Friday, July 22, 2011

The Jim Rogers interview you don't want to miss

Our colleague Frank Curzio just published a fantastic interview in this week's S&A Investor Radio podcast.

It's with Jim Rogers... and it's one of the most interesting interviews we've ever heard with the legendary investor. Frank and Jim cover a huge number of topics including:

How Jim would solve America's huge debt problem...
His favorite commodities to buy today, and how he personally prefers to buy them...
The U.S. stock sector he's shorting now and why...
His latest thoughts on China, including the one thing that could stop its amazing growth...
And a favorite emerging market investment that he's never mentioned before.

To listen to the full interview for free, click here. If you'd prefer to download it for free from iTunes, click here.

Keith Fitz-Gerald: The Latest Trick Goldman Could Be Playing On You

Money Morning's Chief Investment Strategist Keith Fitz-Gerald joined FoxBusiness' "Varney & Co." program to discuss what investors should do about the recent gloomy economic forecasts from Goldman Sachs Group Inc. (NYSE: GS). With Wall Street's track record, there may be more strategy than truth to the reports.

3 Safe-Haven Alternatives to Treasuries: IAU, DBA, GDX, FXF, CEW, CCX, ELD, PCY, EMB

Outside of burying your cash in the backyard, U.S. treasury bonds remain one of the safest places to keep your money. But that could change soon. Two major ratings agencies, Standard and Poor's and Moody's Investors Service, have said policymakers in Washington need not only to raise the debt ceiling by the August 2 deadline, but to raise it along with substantial cuts to the deficit. It's not clear how much the ratings agencies would like Congress to shave off the deficit, but they clearly don't believe the negotiations have gone far enough. If lawmakers can't come to an agreement, treasuries could lose their elite, top-notch rating. That has many in the investment community shaking their heads.

"Even the word 'safe haven' right now has basically lost its meaning, primarily because of this potential downgrade," says Jeffrey Sica, chief investment officer of Morristown, N.J.-based investment firm SICA Wealth Management. "Really what [treasuries] have become is the best of the worst. Money has flowed into treasuries primarily because everything in [the sovereign debt crisis in] Europe looks so horrendous." At this point, nothing can truly replace the safety, liquidity, and size of the treasury market, but here are a few alternatives for investors to consider:

Commodities. Generally, when investors lose faith in paper currencies, they turn to hard assets--especially gold--because of their inherent value. Just this week, gold hit a record of above $1,600 per ounce. Silver, often referred to as "the poor man's gold" because it's generally cheaper to purchase, has been on its own run lately, and currently trades around $40 an ounce. Christian Magoon, CEO of asset management consultant firm Magoon Capital based in Illinois, says investors should even consider "soft" commodities because of their finite nature. "Everything from gold to probably corn ... would now be more attractive because they're not able to be printed, and they're not linked to paper currencies, so you would expect them to hold their value," Magoon says. Two of the most popular exchange-traded funds that are physically backed by hard assets are iShares Silver Trust (symbol SLV) and iShares Gold Trust (NYSEArca: IAU - News). Sica recommends PowerShares DB Agriculture ETF (NYSEArca: DBA - News), which invests in a range of commodities, including corn, sugar, and soybeans.

Tom Lydon, editor of, offers a twist on investing in precious metals. "Instead of following the price of the metals, look to the mining companies," Lydon says. "It costs the same to pull the metals out of the ground, no matter the price of the metal." Since gold has recently reach new highs, he favors ETFs like Market Vectors Gold Miners (symbol GDX), which invests in the stocks of gold-mining companies.

Other currencies. The Swiss franc is one of the world's strongest and most stable currencies. Year-to-date, it has appreciated about 13 percent against the U.S. dollar. That's because Switzerland is a relatively stable country that isn't facing debt problems like many other European nations. Michael Cuggino, manager of thePermanent Portfolio Fund (PRPFX), maintains a fixed allocation of 10 percent of the fund's total assets to the Swiss franc. "We do [currency diversification] with the Swiss franc," Cuggino says. "It provides you with a true offset to what's going on with the dollar and the Euro." Investors can get exposure to the Swiss franc by owning bonds issued by the Swiss government, or through an ETF like CurrencyShares Swiss Franc Trust (NYSEArca: FXF - News).

