Saturday, March 5, 2011

How to invest for the "end of the world"

James Altucher and Douglas R. Sease are out with a great new book, The Wall Street Journal Guide to Investing in the Apocalypse.

In the book, they claim that a lot of doomsday threats are over-hyped, from pandemics to terrorist nuclear threats. I agree. Their basic thesis is that you should ignore the emotional hype, analyze the situation for what it is and make some money from it. They call it "event based investing".

I am partial to this type of investing and I think it provides great opportunities for profit. The book is a great introduction on how to become such an "event based" investor. Beyond this becoming an event based investor, the book can be of value to the person simply holding a mutual fund portfolio. By understanding how things are hyped, it may prevent an investor from selling out of mutual funds in panic, at just the wrong time.

But, most of all the book is a well researched handbook on the major potential panics of our time and the reality of what really is likely to happen and what is not. For example, with regard to terrorist attacks in the U.S., Attucher and Sease tell us that it is easy to underestimate the difficulty of building a nuclear weapon, and that it is inconceivable that a group of terrorists hiding in caves could even begin to understand where to start.

Even a "dirty bomb" would be difficult to assemble, they tell us.

As for cyber-terror, they say hacking is one thing, but that it would take an extremely powerful computer with very detailed knowledge to take down a major institution.

Bottom line, they write: "While terrorist attacks aren't likely to be either pervasive or persistent, our fear of terrorism is both pervasive and persistent. In that disconnect lies opportunity."

In addition to pooh poohing, threats that aren't likely to develop, Altucher and Sease teach us how to keep real disasters into perspective and not always view them as world ending events. From fear over flu viruses to asteroids flying towards the earth, they teach us how to "fade the fear", how to invest through the front door and back door.

My only quarrel with the book is the clear lack of understanding by Altucher and Sease of the business cycle and what causes it. In their short bursts of discussing economic downturns, it's clear they hold a pedestrian Keynesian view of what causes the cycle. At one point, they write: "Inflation is not necessarily a bad thing." Like I said, the book is well researched, but I do wish the authors had spent time in research at to polish up their understanding of the business cycle, so that it would have been on a par with the rest of the book.

That said, the book should be read by every investor. It will help in keeping investors from panicking and it will help those with independent minds to lean how to event trade. The book generally discusses the major panics that could occur but the authors also briefly refer to "mini-asteroids", which are panic situations that are not global in nature, such as the recent events in Libya, but are of enough of a concern that investment opportunities exist.

Thus, for the wannabe event trader, the book should be read, to get the general sense of how to trade full blown panics and "mini-asteroids". It also should be kept near all investors desks to be pulled out whenever one of the biggie panics hits the market, since the relevant panic-related chapter will help calm the nerves and will also provide specific stock trades that may make sense to implement.

And don't miss the chapter on asteroids. I'm tempted to say the chapter is earth shattering, but in the chapter, the authors tell us that a biggie asteroid is heading toward earth, which astronomers are tracking and they expect it to pass very near earth on Friday April 13, 2029. But cool cats that Altucher and Sease are, they tells us why you should not panic, how to fade any asteroid fear that may develop, and list specific front door and back door stocks to invest in should panic develop.

Marc Faber: It's finally safe to buy these stocks

From Bloomberg:

After a two-decade bear market, now is the time to buy and hold Japanese stocks, Marc Faber, publisher of the Gloom, Boom & Doom report, said.

Faber, who is credited with predicting the 1987 stock market crash and said two years ago that shares would decline just as they began the biggest rally in more than 50 years, said the Japanese government will be forced to print money to monetize the country's public debt, the developed world's biggest. That will cause the yen to weaken, helping boost earnings for the nation's exporters and buoying stock prices.

Faber joins other bullish investors on Japan, such as Goldman Sachs Group Inc. and David Herro of Oakmark International Fund, in countering skepticism about Japan earned through four recessions and dismal stock returns after the 1990 crash of the bubble economy. The Nikkei 225 Stock Average has fallen about 73 percent since it peaked in December 1989.

