Thursday, September 8, 2011

Buy BP as You Get Back to the Wall Street Grind

Investors dragged themselves back from the long Labor Day weekend in a grumpy mood. But the damage wasn’t as bad as might have been expected after the 4% drubbing in European stock markets Monday. Down 308 points at the mid-morning low, the DJIA pared two-thirds of its losses by the closing bell. Broader indexes, such as NASDAQ and the S&P 500, held their ground somewhat better – and after today’s rally the market is actually up about 1.5% so far this week (as of this writing anyway).

For the financial markets, it’s becoming obvious that Europe presents a much bigger problem than the United States. In fact, we got a fairly encouraging data point on the U.S. economy Tuesday morning, when the Institute for Supply Management said its gauge of activity in the service sector ticked up to 53.3 in August, from 52.7 in July.

Economists were predicting a drop to 51. The dividing line between expansion and contraction is 50.

If the service sector (three-quarters of GDP) can keep its head above water, the nation has a fighting chance to avoid the double-dip recession Wall Street currently dreads.

On the other hand, the European situation has reached a delicate stage. If Italy can quickly enact a credible package of fiscal-reform measures (a vote by the Italian senate is slated for this evening), it would go a long way toward easing fears that the “Greek contagion” might be spreading.

However, there’s no time to lose. Deposits are already quietly slipping out of European banks. (The banks hold huge amounts of the continent’s sovereign debt.) Italy must act immediately, or investor confidence will erode further.

Last Friday, I suggested waiting for the S&P to dip to 1,150 before resuming your stock purchases. The index traded as low as 1,140 yesterday, so you could have done some nibbling. Given the unsettled news background, though, I suspect we’ll get more buying opportunities below 1150 in coming days and weeks. Take your time and put new money to work on market weakness only.

Here’s one name to buy if it drifts back down just a bit. I recommending selling BP (NYSE:BP) seven months before the Deepwater Horizon oil spill crushed the shares in April 2010. Today, most of BP’s liabilities from the incident are known and provided for. The company has also put new, more safety-conscious management in place.

At less than 6X this year’s estimated earnings, the stock is extremely cheap compared with other international oil firms (Exxon (NYSE:XOM) 8X, Chevron (NYSE:CVX) 7X). BP yields a generous 4.6%, too—and there’s no UK withholding tax on your quarterly dividends, making the shares suitable for your retirement account.

Buy BP at $36 or less. I’m targeting $50-$55 within a year.

Data Suggests Silver Correction Ahead

In 2004, 2006, and 2008, the price of silver experienced three large separate moves followed by similar corrections of magnitude and duration. Our in-house analyst, Chris Puplava, averaged them into a single composite (red line below) and compared the current chart of silver (black line) to see how closely they compare. As you can see below, the similarity between silver currently and the average of the past three moves has been very close.

silver composite
Click here for larger image

I bring this chart to your attention again—Chris first featured it in his article “Silver’s Destiny with 200”—since, as you can see, the composite is forecasting a steep drop in silver sometime soon. Given silver’s current bias as an industrial metal and global economies around the world facing recession, weakened demand should translate to a lower price. If the composite is any guide, we should expect to see support in the mid-to-upper 30s before heading higher.

Marc Faber: This Will End in Disaster & You Must Own Gold

With gold consolidating recent gains and continued volatility in global equity markets, today King World News interviewed legendary investor Marc Faber, author of the Gloom Boom and Doom Report. When asked about the action in global markets Faber responded, “My view is that we made a top between February of this year and June and that we had a very sharp decline. Thereafter a rebound on the S&P from around 1,100 to around 1,200 and that we are drifting again lower and that we will break the low that we made in July/August at 1,101 (on the S&P). So we’ll head towards 1,000 I guess.”

Marc Faber continues: (more)

Top Five Mistakes Made When Submitting Your Resume

The lackluster economy, rising unemployment numbers and dozens, if not hundreds of applicants vying for the same job. With all these obstacles in the way of job seekers, any constructive advice can give you an advantage. If your resume hasn't been updated in years, or you are using an outdated online template or the resume you are emailing to potential employers doesn't contain key words, you probably won't even get an interview, much less the job. (To help you score that dream job, check out Sell Your Skills, Not Your Degree.)

The following tips and ideas may not get you the job, but they will help move you closer to the top of the pile and help you to better market your qualifications.

Use Keywords
Nearly every Fortune 500 company and many smaller employers use software that scans keywords in resumes. With the economy, most employers have been so overwhelmed with resumes they have had to turn to scanning systems to quantify applicants.

They also use this same technology to view resumes posted on job boards such as According to the National Resume Writers' Association, 80% of employers now search resumes by using keywords.

Keywords are words geared specifically to both the job description listed by the employer and words that are specific to your profession. You must use both in your resume to pass through the initial scanning software and have your resume put into the hands of a real person.