While interest rates remain near zero in the United States, they're much higher in some emerging markets such as China and Brazil, where central banks have hiked interest rates in recent months. Magoon recommends currency ETFs like WisdomTree Dreyfus Emerging Currency (NYSEArca: CEW - News), which owns a basket of emerging markets currencies. He says investors can also take advantage of appreciating currencies in commodity-rich nations like Australia that generally have stronger currencies. To invest in such countries in both developed and emerging markets, he suggests WisdomTree Dreyfus Commodity Currency (NYSEArca: CCX - News), which also owns a number of different currencies.

Emerging markets bonds. In terms of growth, many emerging markets nations like China and Brazil are expected to far outpace developed markets countries like the United States and the U.K. Many emerging countries also have their fiscal houses in order. "In a lot of metrics, relative to developed countries, they're essentially safer," Magoon says. Granted, their currencies are more volatile and the markets aren't as liquid, but measured from a debt-to-GDP perspective, the sovereign bonds of emerging countries look attractive. Investors have two options for investing in emerging markets sovereign debt: funds that invest in local currency, or funds that invest in bonds denominated in U.S. dollars. Investors can get exposure to local currencies through ETFs like WisdomTree Emerging Markets Local Debt (NYSEArca: ELD - News). For investors that prefer dollar-denominated debt, Magoon suggests PowerShares Emerging Markets Sovereign Debt ETF (NYSEArca: PCY - News) or iShares JPMorgan USD Emerging Markets Bond ETF (NYSEArca: EMB - News).

The Next Great Bull Market Is Coming Soon: Belski

Wall Street may be bracing for a U.S. debt default, but volatility (^VIX) is falling and stocks are rising thanks to a continued streak of strong corporate earnings reports, with IBM (IBM) and Morgan Stanley (MS) among the latest to beat the street. The long-term picture looks rosy for corporate America according to Brian Belski, chief investment strategist at Oppenheimer. He says, "American companies are the best positioned companies right now for the next cycle, which we believe we're on the precipice of the next great secular bull market."

Belski says right here, right now staying invested matters. "The next 10-years we want investors to be overweight stocks. Over the next three to six weeks, two to three months, we think we have a lot of consternation and volatility involved in the equity markets around the world," he says.

Despite short-term headwinds (European contagion, U.S. debt negotiations), which are arguablyalready priced into the market, "2012 will be a year that will be defined by job growth," says Belski. This is a welcomed notion for the 9.2% of Americans looking for jobs.

But the optimistic view seems contingent upon Washington and Wall Street playing nice. Belski's hope is to see policy that will fuel business, thus jobs and the recovery. With corporate America sitting on a record-high $2 trillion in cash, he says U.S. companies need incentives to hire, to repatriate cash, and to pay dividends. "We have a burgeoning asset class developing called dividend growth and we have to provide investors with an outlet to sell their bonds, because the next great move collectively is that interest rates are going higher," says Belski.

Higher rates will cause a negative performance in bonds, send investors looking for new high quality assets, and Belski argues, dividend growth provides just the right opportunity.

Or does it? Macke doesn't see dividend growth driving stocks higher. He points to Microsoft (MSFT), a company that has increased its dividend for six years in a row, is yielding 2.4%, and recently sunk $8.5 billion to buy Skype. "As an investor, I'd rather be long Apple (AAPL), who has a huge cash pile, but they're putting it to work for me rather than getting that cash back," says Macke.

