Tuesday, November 8, 2011

Stephen Leeb: This Will Drive Silver to $100 Rapidly

from King World News:

With gold trading $37 higher and silver up almost $1, today King World News interviewed acclaimed money manager Stephen Leeb, Chairman & Chief Investment Officer of Leeb Capital Management. When asked about the action in the metals, Leeb responded, “I think gold is just confirming a breakout here. We have clearly had a breakout and I would not be at all surprised to see gold finish the year at $2,000. Investors are slowly coming to believe that QE3 is on the way and with inflation already close to 4%, you are starting to look at very ,very high inflation.”

Stephen Leeb continues: Read More @ KingWorldNews.com

How to Cash In on 7 Billion Humans: MOS, LNN, XON, CHK, DVN, CRL

While investors try to anticipate next quarter’s earnings results or even examine the big picture in Europe, it’s really important to stand back and look at the even bigger picture. It might not be easy, but it’s what top-notch investors like Berkshire Hathaway’s (NYSE:BRK.A) Warren Buffett do. It takes guts and patience, but the payoff can be big.

One thing to look for is secular trends, which can be powerful forces that propel growth. A big one to consider: population growth. On Halloween, the world population hit 7 billion. And according to estimates from the United Nations, it might reach 10 billion by the end of the century.

This mega-trend undoubtedly will have a variety of major impacts on investments. Here are some to focus on:


One of the impacts of global warming is the higher probability of extreme weather events. Examples include hurricanes, droughts, tornadoes and cyclones. Add to that the increasing demand for land for residential and commercial space, and it probably will become increasingly difficult to boost (or even maintain) agricultural productivity. To deal with this, farmers will look for things like next-generation fertilizers, which can work better in tough environments.

A top company in the industry is Mosaic (NYSE:MOS). It ranks No. 1 for the production of phosphates and No. 3 for potash. More importantly, the company has tremendous barriers to entry because the number of deposits are concentrated in a few areas.


When a doctor removes life support for a patient, he or she can live up to two weeks without food. But without water, death will come in a couple days. Gruesome stuff, but humans’ obvious need for water is something to consider as the world’s population is putting enormous strain on the usable water supply.

There are some solutions, such as investment in irrigation, which reduces waste and helps provide cleaner water. A top company in the sector is Lindsay Corp. (NYSE:LNN). Founded in 1955, it manufactures equipment to help conserve water and lower energy and labor costs. Lindsay Corp. also has been pushing innovation through GPS systems and smartphone applications.


People cook food, heat their homes, drive cars and use computers increasingly more for both work and play. All this takes energy, plain and simple. And more people means a need for more energy. Obvious plays include companies like Exxon Mobil (NYSE:XOM) and Chevron (NYSE:CVX). Given the difficulties of finding new reserves, these companies should continue to see growth in revenues for years to come as prices of crude continue to rise.

But the fact is oil will run out, and to power the world, we need to find alternative sources of energy. One good prospect is natural gas. Over the past decade, energy companies have made great strides in using unconventional approaches — like fracking and horizontal drilling — to extract this resource from shale. Already, companies like Exxon have invested heavily in the category, such as with its $41 billion acquisition of XTO Energy in 2010.

To play the industry, consider companies like Chesapeake Energy (NYSE:CHK) and Devon Energy (NYSE:DVN), which hold substantial reserves — and also might be attractive buyout candidates.

Health Care

A key part of the growth in the population has been an overall increase in life expectancy. But as people get older, to keep them older, they will require more health care.

Certainly, a variety of stocks will benefit from the trend. But when looking for a solid investment, it is a good idea to look at companies with strong barriers to entry. Charles River Laboratories (NYSE:CRL) is an example. For decades, the company has built a solid customer base and infrastructure that helps drug makers speed up drug discovery and deployment through services such as research models and development support. As pharmaceutical operators look to replace the drugs that will come off patent over the next decade, Charles River should be a big beneficiary.