If you don't include these all-important keywords, you probably won't even earn an interview. Using MS Word, you can easily increase the keyword searchability in your resume by using the "Properties" feature found under File in Word '03 and under the Word Button in Word '07 then go to Prepare, then Properties. You can also add a link here to any web resumes you have posted online.

Appearances Count
Have you ever emailed your resume to yourself? You should. Cyber-glitches, email attachments, and different programs used to open those attachments can distort or destroy your perfect looking resume. Pages can break where they aren't supposed to, lines can be added between sentences, words cut off, and fonts that looked great on your computer can appear very different in an email. The best suggestion is to send your resume to yourself and several friends to ensure that it looks good on multiple computers. (For more ways to get your resume seen, see 5 Ways To Make Your Resume Stand Out.)

Words to Avoid
While keywords are vital in your resume, there are some words you should never include. Words that are overused, tired, make your resume appear dated or are just annoying like, "team player," "trustworthy," "problem solver."

Hiring managers, human resource consultants, and employment agencies suggest eliminating these words from your resume. In their place, you should show how you used these traits on the job. How did you solve problems? If you came up with a new way to cut costs, explain how. What makes you trustworthy? Were you trusted with multiple financial accounts? Finding new ways of explaining your talents using keywords instead of overused words will help get you that interview.

Spelling Counts
Spell check does not catch every error, nor will it fix bad grammar. The best option is to have someone else read and proof your resume. You've probably spent weeks writing, refining and tweaking your resume to create the best sales tool possible. After spending so many hours reading, editing, and rewriting it, odds are you won't see the mistakes that could be lurking there. Having someone else, or better yet, several others review your resume could save you from sending it out with mistakes and costing you a potential job.

Include a Cover Letter
Yes, it sounds "old school" particularly in today's fast-paced Internet world. While email speeds your resume to multiple potential employers, many still look for that personal cover letter. Tailoring your cover letter to individual employers increases your chances of have your resume reviewed and gaining an interview. The cover letter should be pasted into the body of the email, not sent as an attachment. Remember, this is still a business letter, follow the standard rules of business writing protocols.

The Bottom Line
There is no magic formula to having your resume reviewed by a potential employer. These tips can help give you an edge over the competition. Your own skills, experience, and determination will be the keys to open career doors for you.

McAlvany Weekly Commentary

European Crises: Treating a Mountain Like a Molehill

A Look at This Weeks Show:
- There is a shallow appreciation for how grave the threat is to the European Union as it exists now.
-Germany has and will hold the key to a continued EU project.
- Just as in 2008 in the United States, banks are leading on the downside in Europe (since the end of July, 7 trillion in equity values have disappeared).

Canadian interest rates: The guesswork continues

For those of you who still place some importance in the interest rate predictions among economists, we deliver the latest updates on where the Bank of Canada’s key rate is headed. Of course, these updates come after the central bank left its rate unchanged on Thursday (no big surprise there) and stated that the “need to withdraw monetary stimulus has diminished.”

CIBC World Markets: “While we continue to expect that a resumption of moderate-paced growth in the latter half of this year will keep the Bank from cutting rates, it’s now likely that the Bank will only begin tightening in the third quarter of 2012. We still expect the overnight target to end 2012 at 1.50 per cent, but with the two 25 bps rate hikes now coming six months later than we had previously anticipated.”

Toronto-Dominion Bank: “All told, today’s statement confirms our view that a downgraded growth outlook both at home and abroad, combined with worsening sovereign debt risks, necessitates an exceptionally accommodative monetary policy stance for longer than previously thought. We don’t expect the Bank to raise rates until the latter half of 2012, which implies a flat overnight rate for almost two years – an unprecedented situation which underscores the fragility of the economic recovery.”

BMO Nesbitt Burns: “Once again, the tug-of-war between offshore and internal factors is holding the Canadian economy and Bank of Canada policy in limbo. We still judge (as does Carney & Co.) that at least modest growth will resume in H2 and push the Bank’s policy bias back to the tightening side (with modest rate hikes a 2012 H2 affair).”

Deutsche Bank: “Given the Bank’s increased focus on the downside risks to its near term projection for growth due to slower global/US growth, its elevated concern about the European sovereign debt crisis, its more moderate outlook for both core and headline inflation and its acknowledgement that there is a reduced need to withdraw policy stimulus, we expect that it will remain on hold through the remainder of 2011 and into the first quarter for 2012.”

10 Countries With The Largest Gold Reserves

The chemical element Au with atomic number 79 "has never been worth zero." King Tutankhamen and the Incas had at least one thing in common - they understood the value and scarcity of gold and used it as a symbol of wealth and power. Nothing has changed since.