"If I had to make a bet for the next ten years in terms of equity markets, I would seriously consider a very strong weighting here in Japan," Faber said yesterday at the CLSA Asia-Pacific Markets' annual conference in Tokyo. "Once the debt market starts to go down, the yen will begin to weaken and that will lift equity prices. I would buy equities at the present time."

Nikkei's Rise and Fall

The Nikkei rose for a second day, advancing 1 percent and extending gains for the year to 4.5 percent.

Still, investors have had reason to be wary. Japan's rebound from the crash after the 2008 bankruptcy of Lehman Brothers Holdings Inc. has also lagged behind that of every other major market. The Nikkei has gained about 52 percent since its low in March 2009, while in the U.S. the Standard & Poor's 500 Index has surged about 97 percent.

Moody's Investors Service last month joined Standard & Poor's in lowering Japan's debt outlook. Moody's cut its rating to negative from stable, saying political gridlock will hamper Prime Minister Naoto Kan's ability to cut the debt, which has risen to about twice the country's gross domestic product.

"If I look at the next five to ten years, the interest payments on the government debt in Japan and the fiscal deficits will become very burdensome and that will necessitate monetization," Faber said. "That will bring about a huge shift of money out of cash and bonds into equities."

Oakmark's Herro

Faber isn't the only one recommending Japan. Oakmark's Herro said last month it was time to buy Japanese shares as they "are a steal" considering that companies are exporting more to China and have started to pay bigger dividends. Goldman strategist Kathy Matsui said in December the Topix is likely to surge 20 percent in the first six months of this year as a retreating yen boosts profits for exporters.

Faber has a mixed record for predictions. In March 2007, the 65 year-old investor said the Standard & Poor's 500 Index was more likely to fall than rise because the threats of faster inflation and slower growth persisted. The S&P 500 then climbed 10 percent to a record 1,565.15 seven months later, ending the year up 3.5 percent.

Faber said in an interview with Bloomberg Television on March 9, 2009, that it was "very difficult to see a scenario where you wouldn't make any money" owning stocks over the next 10 years, while also warning the S&P 500 might lose 26 percent before the bear market ended.


The benchmark gauge for American equities began its biggest advance in five decades that day, climbing from 676.53 to 1,295.02 on Jan. 18, 2011.

Faber said on Sept. 17, two days after Japan's government intervened in foreign-exchange markets for the first time since 2004 to weaken the yen, that the nation's stock prices would rise in the next 12 months as the yen depreciates.

The Topix index has climbed 12 percent since then, while Japan's currency has appreciated about 3.9 percent against the dollar since the government's intervention on Sept. 15. The yen is trading near its strongest level in 15 years versus the U.S. currency.

Japan has been in a "20 year bear market," Faber said. "Statistically speaking, after a 20 year bear market, if it continues to go down, then it's game over."

Bob Quartermain: The Constraints on Silver Supply

At the Casey Research Gold and Resource Summit, Bob Quartermain spoke about the constraints facing silver supply today, “Mine supply doesn’t meet demand and in many of the new applications silver isn’t being recycled, so it’s not going to come back into the scrap supply chain... We’ll have to go out and find new mines or new sources for silver; and that can only speak to higher prices.” We’ve got the highlights of his speech in the video below.

With $5 Trillion In US And European Funding Needs Over The Next 3 Years, How Long Until The Global Monetization Tsunami Hits (Again)?

While we have presented the below charts in the past in some form or another on various occasions, since everyone's memory is at most 1 trading day strong these days, we are happy to recycle content while continuing to "surprise" our readers. Below, we present the chart showing European maturities over the next three years. It should be sufficient to convince anyone that while the US needs ongoing QE to not only to keep stocks rising past May/June (Fed's 3rd and only mandate) but to monetize trillions in gross debt issuance (without rates needing to surge to make up for demand shortfall as Bill Gross pointed out so well on Wednesday), Europe is in an even worse predicament. Among the Eurozone's banks, there is roughly $2.4 trillion in funding requirements until 2014. And as our disclosure yesterday on the massive Irish capital shortfall notes, nobody has yet answered the question where all this funding will come from, short of the ECB pulling a Fed, and starting to monetize everything from the bottom of the capital structure upward in the primary markets instead of only through secondary market interventions. Keep in mind this excludes actual sovereign funding needs. Which is not to say the US is immune from the same problem. It isn't. But looking at the problem globally confirms everyone's greatest nightmare: where, in the absence of ongoing central bank monetizations (with or without the assistance of major financial black holes like Europe's EFSF), will the world be able to find buyers for roughly $4-5 trillion in debt to keep the self-funded Ponzi going?

