion in interest income on loans extended under the Term Asset-Backed Securities Loan Facility (TALF) and loans to depository institutions.

Additional earnings were derived primarily from revenue of $0.6 billion from the provision of priced services to depository institutions.

Those $88 billion in gross earnings were slightly offset by the following expenses:

$2.7 billion [of interest expense] on depository institutions’ reserve balances and term deposits;

[$4.3 billion] of operating expenses of the Reserve Banks, including $1.0 billion for Board expenditures and the cost of new currency.

The resulting $81 billion in net profits were then distributed as follows: $78.4 billion to the Treasury, $1.6 billion as dividends to member banks, and $0.6 billion retained to “equate surplus with paid-in capital.”