Even though gold is no longer used to back currencies like the dollar, it is still stockpiled by countries around the world. Since the price of gold has fluctuated dramatically, the holdings are expressed in metric tons (or tonne = 1000 kg) as documented by the World Gold Council in August 2011. One U.S. ton is approximately 0.9 tonnes. Here's a look at the countries holding the largest gold reserves and the amount of holdings.

United States - 8,133.5
While the U.S. permanently abandoned the gold standard in 1971, it has the largest holdings of any country by a wide margin. While most of the gold is held at Fort Knox in Kentucky, gold is also held by the U.S. Mints in Philadelphia and Denver and several other locations.

Germany - 3,401.0
Germany's central bank, the Deutsche Bundesbank in Frankfurt, is the manager of the country's reserves. However, reports have surfaced that the bulk of Germany's gold is in the physical custody of the New York Federal Reserve. Two years ago, international journalist, Max Keiser received an acknowledgment of these holdings in the U.S. directly from the Bundesbank.

International Monetary Fund (IMF) - 2,846.7
The IMF overseas the economic activity of its 187 member countries around the globe. While its gold policies have changed over time, the reserves are intended to aid national economies and stabilize international markets. Depending on market conditions, it will buy or sell portions of its reserves in support of specific economic initiatives.

Italy - 2,451.8
Italy's reserves are held and managed by the Banca D'Italia. Italy is one of the PIIGS nations (along with Portugal, Ireland, Greece and Spain), all of which are suffering financial woes that threaten the entire eurozone. Parliament approved austerity measures in exchange for financial assistance, but the country is also embroiled in a political crisis that centers on Prime Minister Silvio Berlusconi. In addition to being charged with paying for sex with a minor, his government is under investigation for influence peddling and corruption.

France - 2,435.4
The Banque de France is the central depository for France's gold reserves.

After World War II, the Bretton Woods Agreement established a standard that pegged the dollar at the gold exchange rate of $35 (USD) per ounce. Subsequently, President Charles de Gaulle reduced French dollar reserves by exchanging them for gold from Fort Knox. As a result of this action and other economic considerations, President Richard Nixon ended the convertibility of dollars to gold in 1971.

China - 1,054.1
While the world's most populous country is sixth on the list of total holdings, gold accounts for only 1.6% of China's foreign reserves. It is the largest foreign holder of U.S. Treasuries with a total investment of $1.166 trillion as of June 30, 2011.

China is the world's largest producer of gold and can buy gold from its own mines without reporting those transactions publicly. It has reasons to buy gold off the open market since open market transactions would push the price even higher and devalue its U.S. Treasury holdings.

The Wall Street Journal has reported that China dramatically increased its gold purchases in response to inflation fears. Because of possible stealth transactions, China's total gold holdings and the prices it pays are uncertain.

Switzerland - 1,040.1
Switzerland's seventh place rank on this list is notable considering its economy is the 38th largest and its population is the 95th largest in the world.

The Swiss National Bank is charged with managing the gold reserves and the country's monetary policy.

Russia - 775.2
Russia's gold reserves are in the custody of the Central Bank of the Russian Federation. The country has been on a buying spree, increasing its holdings by 21% in 2009 as it opened several new mines, and another 24% in 2010. The Wall Street Journal has reported that Russia plans to buy an additional 90 tonnes per year to replenish its reserves.

Japan - 765.2
Gold accounts for only 3.3% of Japan's total foreign reserves which are managed by the Bank of Japan.

Netherlands - 615.5
The gold reserves and national finances are managed by the Netherland Bank.

The Bottom line
The biggest holders of gold are governments, central banks and international entities that currently account for 30,500 of the world's estimated 160,000 tonnes. The current rate of new production from mining is about 2,497 tonnes per year. As the price has risen, more mines have become economically feasible to open or reopen.

Gold has gotten much attention lately as the price has risen to new highs, although it is still well below the January 1980 inflation-adjusted high of about $2,400 per ounce. Unlike money, you can't print more gold, so it's likely to continue to be a safe haven investment during uncertain economic times.

Top manager Hussman: Stocks could fall to unbelievable new lows

John Hussman, of Hussman Funds, had an interesting Weekly Market Comment out last week (there's a new one out tonight) that included a range of S&P targets based historical "prospective returns". He also thinks there's a possiblity that the S&P could revert back its secular valuation lows, with the potential of overshooting. He's not alone, Felix Zulauf sees the S&P reverting back to book value. In this case, Hussman values the S&P 500 between 600 and 1000 based on the historical prospective returns listed below; but under extreme secular undervaluation and/or macroeconomic conditions, he thinks the S&P could hit 400!
"Historically, the typical bull-bear market cycle has produced a range of 10-year prospective returns in a band between about 7.5% and 13%. That band presently corresponds to a range for the S&P 500 index between 600 and 1000. A 10% prospective return is right in the middle, at about 800 on the S&P. Once you recognize that profit margins are in fact cyclical, that range is about right, as uncomfortable as it may be to contemplate. Jeremy Grantham of GMO estimates that fair value is "no higher than 950." A tighter norm for prospective return between 9-11% maps to an S&P 500 between 750 and 850.

