Wednesday, June 15, 2011
Is it Time to Buy Precious Metals?
I always say that you have to be buying gold when you are bored by the market. People tend not to buy into corrections because they are scared to take losses. However, in the grand scheme of things, losses are no big deal. Bull markets will always correct your timing mistakes as long as you don’t panic and sell. It’s also important not be too heavily leveraged.
Back when silver was rallying, I said that on a spike to new highs I would be leaning bearish. Well on a spike to new lows in gold or silver, I will be leaning very bullish. I would much rather see a sizable correction here than a rally. A sideways consolidation along the lines of what we’ve seen the past couple of months is fine too. Gold and silver are both trading very constructively for the long-term oriented investor. They are both building energy for the next rally.
The thing about these markets is that no one has a crystal ball and you must observe how these corrections play out, then invest accordingly. So for example, if silver corrected to $45, then shot right back up to and beyond $50, I wouldn’t really be celebrating. The 10% correction, although somewhat sizable, would not have scared off enough speculative money. The correction would also have been way too shallow for the “smart money” to step in. You need the smart money to be buying because they are the ones who, like Old Turkey, see a rally and sit tight while everyone is selling. They are the ones who create the supply constraints that create the huge rallies.
Anyway, I added some positions yesterday because these price levels are fairly attractive. Some precious metal stocks are down 30%-40%, which is great as far as I’m concerned.
I like to buy when pretty much any scenario is OK to me. If we rally from here, I’m fine with that; if we correct further, I know that the downside is somewhat limited, so I’m fine with that too. I can just buy more closer to the bottom, which is always a good strategy.
I think people are generally starting to understand that an economic recovery will be a drawn out process. The huge overhang of debt we carry and the interest we send abroad act like weights to economic growth. Every day that passes by we add billions to our debt. In other words, the fundamentals for precious metals just get stronger by the day. Although we probably have not hit rock bottom, I personally think it is a decent time to add to your positions and take a vacation. Don’t worry, Helicopter Ben will take care of the rest for us.
The Stocks & Commodity Technical trading Outlook Part I
The coming summer should be exciting for traders! While summer trading generally tends to be slow, this one could be different. A large number of other professional traders I talk with are all feeling the tension building in the market. We all think some big movements are just around the corner and the big question is which way are things going to move?
Depending on your trading style you may be viewing the recent market action as the beginning stages of a bear market (major sell off). A bear market is not necessarily impossible as the U.S. Economy is showing the beginning signs of weakness. The fact that stocks have moved lower for almost 6 weeks straight is a recent reminder that we may not be out of the woods just yet. The recent price action and negative sentiment has been harsh enough to make 99% of traders bearish.
In contrast, some traders may be seeing this market as an oversold dip preparing for a bounce/rally in the bull market which we have been in since 2009. Some traders may see this as a buying opportunity because you are a contrarian. Most contrarians generally want to do the opposite of the masses (herd) who are merely trading purely out of emotional sentiment.
I myself have mixed thoughts on the market at this point in time. I’m not a big picture (long trend forecasting) kind of guy but my trading partner David Banister is great at it. Rather I am a shorter term trader catching extreme sentiment shifts in the market with trades lasting 3-60 days in length. So looking forward 2-5 days I feel as though stocks and commodities are going to bottom and start to head higher for a 2-6% bounce. At that point we need to regroup and analyze how the market got there… Was the buying coming from the herd, institutions, or was it just a short covering rally? Additionally, where are the key resistance levels and did we break through any?
During extreme sentiment shifts in the market we tend to see investments fall out of sync with each other for a few days. I feel the attention will be on stocks and we get a bounce this week. I am expecting commodities to trade relatively flat during the same time period.
OK let’s take a quick look at the charts…
Dollar Index 4 Hour Candles
I feel as though the US Dollar is trying to bottom. It is very possible that we test the May low at which point I would expect another strong bounce and possible multi-month rally. So if the dollar drops to the May lows then we should see higher stocks and commodities, but once the dollar firms up and heads higher it will be game over for risk assets.
Crude Oil Chart – Daily
Oil took a swan dive in early May and has yet to show any signs of moving higher. Actually crude oil is looking more and more bearish as time goes by.
Silver 4 Hour Chart
Silver has formed much of the same pattern that oil has. On a technical basis its pointing to sharply lower prices still. The fact that silver bullion went from an investment to a speculative trading instrument within the past 8 months makes me think it could test the $25 area. The one thing to remember here is that silver is still overall in a bull market. This is a 50/50 guess in my opinion as it nears the apex of this pennant pattern.
Gold 4 Hour Chart
Gold has held up much better than other metals and commodities and I feel that is because it’s still seen at the REAL safe haven. But reviewing the chart Im starting to see bearish price action beginning to take place.
Canadian Natural Resources Analyst Day Review: CNQ, CVE, NBL
Canadian Natural Resources (NYSE:CNQ) plans to continue the company's focus on oil development in 2011, while also working selective higher return natural gas assets in an effort to hold acreage. The company is also putting a greater share of capital into longer-term projects over the next few years.