A Three-Year Plan to Achieve Financial Independence

By Mark Ford, editor, The Palm Beach Letter
Saturday, November 5, 2011

We recently received an e-mail from Jorge Izquierdo, Jr., a subscriber who complained that "all the material being covered [in The Palm Beach Letter] is for long-term investing. What about short term? I've been trying to free my family and myself from the chains of slavery for far too long now. Show me the truth."
Behind Jorge's question lies the assumption that it is possible to acquire wealth through some "short-term" investment strategy.
As I've explained before, it's simply not possible to quickly turn, say, $25,000 into $1 million by investing in stocks. But I have good news for Jorge. He can unshackle himself from "financial slavery," as he calls it, in a relatively short period of time.
Jorge – or just about anyone for that matter – can achieve freedom from financial slavery in just a few years. It does not have to be a lifelong process.
If you are in this situation, here is what you must do...
First, you must ask yourself if you are willing to give up the hope of getting rich quickly by investing. Are you willing to accept the fact that you won't go from broke to being a millionaire by investing in the next Microsoft? If you can't honestly and completely answer "yes" to that question, you might as well go read another analyst... one who will tell you what you want to hear.
But if you are ready, the next thing you need to do is think about what you mean by "financial slavery."
What does that term mean? Most commonly it means two things:
• You earn less than you spend.
• You owe more than you own.
If you earn less than you spend, you are in a constant state of stress. You must put off or partially pay your bills. You must appease creditors. And all the while, your debt is mounting.
If you owe more than you own, you can't buy a house or lease a car or get a loan from anyone other than your parents. (And what if they are dead or tired of helping you... or don't have the money?)
Because you are in so much trouble, you can't even think about taking nice vacations or retiring someday. Instead, you have to worry about losing your job. So you keep working and reading investment newsletters. But as each month passes, your financial situation gets worse.
It's a miserable existence. But it doesn't have to last. You can break the chains you feel attached to by simply recognizing and reversing the two "facts" mentioned above.
Problem No. 1: You earn less than you spend. Solution: Spend less and earn more.
You can't break the chains of slavery without hitting them hard with a big mallet. You won't be able to gain the independence you want in a few years or less by cutting $10 here and $50 there.
My recommendation is to cut your expenses by 30% to 50%.
I know that sounds crazy. And it may be impossible in your case. But don't dismiss the idea until you hear me out.
The primary factor in how much you spend every month is the neighborhood you live in. Your neighborhood creates the financial culture that presents the spending choices you make. If you live in a community of million-dollar homes, you will be looking at new BMWs and Audis when it comes to buying or leasing a car. When you go out to dinner, chances are, you'll be spending more than a hundred dollars per couple.
Unless you live in a working-class neighborhood now, you can radically reduce your spending by moving into one.
I have friends and family members in this situation. They live in $350,000 homes in beautiful neighborhoods and drive luxury cars. But the reality is they are broke and getting poorer every month. They refuse to even consider the idea of downsizing, because they are simply too ashamed to do so. What they don't realize is every month they try to "hold on," it is making them poorer.
Moving to a less expensive neighborhood would be the quickest, biggest, and surest way to bring their spending down by 30% to 50%.
The other thing you must do to improve your situation is to earn more money. You should take immediate steps to increase your income by 20% to 50%. Again, I know that seems radical, but if you want a "short-term" solution out of financial slavery, this is just as important as radically cutting expenses.
Problem No. 2: You owe more than you own. Solution: Start owing less and owning more.
If you have accumulated a lot of debt, it means that you don't see debt as financially dangerous. You must accept the fact that most debt you have is bad for you. There are only a few exceptions: mortgage debt when interest rates are low, and business debt when the business is sound and you are not personally liable.
The first step toward debt management is to get rid of every credit card you have, as well as any credit you have with your bankers. Use cash or debit cards for your shopping. Yes, that means there will be lots of things you can't buy every month. That's a good thing, not a bad thing.
If you have a lot of existing credit card debt, you need to consolidate it. Then work with a professional to pay it off at reasonable interest rates.
If you are lucky enough to have equity in your home, trading it for a cheaper one (see above) will accomplish two important goals: it will reduce your monthly expenses, and it will give you a chunk of cash that you can use to pay off debt or put aside as savings.
You must also increase what you own. And by that, I do NOT mean cars or boats or furniture or toys. I mean tangible assets that are likely to appreciate. Gold coins, income-producing real estate, and safe stocks belong in this category.
Every extra after-tax dollar you make by taking on extra work or starting a side business should be devoted to increasing your ownership of such assets. None of it should be spent.
Being financially independent is not about having a big house or driving new cars or taking fancy vacations. There are tens of thousands of Americans in that situation today who are financial slaves, just like you. They are in chains because they spend more than they make and owe more than they own. Their stress is just as great as yours, even though they may make more money or have more toys.
Being financially independent means having more income than you need and owing far less than you own.
It means knowing that you won't be harassed by bill collectors or embarrassed at the supermarket. It means you have money put aside to take care of any emergencies that come up, and it means a savings account that gets substantially bigger every year.
Becoming a multimillionaire takes years. But breaking the chains of financial slavery can be done relatively quickly.
The hardest part is recognizing the chains that are binding you – earning less than you spend and owing more than you own – and deciding to do something serious about them.
Jorge, you have the plan in front of you now. It's up to you whether you follow it.
Mark Ford

P.S. If you're not happy with your financial situation, you're in the perfect position to change it for the better – right now. I've just recorded a special video from my office that covers five profit plays you can use to start growing your wealth. To watch this short video, click here.

