Friday, October 14, 2011

Martin Armstrong: Lessons from ’87 Crash & What’s Coming

from King World News:

With continued turmoil in global markets, King World News interviewed internationally followed Martin Armstrong, Founder and Former Head of Princeton Economics International, Ltd.. Armstrong’s firm rose to be perhaps the largest multinational corporate advisor in the world. When asked what to look for going forward, Armstrong told KWN a fascinating account of what led to the ’87 Crash, “When Volcker raised interest rates to crazy levels, the discount rate up to 17% going into 1981, a tremendous amount of capital starts coming from overseas into the United States. So that drives the dollar up going into 1985 to a point where the (British) pound had fallen from 2.40 to par vs the dollar.”

Martin Armstrong continues: Read More @

Gold, Silver and Stock Prices at their Tipping Points

Over the past year we have been learning more about the financial situations across the pond in Europe. With international issues on the rise, investors are panicking trying to find a safest haven for their capital. This money has been bouncing from one investment to another trying to avoid the next major crash in stocks, bonds, currencies and commodities. It seems every 6 months there is a new headline news issue at hand forcing the smart money to withdraw from one investment class too another hoping to avoid the next meltdown.

To make a long story short, I feel the market (stocks, bonds, currencies and commodities) are about to see another major shift that will either make you a boat load of money or you lose a lot of money if you are not positioned properly.

So the big question is “Which direction will these investments move?”

Let’s take a look at the charts…

Gold Weekly Chart – Long Term Outlook

Gold has just finished seeing a strong wave of selling this summer so it’s early to give any real forecast for what is next. That being said this long term chart may be telling us that gold’s rally could be nearing an end or a 12+ month pause could take place. If you have followed the market long enough then you realize that when everyone is in the same trade/position the market has a way of re-distributing the wealth to those who are savvy investors. Over the next 4-6 weeks there should be more price action which will allow me to get a better read for what is going to happen next.

Gold ETF Trading Newsletter

Silver Weekly Chart – Long Term Outlook

Silver has been showing strong signs of distribution selling. Meaning the big money is moving out of this industrial and highly speculative metal. The interesting part here is that silver topped out much sooner than gold. Many times in the past silver has topped and or bottomed before the rest of the market reverses direction. So it is important to keep an eye on silver as we go forward in time because it tends to lead the market 1-2 months in advance some times.

Silver ETF Trading Newsletter

SP500 Weekly Chart – Long Term Outlook

Stocks in general are still looking ripe for another major bull market rally. But if we do not get some follow through in the coming 1-2 months then this almost 3 year bull market could be coming an end.

SPY ETF Trading Newsletter

Mid-Week Trend Trading Conclusion:

In short, the market as a whole is trying to recover from a strong bout of selling over the past few months. In my opinion the market is ripe for another leg higher. The reason I see higher stock prices is because decisions are being made across the pond to deal with their issues. Looking back it is similar to what the United States did in late 2008 – early 2009 just before the market bottomed.

Everyone right now seems to be saying Europe is screwed and that they are going about things in the wrong way, but if you think back that is exactly what took place in America not that long ago. And back then it was all over the news that the resolutions to fix the US would not work…. In the end, life continued, businesses continued to operate. Soon after decisions were made the stock market and commodities rallied and are still holding strong today.

Gerald Celente with Mike Broomhead

Foreigners Dump $74 Billion In Treasurys In 6 Consecutive Weeks: Biggest Sequential Outflow In History

Over the weekend, we observed the perplexing sell off of $56 billion in US Treasurys courtesy of weekly disclosure in the Fed's custodial account (source: H.4.1) and speculated if this may be due to an asset rotation, under duress or otherwise, out of bonds and into stocks, to prevent the collapse of the global ponzi (because when the BRICs tell the IMF to boost its bailout capacity you know it is global). We also proposed a far simpler theory: "the dreaded D-day in which foreign official and private investors finally start offloading their $2.7 trillion in Treasurys with impunity (although not with the element of surprise - China has made it abundantly clear it will sell its Treasury holdings, the only question is when), has finally arrived." In hindsight the Occam's Razor should have been applied. Little did we know 5 short days ago just how violent the reaction by China would be (both post and pre-facto) to the Senate decision to propose a law for all out trade warfare with China. Now we know - in the week ended October 12, a further $17.7 billion was "removed" from the Fed's custodial Treasury account, meaning that someone, somewhere is very displeased with US paper, and, far more importantly, what it represents, and wants to make their displeasure heard loud and clear. Whether it is China - we do not know: we may have a better view in two months when the September/October TIC data hits, but even then it will be full of errors, as Direct Bidder purchases by the UK usually end up being assigned to China at the yearly TIC audit. And the sellers know this all too well. What they also know is that over the next few days (or weeks - ZH tends to be a little "aggressive" in its estimates for popular uptake), as soon as the broader population understands what has transpired, concerns about the reserve status of the greenback will start to resurface, precisely as many have been warning. And what has happened is that in six consecutive weeks, foreigners have sold $74 billion, or more government bonds in a sequential period of time than ever before.