European bank funding needs 2011-2014:

And Sovereign debt redemption schedule:

Source: Morgan Stanley

Money Today – March 2011

read more here

Dollar Index Breaking Down Again

The U.S. Dollar Index is in immediate danger again, so lets take a close look at charts from all three time frames, beginning with the daily bar chart. The most important feature on the chart is the bold rising trend line near the bottom. That is a long-term rising trend line that we will see on the longer-term charts. Note that in November the Index bounced off that line only to retest and penetrate it just a month later. The November breakdown was a bear trap, resulting in a strong rally, which ultimately failed.

The decline from the January top has resulted in a test and retest nearly identical to the previous one, and we are left to wonder if this latest breakdown will be another bear trap.

us dollar index

I am assuming that this is more serious than the first. As of 1/20/2011 the US Dollar Index is on a Trend Model SELL signal. And the PMO configuration is less promising than the oversold PMO bottom in October followed by a PMO positive divergence in November.

The weekly chart below shows the entire rising trend line and demonstrates that it is important support. The weekly PMO is negative and falling.

us dollar chart 2

Finally, the broader context of the monthly chart shows that the rising trend line forms the bottom of a reverse pennant formation. A decisive breakdown from that pennant would have serious implications regarding the potential downside.

us dollar 3

Bottom Line: The Dollar Index has broken down through important long-term rising trend line support. A similar breakdown in November proved to be a of no consequence, but technical indicators are less favorable this time around, so we should expect the decline to continue longer-term, although, a short-term snapback toward the line would be a normal technical reaction.

HES Radio: World Financial Report

The World Financial Report brings you timely information on the worlds most exciting markets like oil, precious metals, currencies, commodities and hard money markets like very rare color diamonds and collectibles. The World Financial Report makes predictions and gives investment advice and has been very successful in identifying trends in the marketplace.
click here for audio

Global Economy? 23 Facts Which Prove That Globalism Is Pushing The Standard Of Living Of The Middle Class Down To Third World Levels

From now on, whenever you hear the term "the global economy" you should immediately equate it with the destruction of the U.S. middle class. Over the past several decades, the American economy has been slowly but surely merged into the emerging one world economic system. Unfortunately for the middle class, much of the rest of the world does not have the same minimum wage laws and worker protections that we do. Therefore, the massive global corporations that now dominate our economy are able to pay workers in other countries slave labor wages and import the products that they make into the United States to compete with products made by "expensive" American workers. This has resulted in a mass exodus of manufacturing facilities and jobs from the United States.

But without good, high paying jobs the U.S. middle class cannot continue to be the U.S middle class. The only thing that the vast majority of Americans have to offer in the economic marketplace is their labor. Sadly, that labor has now been dramatically devalued. American workers now must directly compete for jobs with millions upon millions of workers on the other side of the world that toil away for 15 hours a day at slave labor wages. This is causing jobs to leave the United States at an almost unbelievable rate, and it is putting tremendous downward pressure on the wages of millions of jobs that are still in the United States.

So when you hear terms such as "globalization" and "the global economy", it is important to keep in mind that those are code words for the emerging one world economic system that is systematically wiping out the U.S. middle class.

A one world labor pool means that the standard of living for the U.S. middle class will continue falling toward the standard of living in the third world.

We keep hearing about how the U.S. economy is being transformed from a "manufacturing economy" into a "service economy". But "service jobs" are generally much lower paying than "manufacturing jobs". The number of good paying "middle class jobs" in the United States is rapidly decreasing. So how can the U.S. middle class survive in such an environment?