3 Stocks Peter Lynch Would Buy: AFL, ACE, AAP

Whenever I do a stock screen, I always make sure to do my “Lynch Screen” to see if stocks that utilize legendary mutual fund manager Peter Lynch’s criteria turn up anything interesting. I don’t always leap at every stock the screen turns up. I use it as a starting point to see if the stocks have a place in my portfolio. Today, my screen turned up three interesting names that merit further attention.

I started quacking like a duck when I saw the first name was Aflac Inc. (NYSE:AFL). It scored on one of my main criteria when evaluating any stock — the yield-adjusted PEG ratio. It’s calculated by taking the P/E divided by the sum of growth rate (average of three, four and five years out) plus dividend yield. I want this number to be less than 1.0, which indicates possible value. Anything under 0.5 is a screaming “buy,” and in this case, Aflac comes in at 0.49. Another part of the screen is that EPS must be positive, which it is.

For a financial company, Lynch requires the equity-to-assets ratio to be above 5%, and Aflac’s is at 11%. One can measure a financial’s profitability based on its return on assets, which is at 1.75%, above Lynch’s 1% minimum.

There are two bonus categories: free cash flow and net cash. If FCF-to-price ratio is above 35%, and net-cash-to-price ratio is above 30%, the company looks all the more attractive. Aflac doesn’t quite cut it here, with 8.65% and 10.2%, respectively. I also like that it is a brand name and is an insurance business, which historically is a good business to be in. Free cash flow consistency also is important to me, and Aflac’s has been remarkably consistent over the past few years.

Wouldn’t you know it, but another insurance company passed the screen. ACE Limited (NYSE:ACE) deals not only in all the standard insurance products, but also more exotic lines likes political risk, marine, energy and aviation. It also has a global reinsurance unit. Plus, it’s Swiss. I love the Swiss because they tend to be very precise in things like underwriting and financial management.

ACE did very well in the recession and, according to Lynch, could return as much as 50% given its stalwart status and earnings growth of 12%. Yield adjusted PEG is 0.96 — not a screaming “buy” but slightly cheap. EPS is positive at almost $7 per share. Equity-to-assets ratio is a health 27%, while ROA is at 2.15%. No bonus points on FCF or net cash, although those numbers are good and FCF has been very consistent year to year.

The final choice is not an insurance company, but is in a sector that certainly benefits from insurance: auto parts! Advance Auto Parts (NYSE:AAP) is massive — it has 3,369 stores in North America. The company did just fine during the recession and came roaring out of it. Its growth rate is stellar at 17%, giving it a yield-adjusted PEG of 0.88. The total debt-to-equity ratio of 74% is high for this screen, but it has a 1.2% net-cash-to-price ratio and 7.9% FCF-to-price ratio. These, plus the fact that it regularly pumps out a half billion dollars in free cash flow every year, compensate for that higher debt-to-equity ratio.

Of these, dividend investors also might like Aflac, as it pays 3% versus 2% for ACE and 0.4% for Advance. Of course, these are just a few criteria. You must check to see if they have a place in your own diversified portfolio.

Pepe Escobar : Italy Too Big to Fail, Too Big to Save?

Pepe Escobar
not even China and Russia could save the eurozone at this point , Italy is just too big to bail ..... Italy has much more systemic implications than Greece, its debt is larger than the rest of the periphery put together, it is too big to fail, too big to save and and to make things even worse it has a government that has not succeeded so far to have the credibility of the markets on its reform program .Countries are getting screwed up because they don't have enough paper.... Truly this is insane. THIS PLANET IS RICH WITH RESOURCES ! The Current predatory monetary system is the greatest threat to human freedom, world peace, and environmental harmony, and must be abolished.This is the The Rape of Europe by the IMF and the International banking cartels. We are witnessing the fall of Western civilization.

Nygren on a “Once-in-a-Generation” Opportunity

Top value fund manager Bill Nygren says that investors should stop paying attention to every zig and zag the stock market makes, and instead take advantage of a “once-in-a-generation opportunity” in equities.