So... perhaps it is time to reevaluate US intentions for a trade war with any of its "evil" mercantilist, UST-recycling partners. Unless, of course, they want $74 billion to become $740 billion, and to force the Fed to have no choice but to intervene, only this time not with a duration sterilized procedure, but one where the Fed has to buy everything that China et al are selling.

On the other hand, judging by the traditional reaction of various precious metals to this kind of fiat suicide, perhaps it is not such a bad idea after all...

Total holdings in the Fed's Treasury custodial account and weekly change:

Trailing 6 Week Cumulative Total of custodial account Treasury flows.

Replace Your Income With Dividend-Paying Investments : : BDCL, DEW, DVY, ETY, FAX, LVL, MLPL, PCEF, SDIV, SDY, SHY, UBS, VIG, XMPT

Replacing lost income has become a hot topic for many financial planners and the millions of baby boomers about to enter their golden years. Figuring out how to turn years of savings into years of income payments has become a pressing issue. Traditional fixed income products like CDs and money market accounts pay next to nothing and bond funds like iShares Barclays 1-3 Year Treasury Bond (NYSE:SHY) have seen their yields plummet as investors have sought safety. As we enter our fourth year of ultra-low interest rates, investors who require a constant stream of payments will be forced to get creative in their search for yield. Luckily, there are several avenues for investors to explore.

A Wide Range of Options
With so much attention being thrust towards replacing lost wages, the number of options for investors looking for income has exploded over the last few years. Products such as annuities have become increasingly popular way for investors to continue their monthly paychecks throughout retirement. However, many of these plans come layered with various fees and surrender charges. A better option for income seekers could be within extruded funds. Opportunities for income investors have not been lost in the recent ETF boom and there are countless ways for investors to add dividend income to a portfolio. The trio of the iShares Dow Jones Select Dividend Index (NYSE:DVY), Vanguard Dividend Appreciation ETF (NYSE:VIG) and SPDR S&P Dividend (NYSE:SDY) hold the bulk of the assets in the space. However, these funds are not the only games in town. Over the last year, a plethora of new funds have been created that allow the retail investor set to access asset classes once reserved for institutional investors. By tapping these other choices, investors have the potential to add higher yields as well as gain diversification benefits. Here are some of the new and interesting ways to add that extra income.

Closed-Ended Income
Closed-ended funds are widely misunderstood and ignored by investors. These securities are publicly traded investment companies that raise a fixed amount of capital through an initial public offering (IPO). There are a set number of shares and they trade throughout the day like stocks at discounts or premiums to the underlying value of the fund's assets. The PowerShares CEF Income Composite (Nasdaq:PCEF) is an ETF that tracks a basket of these closed end funds (CEF). Currently, the ETF holds 123 different CEFs across the taxable fixed income and equity option writing strategies sectors. Top holdings include the Eaton Vance Tax-Managed Diversified Equity Income (NYSE:ETY) and Aberdeen Asia-Pacific Income (NYSE:FAX). The fund yields nearly 9% and pays a monthly dividend. For investors in higher tax brackets, the Market Vectors CEF Municipal Income ETF (Nasdaq:XMPT) follows a similar strategy with municipal bonds.

Go Global
Some of the best dividend yields and income opportunities can be found overseas. Foreign corporations have traditionally held a more dividend-friendly culture over comparable American firms and have distributed them to shareholders rather than keeping them as retained earnings. Both the Guggenheim S&P Global Dividend Opportunity (NYSE:LVL) and WisdomTree Global Equity Income (NYSE:DEW) allow investors to tap these opportunities, while keeping some footing on domestic soil. Both offer a wide swath of the world's top dividend payers with the WisdomTree fund holding close to 560 different firms and yielding 4.93%. The Guggenheim ETF holds only 100 stocks, but in exchange for a more concentrated portfolio, investors are rewarded with a dividend yield of over 6%.