The Shadow Gold Price: $10,000 An Ounce

We realize that experts the world over say gold is not money, but we can’t help but consider that if central banks are stocking up (ex-US), pension funds are stocking up, big money investors are stocking up, and individuals on the street are moving to diversify into something other than stocks and bonds, that there might be something to this whole “gold is money” theory:

QB Asset Management calculates the so-called “Shadow Gold Price” (“SGP”). It divides the US Monetary Base by U.S. official gold holdings, the same formula actually used during the Bretton Woods regime to fix the exchange value of the dollar at USD 35.00/ounce. It would be the theoretical price of gold today were the Fed to depreciate the USD to a level that would cover systemic bank liabilities (transform a debt-based into a asset backed currency). The current Shadow Gold Price would be just under USD 10,000. This figure illustrates the magnitude of monetary inflation already embedded into the system, sitting latent and threatening to increase the general price level.

At the moment less than 2.6% of US government debt is covered by gold, which is clearly below the long-term median of 5%. Should the gold price therefore double, the coverage would only rise to the long-term median. But this would also require stable government debt, which is less than likely. The highs of the ratio dating from the 1980s would only be reached at a price of about USD 15,000.

If one were to fully cover the current debt with gold, the price would have to increase to USD 57,000/ounce. That said, a full coverage is extremely unlikely; at its highs the ratio was at 55% in 1915 and at slightly less than 25% in 1980.

Source: Zero Hedge

We find the following quote from Horace most applicable given the chart above:

Naturam expellas furca, tamen usque revenit.
-Horace (65-8 BC)

(You may drive nature out with a pitchfork, she will nevertheless come back)

The manipulators can play with precious metals all they want, but thousands of years of historical precedence simply cannot be erased by the ideologies of a handful of central bankers and politicians.

We would certainly advise our readers to prepare for future calamity by investing in long-term food storage, water reserves, tools, equipment, skills development and other preparedness supplies, but the future potential value of gold in a collapsing economy cannot be discounted. For those with the ability to do so, we recommend looking into silver first, and then gold, as a wealth preservation asset.

After the SHTF, those with real money will be able to use it to acquire assets that will have reached their bottom – for example real estate – and then ride those assets to higher values as the global economy resets and recovers. And in a worst case, even if the entire grid goes down and stock exchanges no longer function, there will always be a buyer for precious metals somewhere.

Jim Rogers : The Only Long Term Solution is to Face Reality

Jim Rogers latest interview 20 July 2011 ... Jim Rogers starts at 08:00

Jim Rogers : the only long term solution is to face reality , we had the greatest credit bubble in the history of the world in the United States , we had gigantic excess for thirty forty years , we can't deny that , you can't just wake one day and say well OK I made a mistake too bad now let's start over the only way you gonna do that is face reality now and start over , admit people are bankrupt let people go bankrupt do not bailout people who fail let's start this whole situation over we can never pay off the debt that we have encored , we have to cut spending dramatically , we should cut spending not with an axe but with a chainsaw , I mean this is a serious that the United states is in and therefor the world

Why Most Market Forecasters Get it Wrong

Be it a football game, the weather, an election, or the future of Middle East uprisings, people want to know what will happen before it does. We want to know the future, and we actively seek out experts who can predict it. But facts show that in most pursuits where dynamic and multiple variables determine what will happen, experts are not good at predicting the future. And to make matters worse, those who predict are rarely held accountable for their prognostications.

Take politics, for example. Philip Tetlock, a psychology professor at the University of Pennsylvania, conducted a study that became a book called Expert Political Judgement. He tracked about 80,000 forecasts from nearly 300 political experts over 20 years regarding political events in many countries. He tracked the outcomes of their forecasts against a group of college undergraduates making subjective predictions and a group who just made random guesses. The experts did slightly better, but not much. Nevertheless, they got on TV frequently and built their names and reputations.

Christina Fang, a professor of management at NYU's Stern business school, tracked the Wall Street Journal's Survey of Economic Forecasts to find out how accurate these highly paid analysts' forecasts were when billions of dollars were at stake. Surely this would lead to more accurate predictions. Her paper, "Predicting the Next Big Thing: Success as a Signal of Poor Judgement," draws some stunning conclusions.