“We believe investors currently have a once-in-a-generation opportunity to use asset allocation to add to their investment returns,” Nygren tells Morningstar. “Stocks appear to be significantly undervalued relative to bonds.” But, he adds, many investors continue to shun stocks and buy bonds, mistakenly believing that bonds will return as much in the coming decade as they have in the past decade — something he says is a mathematical impossibility given the current low bond yields.

Nygren also says investors should stop hyperfocusing on every move the market makes. “The financial media have business reasons to make investors believe they need to follow every zig and zag of the market and of their portfolio,” he says. “But one doesn’t need to, and for some investors, the more they look, the more nervous they get. It is not only unnecessary, it is counterproductive.”

Nygren says that companies have built up larger stockpiles of cash than are necessary, because the memory of the 2008 financial crisis and liquidity crunch still lingers. “Companies today are underearning because of their excess liquidity,” he says. “We estimate that the S&P 500 P/E could be a point lower (11 instead of 12) if companies simply returned their balance sheets to historically normal debt levels. … One of the reasons we are more optimistic is that we believe that outlook ignores the EPS growth we will see as corporate excess liquidity gets invested.”

And just because capital spending is expected to produce subpar returns, that doesn’t mean companies won’t invest that excess liquidity, he says. They can and will do so through share buybacks, dividend increases, or acquisitions.

Nygren says large-cap stocks are now offering better value than smaller stocks. Given their advantages in terms of liquidity, access to global markets, and stability, he says large-caps should sell at a premium of about 15% to small caps; currently, they sell at about a 15% discount.

Morgan Stanley Says Europe's Pandora's Box Has Been Opened

Have a sinking suspicion that the way the Eurozone has handled the past week's Greek threat has set the stage for the collapse of the Eurozone (here's looking at you Italy, over and over) now that Merkozy has made the possibility of a country leaving the Eurozone all too real? You are not alone: Morgan Stanley's Joachim Fels has just sent a note to clients in which he not only commingles three of the catchiest and most abused apocalyptic phrases of our time ("Emperor has no clothes", "Water Pistol not Bazooka" and "Pandora's Box") he also warns, in no uncertain terms, that "by raising the possibility that a country might (be forced to) leave the euro, core European governments may have set in motion a sequence of events which could potentially lead to runs on sovereigns and banks in peripheral countries that make everything we have seen so far in this crisis look benign." And when a major investment bank, itself susceptible to bank runs warns of, well, bank runs, you listen.

Full note (highlights ours):

The Emperor has no clothes. This coming week markets are likely to continue to grapple with the notion that the ‘comprehensive solution’ presented after the EU Summit on October 26 is neither comprehensive nor a solution. First, bank recapitalisation was always about curing the symptoms rather than the disease – sovereign risk. And by giving banks until mid-2012 to meet the capital ratio target, governments have likely set in motion a wave of deleveraging that could have severe economic and market consequences. Second, the leveraged EFSF may still turn into a bazooka, but so far it looks more like a water pistol. We continue to doubt that investors will find the insurance and SPIV constructs appealing, and as the G-20 meeting this Thursday and Friday made clear, non-European governments also stand to be convinced that co-investing with the EFSF make sense. But perhaps euro area finance ministers will unveil some more reassuring details on the construct after their meeting this Monday/Tuesday – don’t hold your breath though. Third, the Greek political saga continues and even though the prime minister won the confidence vote in the early hours of Saturday, the second bail-out and debt restructuring package still needs to be approved and likely new elections late this or early next year could spring additional uncertainties. And fourth, but not least, while the ECB cut rates on Thursday, ECB President Draghi made it clear in the press conference that the bond purchase programme remains temporary and limited (see the quote of the week below), suggesting that hopes for large-scale monetary financing remain just that, at least for now.

Another Pandora’s Box opened? However, my main takeaway from last week and my main worry for the weeks and months ahead is that Chancellor Merkel and President Sarkozy, in response to the idea of a Greek referendum on the bail-out package, raised the possibility of a country leaving the euro – so far a taboo in European political circles. This is the second time in less than four months that European leaders could have opened a Pandora’s Box: on July 21, the decision to involve the private sector in the Greek bailout signaled that euro area government debt is no longer risk-free and thus sparked massive contagion into Spanish and Italian debt markets. This past week, by raising the possibility that a country might (be forced to) leave the euro, core European governments may have set in motion a sequence of events which could potentially lead to runs on sovereigns and banks in peripheral countries that make everything we have seen so far in this crisis look benign. But maybe I’m too pessimistic after another long week.