Finally, while I certainly would not expect it in the absence of extreme macroeconomic upheaval, major secular undervaluation as we observed in 1950, 1974 and 1982 would presently map to about 400 on the S&P 500. When you think of "once in a generation" valuations and "secular bear market lows" - that number, not anything near present levels, should be what crosses your mind. I am well aware that even discussing numbers like these, given the present mindset of investors, is likely to be dismissed as utterly ridiculous. Frankly, I would rather risk the ridicule of those who pay lip-service to research, cash flows, fundamentals, and value than to pretend these outcomes are impossible, when the historical record (and even the experience of the past decade) strongly indicates otherwise."

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H&R Block: In Bargain Territory? : HRB

The past couple years have been taxing for shareholders of H&R Block (NYSE:HRB). And based on the latest earnings report, things are still looking grim. On Friday, the stock price plunged by nearly 12% to $13.41.

H&R Block reported a loss of $175.1 million, or $0.57 per share. As for revenues, they fell 2.5%, from $274.5 million to $267.6 million.

Not inspiring, huh? This is true. But when you drill down into the details, there are actually some silver linings.

First of all, H&R Block has been making the hard decisions to focus on its core tax business. To this end, the company has agreed to sell its RSM McGladrey unit, which provides financial services to businesses. The purchase price comes to $610 million.

Next, H&R Block is going to court to fight the Justice Department’s suit to prevent the company’s acquisition of TaxACT, a top provider of digital tax preparation services. As with any litigation, it’s tough to predict the outcome — but it should come soon. Besides, this shows H&R Block is serious about pushing its digital strategy. So even if the TaxACT deal does not go through, it’s a good bet that there will be substantial investments in this critically important category. As seen with Intuit’s (NASDAQ:INTU) success with TurboTax, the market is quite lucrative.

And yes, H&R Block’s brick-and-mortar business also is quite valuable. With more than 12,000 offices across the U.S., the company prepares over 21 million returns per year. No doubt this is a nice source of recurring revenues. The model also is capital-light, since there are more than 3,000 franchised locations.

Finally, H&R Block is trading at an attractive valuation, coming to about 11 times earnings. It also has a juicy dividend yield of 4.5%.

So is it time to buy? Well, even though H&R Block is showing promise, it probably still is not a good idea to jump in the stock right now. Instead, it makes more sense to wait a few months until the tax season gets into gear. But so far, it looks like H&R Block is making the right moves.

Jim Rogers: Swiss Central Bank Move ‘Huge Mistake’

The Swiss central bank's decision to set a limit on how much the Swiss franc can appreciate against the euro is "a huge mistake," investor Jim Rogers, chairman of Rogers Holdings, told on Wednesday.

Chinafotopress | Getty Images
Jim Rogers told the Chinese yuan is the next safe haven currency.

On Tuesday, the Swiss National Bank set a minimum exchange rate of 1.20 Swiss francs for the euro, pledging to buy other currencies in unlimited amounts to defend the target.

Analysts said this was an endurance contest by which the SNB wanted to take the shine off the Swiss franc's safe haven status, in a move that roiled markets.

The move "will work for a while, but the market will have more money in the end than the SNB," Rogers, who was the co-founder of the Quantum Fund with George Soros, told

The Swiss central bank risks losing "a lot of money buying up lots of foreign currencies which they will eventually sell at a loss," he explained.

Another risk is that the central bank will "totally debase the Swiss franc trying to keep Switzerland 'competitive' which will then destroy the traditional Swiss financial industry," Rogers said.

"So this is a huge mistake for Switzerland since they are going to suffer more either way," he added.

After the Swiss central bank's move on Tuesday, the dollar [CHF=X 0.8575 -0.0043 (-0.5%) ] and the euro [CHFEUR=X 0.8267 -0.0015 (-0.18%) ] appreciated sharply versus the franc and analysts have started to look for the next safe-haven currency.

"RMB [Chinese yuan] [CNY=X 6.392 0.002 (+0.03%) ] is best," Rogers said, adding that the US dollar is "probably good in the short term, but the absolute worst over the long term."

Rogers has often criticized the Federal Reserve for weakening the dollar by printing money to boost growth following the financial crisis.

Investors have been looking for ways to get into the Chinese yuan, as some analysts predict that China will overtake the US to be the world's top economy in a few decades. The yuan is still not fully convertible although China has taken small steps towards liberalizing its currency.

"There are various ways to get RMB exposure outside China," Rogers said, adding that investors can now open bank accounts in renminbi in various cities like New York, San Francisco, Hong Kong, Singapore and others and can buy renminbi-denominated bonds in the international markets.