Fang concludes that rather than being an indication of good judgment, accurately forecasting a rare event, such as business success, may in fact be an indication of poor judgment. On National Public Radio, she said, "If you look at the extreme outcomes, either extremely bad outcomes or extremely good outcomes, you see that those people who correctly predicted either extremely good or extremely bad outcomes, they're likely to have overall lower level of accuracy. In other words, they're doing poorer in general. ... Our research suggests that for someone who has successfully predicted those events ... they are not likely to repeat their success very often. In other words, their overall capability is likely to be not as impressive as their apparent success seems to be."

Consider how those who predict make money on Wall Street. Because there is no way to hold financial forecasters accountable for their incorrect predictions, they get more out of making wild ones. Wild predictions pay because the downside of being wrong is zilch, but the upside is lifelong fame. When those who make them are right, they get to manage more money, sell more books, and garner tremendous publicity for many years to come.

Consider the 2008 market crash. The best-selling books today are being written about those who called the crash such as John Paulson and those featured in Michael Lewis's book The Big Short. Those who were right will continue monetizing their correct prediction for many years to come. They are today's seers. But literally hundreds of pundits on CNBC got it wrong. Who were they? We'll never know--no one has any incentive to embarrass those who were wrong. Imagine seeing a pundit on CNBC with statistics showing how accurate their predictions were, like baseball statistics each time a player walks onto the mound.

We face a showdown between Congress and the president on lifting the budget deficit ceiling. The fact is, no one knows when or what deal will be cut. Those who are predicting this outcome are guessing. The ultimate effect on stocks and bonds in the short or long term is also unknown. But we keep tuning in, hoping for an answer, listening to confident and educated individuals making predictions.

As avid index investors, we make only one prediction: In a global, capitalistic economy, investors are rewarded for the risk they take in deploying their capital. If in bonds, investors will be rewarded as a lender. If in small-cap stocks, investors will be rewarded for increased equity risks. This prediction is rooted in empirical evidence and fundamental principals of our economic system. The rest is expensive and distracting noise. Predicting the ebbs and flows of that noise only serves to help money managers increase their assets under management and financial authors to sell more books and newsletters.

So next time you find yourself glued to a financial soothsayer making a prediction, stay far away from the trade button.

Analysis: Canadian Dollar within striking distance of modern-day high

The Canadian dollar looks set to extend a rally that's taken it to 3-1/2 year highs against the U.S. dollar this week, as more hawkish Bank of Canada comments lifted the currency and global investors pushed into the safety of Canadian assets.

Given the central bank's clear signal it would likely resume interest rate hikes later this year, analysts said the currency might even revisit its modern-day high. It reached C$0.9059 to the U.S. dollar, or US$1.1039, in November 2007, according to Thomson Reuters dealing data.

"Yes, Canada could hit post-Civil War highs once again," said Michael Woolfolk, a senior currency strategist at BNY Mellon in New York.

"(Hitting the high) would not be altogether unwarranted if Canada begins raising interest rates again. It's certainly not in our forecasts, but it's a nontrivial possibility of hitting C$0.90 within the next 12 months."

Based on available data, the Canadian dollar was at an all-time high of C$0.36 to the U.S. dollar, or $2.78 in 1864.

A survey on Wednesday of Canadian primary dealers found most expect a rate hike in September or October, perhaps as much as a year before the U.S. Federal Reserve starts raising interest rates.

"Against a background of firm commodity prices and continued global diversification flows to the relatively safe harbor of Canadian bonds, we look for the loonie to stay close to around US$1.05 even by the early part of 2012, before Fed rate hikes start to kick in," said Douglas Porter, deputy chief economist at BMO Capital Markets in a note.


The currency began rallying on Tuesday after the Bank of Canada signaled it was closer to resuming rate hikes. Governor Mark Carney indicated that the central bank's focus was on inflation and not the Canadian dollar, despite concerns that a strong dollar could hurt the economy.

But other G10 currencies are still outperforming the Canadian dollar, with part of its strength coming from U.S. dollar weakness, and general strength from the bloc of Australian, New Zealand and Canadian dollars.