And what is even more disturbing is that Germany itself is now demanding a referendum. According to Welt, 71% of Germans want a referendum, and want to to vote directly on important decisions for Europe and the Euro. Only 27% oppose the motion. And the same poll has found that 63% of Germans think Greece should be kicked out of the Euro, with just 32% believing the country can still be saved.

The Dollar is Done - Deal with It

Silver Stock Report

by Jason Hommel, November 7th, 2011

Psychologists tell us that there are five stages of grief over loss of whatever kind, usually death, or breaking up with a loved one, which are: denial, anger, bargaining, depression, acceptance. I've applied these to the loss of the dollar, as I see most people today are still stuck in denial, and here's how to deal with that.

Denial. Most people in America are in total denial. But the dollar is done. Most probably don't think it's done, because we all still use dollars to buy things. But do you notice prices going up? That's the key sign that the dollar is done. The dollar is abandoning you, the dollar does not care about you, and you have to deal with it. People in denial will repeat the many lies taught to us all by the media and schools. The most popular of these delusions are, in order, "gold is too high now," "how would I sell it," "gold bugs are crazy," "I'm not sophisticated enough to invest in gold," and the classic denial line, "I don't want to hear anymore about gold."

I've actually researched over 100 gold bashing nay sayers, and gathered together all the most popular statements of denial, which you can see, here: http://silverstockreport.com/2009/bashers-say.html

Back in Dec. 2009, the most popular statement of denial was "gold is too high now", and that was when gold was $1200/oz. Today, almost two years later, gold is $1785, and climbing. Clearly, everyone who thought gold had topped out were simply in denial.

To get past denial you must accept the truth of sayings such as, "democracy is two wolves and a sheep voting on who to eat for dinner", and realize that our founding fathers never gave us a democracy, but rather, a republic, because they hated democracy, which is nothing more than mob rule. Democracies are inherently unstable, because when the people understand that they can vote for themselves benefits out of the public treasury, then it's over. Why is it over at that point? Because with socialism, eventually you run out of other people's money to redistribute. And then, to pay for things, the only way to do that is to print money, which will destroy the dollar. America hit all those points back in 1933. That was a long time ago, and that's when we abandoned the gold standard. You should also realize that Obama is not as scary as the electorate who voted for him in the first place. Obama may come and go, but the stupidity of our fellow Americans is probably still with us, don't deny it. Acknowledge reality, accept it, and deal with it. Best way to cope? Start buying silver, or work past the next stages of grief.

Anger. Very few of my readers have hit the anger stage. Not even many prospective silver or gold buyers have hit this stage. Some anger is out there, as it's manifesting itself in the Tea Party movement, and now in the Occupy Wall Street movement, but those are still very small movements. They will get bigger. To get past the anger stage, move towards feelings of pity. Pity those who are not smart enough to buy silver, because they are the ones who will be wiped out. Pity even the bankers with their billions and billions of dollars, because the silver market is still too small for them to buy into it, and as deceivers, they are self-deceived, too. Pity them. But you won't be wiped out, because you have silver, right? Right?? Well, not many in the Tea Party or Occupy Wall street movements have silver, but that's because they are still stuck in the anger stage. Get past it. Buy silver.

Bargaining. This is not about using silver to bargain for things. It's about thinking you can fix things. At this stage, you may think that you can get involved in politics to try to fix the dollar. Nope. It's way beyond that. Donations to Ron Paul's campaign will not save the dollar. In fact, Ron Paul might help to destroy the dollar even faster, even if he is capable of reducing government spending. But even if Ron Paul were to become president, there is still congress, who would keep spending, and who is a reflection of the will, the selfishness, and the delusions of the American people. Or, perhaps you may think that you can find numerous investments that will outpace the decline of the dollar, so that you can buy more gold and silver. Well, I certainly thought this way for a while. Occasionally, I still do. But overall, the dollar has to decline against something, and that something is really just gold and silver. To get past the bargaining stage, invest over half of your assets or net worth into silver and gold.