2010 Summary
Canadian Natural Resources reported production of 632,000 barrels of oil equivalent(BOE) per day in 2010, with 67% of this production composed of oil. The company spent $5.5 billion in total capital in 2010 across its portfolio, including acquisitions and in the midstream business.
2011 Review
In 2011, Canadian Natural Resources estimates that its production will be in a range between 582,000 and 633,000 BOE per day. This poor growth outlook is due to a fire in January 2011 at the company's coker unit at the Horizon oil sands project. The fire caused an interruption of production and reduced the company's revenue by $595 million relative to the first quarter of 2010.
Another company involved in developing the oil sands in Canada include Cenovus Energy (NYSE:CVE), which recently raised production targets due to better-than-expected performance at the company's Foster Creek project.
2011 Capital Expenditures
Canadian Natural Resources has the bulk of its exploration and production assets in North America, and like most operators, the company allocated its capital to those projects with the highest returns. In 2011, more than 80% of its capital will be spent on oil projects across its portfolio. This tilt towards oil is a continuation of a trend that began in 2005, when only 40% of its capital was directed towards oil.
Oil Assets
Canadian Natural Resources has allocated $3.76 billion in capital in 2011 to develop oil properties across its portfolio. The company is also spending between $1.1 billion and $1.2 billion in capital towards its Horizon oil sands project, which requires extensive repairs due to the fire in early 2011.
Many of these oil projects will be more long term than previous years. These includeenhanced oil recovery projects targeting light oil resources, thermal oil and heavy oil projects. The company is also working on long-term expansion of its Horizon oil sands project.
Canadian Natural Resources expects that this level of development will lead to an 11% increase in North American crude oil production in 2011. This excludes production from the Horizon oil sands project.
In the international space, Canadian Natural Resources is using $420 million to explore and develop light oil assets in the North Sea and offshore West Africa. This will allow the company to drill or work over eight wells in 2011.
Other companies involved in the hunt for oil and gas resources in the international area include Harvest Natural Resources (NYSE:HNR), which just announced a discovery off the coast of Gabon. Noble Energy (NYSE:NBL) recently entered a joint venture to explore for oil and gas off the coasts of Senegal and Guinea-Bissau.
Natural Gas Assets
Canadian Natural Resources has more than 15 million acres of leasehold in Alberta, British Columbia, and Saskatchewan. The company has allocated $750 million in capital in 2011 to develop natural gas assets which generate returns that can compete with oil projects.
Canadian Natural Resources will also drill extensively in 2011 to hold its acreage across its western Canadian portfolio. The company's natural gas production in 2011 will be approximately flat from 2010, jumping by only 8%.
The Bottom Line
Canadian Natural Resources is increasing the company's capital bias towards longer-term oil projects in 2011, while also drilling selected natural gas assets designed to hold acreage in its portfolio.
Robert Shiller on U.S. Economic Outlook
Robert Shiller, an economics professor at Yale University and co-creator of the S&P/Case-Shiller home-price index, talks about the U.S. economic outlook and housing market. Shiller, speaking with Erik Schatzker on Bloomberg Television’s “InsideTrack,” also discusses consumer confidence and the impact of government stimulus measures on economic growth.
Household Net Worth (Total Wealth, RE)
The Chart Store had a fascinating series of charts this weekend looking at Household Net Worth in a variety of ways:
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Household Net Wealth Relative to GDP
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Household Net Wealth Relative to Peak and Trough
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Housing charts after the jump
Total Residential Real Estate Value
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Owner’s RE Equity (Value minus Debt)
Ron Paul: Is the Gold in Fort Knox Real? Read more: Ron Paul: Is the Gold in Fort Knox Real?
No one would accuse Republican presidential candidate Ron Paul of being mainstream, including the Texas congressman himself, who relishes his role as an outsider.
So it’s not a huge surprise that Paul has asked Obama administration officials to audit the content of the nation's 700,000 gold bars held in Fort Knox, according to an internal Treasury document obtained by CNBC.
Talk has spread over the Internet that our government has secretly sold off the nation's gold supply and replaced it with metal bars that are merely painted gold.
Paul, chairman of the House Financial Services Subcommittee on Domestic Monetary Policy, has previously called for the U.S. gold reserve to be counted and for a return to the gold standard.
But now he wants Treasury Department and U.S. Mint officials to testify at a June 23 subcommittee hearing about the Fort Knox gold’s authenticity.
The Obama administration may not be too enthusiastic about his idea. The Treasury document says it would cost about $15 million, requiring 400 workers to spend six months on the job.
The Treasury's Office of the Inspector General audits the Mint once a year.
Meanwhile, gold prices have bounced back from a three-week low amid concern about inflation.
“Gold is embracing the inflationary discussion,” Adam Klopfenstein, a senior market strategist at Lind-Waldock, tells Bloomberg.
The precious metal traded at $1,522 an ounce Tuesday afternoon.
So it’s not a huge surprise that Paul has asked Obama administration officials to audit the content of the nation's 700,000 gold bars held in Fort Knox, according to an internal Treasury document obtained by CNBC.