What makes things even worse for manufacturers in the United States is that other nations often impose a "value-added tax" of 20 percent or more on U.S. goods entering their shores and yet most of the time we do not reciprocate with similar taxes. (more)

10 Reasons You Aren't Rich

Jeffrey Strain

The reason why you aren't a millionaire (or on your way to becoming one) is really quite simple. You probably assume it's because you aren't earning enough money, but the truth is that for most people, whether or not you become a millionaire has very little to do with the amount of money you make. It's the way that you treat money in your daily life.

Here are 10 possible reasons you aren't a millionaire:

10. You Care What Your Neighbors Think
If you're competing against them and their material possessions, you're wasting your hard-earned money on toys to impress them instead of building your wealth.

9. You Aren't Patient
Until the era of credit cards, it was difficult to spend more than you had. That is not the case today. If you have credit card debt because you couldn't wait until you had enough money to purchase something in cash, you are making others wealthy while keeping yourself in debt.

8. You Have Bad Habits
Whether it's smoking, drinking, gambling or some other bad habit, the habit is using up a lot of money that could go toward building wealth. Most people don't realize that the cost of their bad habits extends far beyond the immediate cost. Take smoking, for example: It costs a lot more than the pack of cigarettes purchased. It also negatively affects your wealth in the form of higher insurance rates and decreased value of your home.

7. You Have No Goals
It's difficult to build wealth if you haven't taken the time to know what you want. If you haven't set wealth goals, you aren't likely to attain them. You need to do more than state, "I want to be a millionaire." You need to take the time to set saving and investing goals on a yearly basis and come up with a plan for how to achieve those goals.

6. You Haven't Prepared
Bad things happen to the best of people from time to time, and if you haven't prepared for such a thing to happen to you through insurance, any wealth that you might have built can be gone in an instant.

5. You Try to Make a Quick Buck
For the vast majority of us, wealth doesn't come instantly. You may believe that people winning the lottery are a dime a dozen, but the truth is you're far more likely to get struck by lightning than win the lottery. This desire to get rich quickly likely extends into the way you invest, with similar results.

4. You Rely on Others to Take Care of Your Money
You believe that others have more knowledge about money matters, and you rely exclusively on their judgment when deciding where you should invest your money. Unfortunately, most people want to make money themselves, and this is their primary objective when they tell you how to invest your money. Listen to other people's advice to get new ideas, but in the end you should know enough to make your own investing decisions.

3. You Invest in Things You Don't Understand
You hear that Bob has made a lot of money doing it, and you want to get in on the gravy train. If Bob really did make money, he did so because he understood how the investment worked. Throwing in your money because someone else has made money without fully understanding how the investment works will keep you from being wealthy.

2. You're Financially Afraid
You are so scared of risk that you keep all your money in a savings account that is actually losing money when inflation is put into the equation, yet you refuse to move it to a place where higher rates of return are possible because you're afraid that you will lose money.

1. You Ignore Your Finances
You take the attitude that if you make enough, the finances will take care of themselves. If you currently have debt, it will somehow resolve itself in the future. Unfortunately, it takes planning to become wealthy. It doesn't magically happen to the vast majority of people.

In reality, it is probably not just one of the above bad habits that has kept you from becoming a millionaire, but a combination of a few of them. Take a hard look at the list, and do some reflecting. If you want to be a millionaire, it's well within your power, but you'll have to face the issues that are currently keeping you from creating that wealth before you will have a chance to call yourself one.

How An Economy Grows And Why It Crashes by Peter D Schiff (Author), Andrew J Schiff (Author),

How an Economy Grows and Why it Crashes uses illustration, humor, and accessible storytelling to explain complex topics of economic growth and monetary systems. In it, economic expert and bestselling author of Crash Proof, Peter Schiff teams up with his brother Andrew to apply their signature "take no prisoners" logic to expose the glaring fallacies that have become so ingrained in our country's economic conversation.