A release of draft conclusions from a euro zone meeting on Thursday to tackle contagion from Greece's debt woes helped push the Canadian dollar to a 3-1/2 year high of C$0.9425 to the U.S. dollar, or $1.0610, its highest since November 2007.

"That was viewed very constructively by the market and lifted the euro up. It also helped bolster risk appetite, which undermined the U.S. dollar," said Woolfolk.

Canada, with its relatively robust economy, stable debt market and internationally recognized sound banks, has become particularly appealing to investors as the U.S. and European debt crises send investors elsewhere.

"As uncertainty in Europe continues to rise and problems in the U.S. remain at the forefront, there is likely increased appetite to diversify holdings away from both USD and EUR based assets," Scotia Capital chief currency strategist Camilla Sutton said in a research note.

"Small open economies, with strong sovereign positions and flexible FX regimes, like CAD, are in demand. We expect this is a long-term trend...that will help support CAD into year-end."


Currency analysts polled by Reuters said this month they expected global risks to drag the Canadian dollar down against a stronger U.S. dollar, with parity a possibility within the next 12 months.

Marc Chandler, global head of currency strategy at Brown Brothers Harriman, said a stronger Canadian dollar will hurt non-commodity aspects of the economy, such as manufacturing.

"The Bank of Canada will get more concerned about ... the higher currency and may dampen expectations of a rate hike," Chandler said.

"The exports are heavily weighted toward commodities, but part of the country doesn't produce commodities, they're consumers of commodities. They get hurt, so it leads to this bifurcation of the economy, which makes it all the more difficult to conduct monetary policy and has political ramifications."

Woolfolk disagreed.

"We think conditions warrant higher interest rates in Canada, but (the central bank) is likely holding back because of the obvious positive it would have for the currency," he said.

Smart Money - August 2011

Smart Money - August 2011
English | 88 pages | HQ PDF | 47,8 Mb

Fed Preparing For US Default Says Plosser

That giant whooshing, and humming, sound you hear are all the printers at the basement of Marriner Eccles getting refills and start the warm up process. Because according to the Fed Charles Plosser the Federal Reserve is actively preparing for the possibility that the United States could default. Which can only mean one thing: an immediate paradrop of millions of $100 bricks to every man woman and child in the US since as we all know by know Tim Geithner has repeatedly confirmed the Treasury has absolutely no default plans. None.

Per Reuters:

Philadelphia Federal Reserve Bank President Charles Plosser said the Fed has for the past few months been working closely with Treasury, ironing out what to do if the world's biggest economy runs out of cash on August 2.

"We are in contingency planning mode," Plosser told Reuters in an interview at the regional central bank's headquarters in Philadelphia. "We are all engaged ... It's a very active process."

Plosser said his "gut feeling" was that President Barack Obama and Congress will come to an agreement to increase the Treasury's borrowing authority in time to avert a default on government obligations.

And in addition to the warming up, the Fed is also engaging in the following:

The Fed effectively acts as the Treasury's bank -- it clears the government's checks to everyone from social security recipients to government workers.

"We are developing processes and procedures by which the Treasury communicates to us what we are going to do," Plosser said, adding that the task was manageable. "How the Fed is going to go about clearing government checks. Which ones are going to be good? Which ones are not going to be good?"

"There are a lot of people working on what we would do and how we would do it," he said.

Plosser added that there are difficult questions that the Fed itself had to grapple with.

The Fed lends to banks at the discount window against good collateral. But what happens if U.S. Treasuries no longer fit that bill?

"Do we treat them as if they didn't default, in which case we would be saying we are pretending it never happened? Or do we treat them as if they defaulted and don't lend against them?" Plosser said. "Those are more policy questions."s at the basement of Marriner Eccles getting refills and start the warm up process.

We urge the secretary of tax evasion to take a hint or two from his "Treasury Bank" brethren and start contemplating a Plan B since we now stand less than 48 hours away from D-Hour and there is still no consensus.