Talk has spread over the Internet that our government has secretly sold off the nation's gold supply and replaced it with metal bars that are merely painted gold.
 |
| Ron Paul (Getty Images photo) |
But now he wants Treasury Department and U.S. Mint officials to testify at a June 23 subcommittee hearing about the Fort Knox gold’s authenticity.
The Obama administration may not be too enthusiastic about his idea. The Treasury document says it would cost about $15 million, requiring 400 workers to spend six months on the job.
The Treasury's Office of the Inspector General audits the Mint once a year.
Meanwhile, gold prices have bounced back from a three-week low amid concern about inflation.
“Gold is embracing the inflationary discussion,” Adam Klopfenstein, a senior market strategist at Lind-Waldock, tells Bloomberg.
The precious metal traded at $1,522 an ounce Tuesday afternoon.
Cult Stock CROX May Rise Again
Crocs Inc. (NASDAQ: CROX) – This footwear company first became famous for its obnoxiously colorful foam footwear. Over the past few years, however, the company has reinvented itself by expanding its footwear selection beyond its basic models to everything from sandals to loafers to sneakers. In fact, the original models make up only about 10% of the company’s total sales. At an investor conference last week, the company discussed the success of new product acceptance by customers, which means it is slowly growing from a one-product company into a more diversified shoe designer/manufacturer.
Looking at Crocs’ price history, we see a dramatic collapse of its share price in 2007 and 2008. Once the stock reached “cult” status at the peak in October 2007, there was really only one way for it to go. Over the span of just about 12 months, investors saw the stock price slid from $75 down to 80 cents. After struggling to get above $4 for a while, the stock started showing signs of life again in the second half of 2009, and marched from $4 to $21.64 in 24 months.
Presently the stock has several clear support levels worth pointing out:
- $19.50 is a previous multi-month area of resistance that the stock successfully broke above in April.
- The 50-day simple moving average (yellow line) comes in at $20.59, although looking back on the chart, the 50-day simple moving average has not been very well respected as a support or resistance level.
- At about $18.80 currently, the stock would run into a strong uptrend line that originated in September 2010, which was the beginning of the massive rally in the broader market.
- Further below is the 200-day sma (red line) around $17 presently, followed by an uptrend line dating back to December 2009.
My favorite area to buy this stock would be on a retest of the $19.50-$20 area, which by the time the stock gets there may even cross with the uptrend line from September 2010. As a first profit target, I see the May highs, followed by $25 and eventually as high as $30 for those inclined to hold on to the position longer term. Stops also depend on one’s time frame, but on a break below $18.50, I would more than likely get out of the entire position.
Given the overall market’s current weakness it is more difficult to suggest short-term trades to the long side. However, given the company’s fundamental growth story and the stock’s clearly defined support and profit target levels, CROX is worth looking at from the long side on a retest of the $19.50-$20 area.
The Hard Truth About Residential Real Estate
The Hard Truth About Residential Real Estate. Anyone who believes that housing is on the rebound, and that now is the time to buy, should take a very hard look at the numbers I dredged up for my spring lecture and luncheon tour. There are 140 million personal residences in the US. Today, there are 19 million homes either directly or indirectly for sale. According to a survey by Zillow.com, a real estate appraisal website, 5 million homeowners plan to sell on any improvement in prices. Add to that 4 million existing homes now on the market, 1 million new homes flogged by companies like Lennar (LEN) and Pulte Homes (PHM), and 1 million bank owned properties. Another 8 million mortgage owners are late on their payments and are on the verge of foreclosure, bringing the total overhang to 19 million homes. Now, let’s look at the buy side. There are 35 million who are underwater on their mortgages and aren’t buying homes anytime soon, nor are the 35 million unemployed and underemployed. That knocks out 50% of the potential buyers. Here is where it gets really interesting. There are 80 million baby boomers retiring at the rate of 10,000 a day. Assuming that they downsize over time from an average 2,500 sq ft. home to a 1,000 sq. ft. condo, and eventually to a 100 sq. ft. assisted living facility, the total shrinkage in demand is 4.3 billion sq.ft. per year, or 1.7 million average sized homes. That amounts to a shrinkage of aggregate demand for a city the size of San Francisco, every year. You can argue that the following Gen-Xer’s are going to take up the slack, but there are only 65 million of them with a much lower standard of living than their parents. Throw in the disappearance of state and federal first time buyer tax credit. You can count on a jump in long term capital gains taxes and state and local property taxes, further diminishing property’s appeal. If you are looking for a final stick to break the camel’s back, how about eliminating, or substantially reducing the home mortgage interest deduction? Add it all up, and there is a massive structural imbalance in residential real estate that will take at least a decade more to unwind. We could be looking at a replay of the same 26 year period from 1929 to 1955 when prices remained flat, and we are only 3 years into it! A second down leg in the real estate market seems a no brainer to me, as is the secondary banking crisis that follows. Perhaps that’s why hedge funds have been big sellers of the homebuilder’s ETF (XHB).What’s a poor homeowner to do? Don’t ask me. I sold everything in 2005 when my research threw up these numbers, and have been happily renting ever since. And, if the toilet blocks up, I just call the landlord.
The Collapse Is Coming - Are You Ready? - Gerald Celente
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