Inspired by How an Economy Grows and Why It Doesn't a previously published book by the Schiffs' father Irwin, a widely published economist and activist, How an Economy Grows and Why It Crashes, incorporates the spirit of the original while tackling the latest economic issues. With wit and humor, the Schiffs explain the roots of economic growth, the uses of capital, the destructive nature of consumer credit, the source of inflation, the importance of trade, savings, and risk, and many other topical principles of economics.

Other than Thomas Woods, there may be no one else that can explain the often intimidating field of economics as clearly and simply as Peter Schiff. Even if you are at a complete loss when it comes to understanding economics, this book will help you to understand that economics is actually a very simple concept to grasp.

Complete with humorous anecdotes, Peter and Andrew Schiff retell their father's masterpiece (How an Economy Grows, and Why It Doesn't) in a new, modernized version.

Gold and Silver Mining Stocks Gain Momentum, What's Next?

Mounting social and political unrest in the Middle East boosted appeal for commodities as a safe investment option in recent weeks. Crude oil topped $100 a barrel and near month gold and silver futures traded above $1440 and $35 respectively, in the NYMEX. Besides geopolitical developments, currency fluctuations and stock markets influenced precious metals.

Ongoing interest in precious metals induces positive trend in gold and silver mining stocks. After all, gold and silver stocks move in tune with gold and silver. No wonder – generally, gold mining companies’ business is to produce gold and sell it. As long as they don’t hedge their entire production, their revenues are based on the price of gold. Higher price of gold means higher revenues, which means higher profits, which means higher stock prices. At times mining stocks lag and at times they lead the underlying metals, so analyzing them is an important addition to the regular analysis of gold and silver prices.

Let’s have a detailed overview on what is happening in gold and silver mining stocks space. Without delay any longer, let’s turn to this week’s technical part with gold and silver mining stocks. We will start with the long-term XAU Index chart (charts courtesy by

The XAU Index is a proxy for gold and silver mining stocks. Last week’s comment that “This week we continue to see a fight for new highs” here continues to hold for this week.

On a short-term basis, we have seen these 2008 levels surpassed, but here in the XAU Index chart, we are looking at major long-term moves. The use of monthly candlesticks, a valid charting tool for very-long term analysis, shows that values are only slightly above 2008 highs and a more significant move should be seen here before we state that such a breakout is definitely in. Therefore, we describe the trend as slightly bullish.

In our previous essay entitled Top in Stocks and Silver? we wrote that the head-and-shoulders pattern which was under development last week has nearly been invalidated. This would of course be a bullish development.

We now see that the head-and-shoulders pattern has been clearly invalidated with index levels remaining above the level of 2008 and 2010 highs. Consequently, the risk of a move down to the 400-450 level appears to be very low at this point. RSI levels based on the Gold Bugs Index are not above 70 and therefore not overbought. There is some room to the upside in the RSI here so a continuation of the current rally is possible and – based on other factors - likely.

In the short-term GDX ETF chart (again, a proxy for gold & silver mining stocks), analysis of volume is our general focus point. Thursday’s decline in ETF levels can be termed insignificant because it was not accompanied by an increase in volume.

As was the case with the HUI Index, the RSI for the GDX ETF is also below overbought levels. This appears to provide some support for the validity of 2010 highs as target levels although they have not yet been reached.

No support levels have been breached and index levels are closest to the short-term rising support line. This grey-dashed line in our chart has been touched on an intra-day basis but a move higher followed. The outlook remains bullish.

Now let’s turn towards GDX:SPY chart.

The chart provides barely any changes since the previous week, which by itself is somewhat bullish. In 25th February premium commentary, we wrote the following:

The GDX:SPY ratio chart is often used to reveal a sell signal. In other words, we usually see a spike high volume in the ration close to a local top. Such action would be attributed to the volume in mining stocks being high compared to other stocks.

We have not seen such a signal here this week and we have included this chart for this reason. Mining stock volume levels have not been high compared to volume accompanying moves in other stocks and consequently the volume ratio has not spiked.