Juiced Yields
Finally, both energy master limited partnerships (MLP) and business development companies (BDC) have historically offered some of the highest dividend yields to investors. Swiss bank UBS (NYSE:UBS) offers investors a way to "boost" the yields of these two asset classes. The UBS E-TRACS 2x Wells Fargo BDC ETN (NASDAQ:BDCL) and UBS E-TRACS 2x Long Alerian MLP ETN (Nasdaq:MLPL) use leverage to essentially double the dividends of their underlying indexes. The exchange-traded notes currently yield 14.57 and 11.61%, respectively.

The Bottom Line
As more and more baby boomers focus on replacing lost income during retirement, the options for dividend-focused investing will undoubtedly continue to grow. The ETF boom has opened a variety of different high yielding asset classes to the retail world. The previous funds along with the Global X SuperDividend Fund (Nasdaq:SDIV) are just some of the new ways for investors to gain yield in their portfolio.

FREE ebook: Black Out

Black Out
The Top 11 Threats to The Power Grid

Download ebook here

Download audio here

This Medical Device Stock Could Double your Money: STJ

In today's uneven stock market [1], investors end up overlooking many appealing companies. And right now, they are particularly ignoring growth stocks. This usually happens when fears surface that the global economy [2] could be heading into recession [3].

In times of economic stress, the health care sector is usually seen as a safe haven. But recently, many leaders in the industry have also been out of favor.

The passing of a historic health care bill in the United States last year has increased concerns that regulation will cut into profits of health care firms. Among those concerns: a 2.3% excise tax [4] on medical-device sales, set to begin in 2013. This is obviously a negative aspect, but it isn't likely to adversely affect the inherent appeal of companies with leading devices, technologies and global growth platforms.

Add it all up, and I see a rare opportunity for investors to buy quality health care stocks.

Medical device firm St. Jude (NYSE: STJ [5]), for instance, has such appeal. Besides a focus on growth, one of the company's main goals is to save and improve lives with its medical devices, which have become vital in the treatment of cardiac, neurologic and chronic-pain disorders. The company makes, for example, mechanical heart valves and implantable cardioverter defibrillators (ICDs), which detect cardiac arrhythmia and correct it by delivering shocks to the heart.

This wide range of technologically sophisticated devices is being widely adopted across the world, which has put the St. Jude on a remarkable growth trajectory. Last year, healthy sales of existing products, new product introductions and increased global reach resulted in a 10% sales growth to $5.2 billion, compared with $4.7 billion in the year before. In fact, 2010 marked the first time sales exceeded $5 billion. Earnings [6] growth was even better, rising more than 20% to $2.75 per diluted share. In addition, foreign sales -- which make up more than half of the company's total sales -- are growing in excess of 20% a year.

The company is also impressively profitable. Last year alone, it boasted a net profit margin [7] of almost 18%. This represented the highest margin [8] in the past five years, placing the company well ahead of rivals and the market in general. To put this into perspective, the health care industry as a whole has a net margin [9] of roughly 6%, while the S&P500 average is only about 12%.

Growth expectations for all of 2011 speak to St. Jude's operating consistency. Analyst projections are currently calling for sales growth of 10% to $5.7 billion and $3.27 in earnings per share, a growth of nearly 20%. But these levels of annual increases are nothing new to existing shareholders. In the past five years, annual sales and profit [10] growth have averaged 12% and 21.5%, respectively. The past decade is equally impressive, with annual sales growth of 16% and annual profit growth of 22%.

St. Jude also has a healthy new lineup of devices that will likely drive growth going forward. Included in the new product mix are neuromodulation devices that deliver small amounts of electricity to the nervous system to help treat chronic conditions such as Parkinson's disease and migraine headaches. Its management team estimates 18 new growth drivers should generate $18 billion in additional sales within the next five years.

In terms of archrivals, St. Jude competes against pure-play rivals such as Medtronic (NYSE: MDT [11]) and Boston Scientific (NYSE: BSX [12]). Medtronic boasts a market capitalization [13] of nearly $36 billion, which is close to three times St Jude's market cap of $12.5 billion. But despite an equally impressive lineup of medical devices, its already substantial size is a barrier to double-digit growth. Boston Scientific has a current market cap of less than $9 billion, but has had obstacles to overcome, including the acquisition [14] of Guidant back in 2006, which hamstrung it with too much debt, and manufacturing problems that continued well after the purchase was completed.

Risks to Consider: As Boston Scientific can to, the market for medical devices is extremely competitive. The industry is heavily regulated and, to make things worse, the 2.3% excise tax on medical devices will affect the entire medical device sector. Despite these concerns, St. Jude has developed many market-leading technologies, while diversification [15] overseas should lessen the risk of these new U.S. regulations derailing its overall growth.

Action to Take --> If the coming decade for St. Jude turns out to mirror the past 10 years, then St. Jude's stock is worth more than twice the current share price. I believe I'm being conservative when I project annual cash flow [16] growth of 16% in the next decade. At these levels, the stock would be worth more than $76 per share, or double current levels. This means it's still smaller than Medtronic, which demonstrates just how achievable these seemingly aggressive growth projections for the coming decade can be. With this in mind, investors should consider taking advantage of the stock's current lows, because it is set to bounce back in a big way.

Global Money Supply And Currency Debasement Driving Gold Higher

Gold is trading at USD 1,670.40, EUR 1,216.90, GBP 1,063.81, JPY 128,555.00, AUD 1,643.34 and CHF 1,500.20 per ounce.

Gold’s London AM fix this morning was USD 1,673.00, GBP 1,065.74 and EUR 1,218.05 per ounce.

Yesterday’s AM fix was USD 1,687.00, GBP 1,070.36 and EUR 1,222.02 per ounce.

Cross Currency Table

Gold is marginally lower in all currencies today and appears to be steadying near four-week highs on further evidence of strong consumer demand in Asia. Market concerns about contagion in the eurozone should prevent significant price falls from these levels.

Jewellers and bullion dealers in India and China continue to stock up prior to their various festivals – such as Diwali in India and Chinese New Year in January 2012.

One of the primary drivers of higher gold prices in recent years has been money supply growth in the US and globally and consequent concerns about currency debasement.

Since 1998, increases in the price of gold have been correlated with increases in global M2. If central banks in both the developed and developing world continue to adhere to highly accommodative monetary policies, global M2 should subsequently rise and support a further increase in gold prices, as it has in the past.

Global Money Supply Growth – 1998 to Today
(Eurozone, US, China, Japan, South Korea, Australia, Canada, Brazil, Switzerland, Mexico, Taiwan and Russia)

Developing China’s M2 money supply has been rising by a large 20% and Russia’s by a very large 30%.

Even developed countries such as Switzerland have seen money supply growth of 25%. Japan’s M2 is gradually moving higher after the ‘Lost Decade’ and after recent events exacerbating an already fragile situation.

Global money supply growth is increasing by 8%-9% per annum. Meanwhile annual gold production is less than 1.5% per annum.

We looked at money supply growth and charts regarding global money supply, debt levels etc in a comprehensive article in early August (‘Is Gold a Bubble? 14 Charts, the Facts and the Data Suggest Not’ –… ) when gold was trading at $1,670/oz or much the same price level as today. The charts and conclusions remain apposite.

In order to fight economic problems brought about due to too much debt, debt based paper and electronic currency has been created at historically high levels. There is no sign of this abating any time soon given the scale of the global financial and economic crisis.

Indeed, shuffling debt from one sector to another and creating more debt to deal with what was essentially a problem of too much debt is making the situation worse and leading to currency depreciation and debasement.

Growth in global money supply, U.S. dollar, euro, pound and all fiat currencies depreciation or currency debasement and massive uncertainty in global financial markets and the real risk of contagion will likely continue to lead investors and savers toward using precious metals, and specifically gold and silver bullion, as stores of value and safe havens.

Plays For A Stronger Dollar: DRR, EUO, EWG, EWW, UUP, UUPT, YCS

With the European Union still facing a debt crisis, growth slowing across China, and a host of other economic uncertainty creeping back into the picture, investors have continued to shun risk assets. Everything from emerging market equities to commodities, have seen their asset prices fall over the past few weeks, as the fear of another global downturn takes hold. With that in mind, one of the worst long-term investments could be one of the best in the short term.

The Best House In a Bad Neighborhood
Ultra low interest rates, persistently high budget deficits, quantitative easing programs and major underfunded entitlement programs, are the prime reasons why the U.S. dollar has continued to fall over the decade. However, as the economic problems facing the globe have begun to intensify over the last few months, the greenback has rallied. The U.S. Dollar Index (USDX), which measures the value of the dollar relative to a basket of six specific foreign currencies, has been steadily rising. The index surged nearly 7% in August and continued to rally throughout September. Overall, the USDX saw a nice quarterly gain of 5.8%.