This lack of bearish signal is additional information in favor of a rally in mining stocks although perhaps a few days pause may be seen first. The important point is that a rally is clearly more probable than a downturn based on the price and volume action seen in this chart.

Again, a single spike in volume here, especially if combined with a resistance level in the ratio and a supporting RSI would be a strong sell signal. This has not been seen recently and the critical bearish signals have not been seen lately.

Overall, gold and silver mining stocks seem ready to move higher from here. Thursday’s decline was insignificant and analysis of recent trends continues to point to a bullish outlook.

The implication here is that it is possible that Thursday’s decline may have been, in fact, the last local intra-day bottom rather than the beginning of a decline. Consequently, a rally could be seen from here. We will follow this closely and report to you should any of these assumptions be invalidated.

Summing up, declines in gold and silver stocks were barely visible and have not yet been confirmed. Consequently the outlook remains bullish for gold, silver and precious metals mining stocks. The question is for how long. If you’ve been considering using professional services to help you in your gold & silver investments, this might be a good time to go for it.

P. Radomski
Sunshine Profits

Commodities Rise to Two-Year High as Cotton Jumps to Record, Cocoa Gains

Commodities jumped to the highest in more than two years, led by gains in agriculture as cotton increased to a record amid dwindling stockpiles and cocoa advanced to a 32-year high on political unrest in Ivory Coast.

The Standard & Poor’s GSCI Total Return Index of 24 commodities reached 5,489.5 points, the highest level since November 2008. Cotton gained the maximum allowed on ICE Futures U.S. in New York, and cocoa touched the highest since 1979. Cotton and corn prices “appear to have the most upside,” Rabobank International said.

“Export commitments out of the U.S. continue at record pace and due to the razor-thin expected ending stocks, demand must be rationed as there is not enough cotton,” the bank said in a report yesterday. “The need to ration demand in a marketplace where mills have demonstrated a willingness to buy high-price fiber will keep values elevated and limit corrections.”

Cotton futures for May delivery gained the maximum allowed 7 cents, or 3.4 percent, to $2.127 a pound in New York at 10:28 a.m. London time. The price will average $1.65 a pound in the second quarter, Rabobank said in the report. Wheat futures for May delivery gained 9.5 cents, or 1.2 percent, to $8.33 a bushel on the Chicago Board of Trade. Corn and soybean futures both rose 0.2 percent in Chicago.

“While the U.S. cotton planting season is still a month away, the current dry conditions in the South and strong La Nina suggest that soil moisture deficiencies could be an issue,” the bank said.

Cocoa for May delivery rose $17, or 0.5 percent, to $3,750 a metric ton in New York. The price earlier touched $3,775 a ton, the highest since January 1979.

Turmoil Spurs Gold

Gold is poised for a fifth weekly gain, its longest such run since October, as turmoil in North Africa and the Middle East boost demand for the metal as a haven for investors.

Immediate-delivery bullion rose $2.46 an ounce, or 0.2 percent, to $1,418.46 an ounce in London. The metal gained to an all-time high of $1,440.32 on March 2. The contract for April delivery climbed $2.30, or 0.2 percent, to $1,418.70 an ounce.

As oil has climbed above $100 a barrel in New York, mounting inflation pressures in Europe prompted European Central Bank President Jean-Claude Trichet yesterday to say the ECB may raise rates next month for the first time in almost three years.

Oil rose on speculation political unrest in Libya will disrupt supply as economic data from the U.S. shows signs of increasing demand. Brent oil for April delivery rose as much as 1.2 percent to $116.20 a barrel earlier today. Crude oil rose as much as 1.1 percent to $103.03 a barrel in New York.

Libyan opposition leaders rejected a mediation offer by Venezuelan President Hugo Chavez, an ally of Muammar Qaddafi, and armed rebels held out against regime attacks and prepared to push toward the capital, Tripoli. A government report today may show payroll gains in the U.S. accelerated in February, spurred on by an improving economy and more seasonable temperatures, according to a Bloomberg News survey of economists.