While in the long term the greenback may be toast, in the short to medium term, there is plenty to dollar bullish about. Despite recent tough talk by European officials about taking large measures,to ensure the risk of a default by Greece, doesn't cripple Europe's banking sector, comments by officials later in the week, show many policy makers are reluctant to take such drastic steps. Elsewhere in Europe, the Bank of England has recently spent another 75 billion pounds ($116 billion) in an attempt to stimulate a struggling British economy, through its own easing programs. In addition, as natural resource prices have cratered, strong commodity-based currencies, such as Canada's loonie and the Australian dollar, have softened via the greenback. Domestically, key data for consumer spending, income and inflation has been poor, continuing to boost the dollar further.

In 2008, when the global recession and credit crisis first hit, both U.S. treasuries and the dollar were seen as the "good houses in the bad neighborhood." As recessionary fears continue to take hold, the greenback could be a great medium-term buy at these levels. Overall, analysts expect the recent dollar euphoria to continue until at least the end of 2011.

Bets For a Strong Dollar
While the long term picture isn't that rosy, investors could use the buck's current strength to hedge downside risk and make some medium-term gains. The easiest way to play the dollar's current trend higher, is through the PowerShares DB US Dollar Index Bullish (NYSE:UUP). The ETF tracks futures contracts written against the USDX, and replicates the performance of being long the U.S. Dollar against the Euro, Yen, Pound, Loonie, Swedish Krona and Swiss Franc. For investors looking for more "juice" in their dollar play, PowerShares offers a 3x leveraged version of the same fund in the PowerShares DB 3x Long US Dollar Futures ETN (Nasdaq:UUPT).

Investors also have the option of capitalizing on Europe's continued woes, by shorting the Euro. Both the Market Vectors Double Short Euro ETN (NYSE:DRR) and ProShares UltraShort Euro (NYSE:EUO), can be used as play against the ECB's inability to control the banking crisis.

Finally, investors may want to look at the exporting nations who will benefit from a strong dollar. Exports from a variety of nations will become more competitive as the U.S. dollar continues to strengthen. A weak Euro will benefit Germany's high engineered industrial goods, and Mexican exports to the United States historically grow when the dollar is strong. Both the iShares MSCI Mexico (NYSE:EWW) and iShares MSCI Germany Index (NYSE:EWG) offer exposure to each nation's multinationals.

Bottom Line
Despite the long term downward trend of the U.S. dollar, the currency has seen strength over the last few months. As economic uncertainty continues to persist, analysts expect the dollar to continue rising for medium term. For investors, the previous funds, along with the ProShares UltraShort Yen (NYSE:YCS), make interesting choices to play the trend.

Platinum miners feeling the pinch

Mining pit The fall in commodity prices has led to growing concerns in the mining industry in recent weeks. In large producing countries like South Africa, falling prices could result in mine shutdowns in the foreseeable future, with current price levels in the precious metals sector already putting some companies under pressure. This development is primarily based on rapidly rising costs in the mining sector. Most South African mining companies already require a gold price of $1,600 per troy ounce in order to operate profitably. Platinum markets could be rattled by the future supply situation, since around 75% of all global platinum deposits are located in South Africa.

The decline in platinum prices to a low of $1,500 per troy ounce has already put some of South Africa's mining companies under severe financial pressure. Since costs are rising rapidly, South African producers need an increase in the platinum price. Platinum is at its cheapest level relative to gold in two decades. Gold’s price premium over platinum recently reached as high as 12%. But what market observers call a “favorable price” is always relative and dependent on economic developments. If the gold price remains under sales pressure in the coming weeks, further declines in the other precious metals are likely – perhaps pushing the gold price premium to platinum even higher than 12%. Above all, growing fears of cascading defaults in Europe's banking system or the potential bankruptcy of member states of the European Union have crushed base metal prices in recent weeks. Platinum and palladium suffered from this situation as well since both precious metals are highly dependent on demand from end consumers in the automotive industry.

Should platinum's correction phase last for a longer period, with prices falling below $1,500 per ounce in the coming weeks, South African platinum mines will come under increasing financial pressure. Rising energy and labour costs are a particular problem, with strikes by disgruntled workers demanding higher wages a serious problem. Overloaded electricity networks are the reason for power supply cut offs, which are causing recurring production disruptions.

The depreciating value of the rand against the US dollar is however offering some support for South African mining companies. Despite precious metals' sharp decline in dollar prices, mining companies generate higher revenues in terms of South African rand, which is partially mitigating cost pressures among domestic operators. The entire industry hopes that economic activities will not significantly deteriorate further with the world slipping back into another recession, something that would pressure demand for certain metals and thus knock some of South Africa’s miners. However, potential production cuts and mining facility shutdowns mean that future supply bottlenecks could rattle platinum markets. In the long term this would help platinum prices to gain in value.