Depression. This is not about economic depression, it's about your feeling depressed and sad over the death of the dollar. Many people erroneously believe that if the dollar dies, there will be economic calamity (because that's the lie that supports the dollar), but recent history shows that's not true. After gold went up in 1980, it was economic boom times, as so much fraud was wrung out of the system. Also, when the dollar really dies, many people who were on the dole will become despondent. Many people who receive government entitlements do not feel they are on the dole, they really feel entitled to the money; they are still in denial, and still voting to make sure they get the handouts like social security, etc. Hey seniors, social security is bankrupt, congress raided the funds years ago, and there is zero money backing it up these days; they are printing new money to pay you, and this won't last forever. When that flow of funds is cut off, people are going to be depressed, and until they get jobs, so will the economy. To help deal with that stage, buy silver. If you are on any sort of fixed income, or government assistance, you need to buy silver more than anyone else, because silver will keep you fed when the flow of funds is cut off.

Acceptance. Eventually, you will realize that we will all be better off without the dollar. Debts will be wiped out. Banks and usury slavery will collapse. Government size, largesse, corruption and theft will dramatically decrease. Businesses will flourish. It's not like after war, when entire cities, buildings, and people will be destroyed; but rather, ownership of assets will simply change hands, and life will go on. A lot of people "on disability" have tried to get a job working for me. Most people can work, they just don't want to, especially if they don't have to. Older people actually live longer if they keep working. Retirement is a cruel joke. I could have retired 7 years ago, but why? It's more important to keep helping people. Ministry, service, & working keeps you young, keeps you going, gives life meaning and purpose. The dying dollar can't be saved. But individual people, who have stacks of dollars, still can be saved; just get them into silver! So, I hope you can see why I've opened up a bullion dealership. Next best thing to doing that, is to share this article with one of the deniers!

The Municipal Bond Market is Imploding

Moody’s Credit Rating Service just announced the ominous trend that credit quality in the municipal bond market is falling at the fastest rate since the collapse of Lehman Brothers in 2008. Data released showed that 5.3 times as many municipal bonds were credit downgraded over the three last months than were upgraded. Moody’s emphasized that: “Downgrades dominated rating revisions across all public finance sectors except for healthcare,” said Assistant Vice President-Analyst Dan Steed, author of the report. “A rapid deterioration in credit metrics led to a higher-than-average 14 multi-notch downgrades.” Often sold to individuals as “conservative investments with tax free income”, munis in states like California, Illinois, New Jersey, and Pennsylvania are increasingly looking like high risk rolls of the dice.

This credit implosion comes after a sustained period when muni bonds were performing much better than corporate bonds. During the credit crisis; corporate bonds prices dropped by 30%, while muni bonds suffered very modest losses. The main reason for this stability was bail-out money showered on state and local governments by the Obama Administration. But fed money has dried up and property reassessments are falling for the first time since the 1970s. Strains on core operating expenses and revenue sources will likely persist, according to Moody’s: “This will be mostly due to economic stagnation, high unemployment, declining home values, and low consumer confidence,” said Steed. “We expect downgrades to continue exceeding upgrades in upcoming quarters.” This is polite ratings speak for: “duck and cover”.

The state revenues fell by $14.3 billion, even as the national economy has seemed to stabilize. The quarter ending September 30th saw 163 ratings reductions, the second highest 90 total in history. Over 100 of those downgrades were cities and school districts where falling property-tax collection is playing catch-up on the downside to the 30% fall in real estate values.

John Dillon, chief municipal-bond strategist at Morgan Stanley, said after a downgrade: “Usually management snaps to attention.” To stay solvent states and localities have tried to cut costs and raise revenues. Most have delayed infrastructure projects, increased garbage collection fees, and even closed parks. But raising property taxes awakens taxpayer vengeance and threats of recalling local politicians. Anne Van Praagh, managing director at Moody’s, said fiscal conditions of some local governments can deteriorate more quickly now than in previous recessions. Moody’s recently cut seven states or localities by three grades or more.
Fresno, California’s fifth-most-populous city, two weeks ago had $477 million of their debt “super-downgraded” three levels by Moody’s and is under a “negative” outlook for the risk of further downgrades. Moody’s emphasized city’s budget gap is so large due to a “weak economic base, with unfavorable demographic and economic trends,” and the city lacks “ability to absorb additional budgetary pressure.” Furthermore: “Like all California cities, Fresno’s ability to raise revenues is highly constrained; its primary budget balancing option is cost reduction”. This is ratings speak for: property collection may fall 20% and the city must fire police and firemen.

The neighboring City of Stockton looks even worse. Following a Securities & Exchange Commission filing; the city admitted they will probably be the first in California to default on redevelopment agency bonds. Long criticized as crony capitalist honey-buckets; developers lavished huge donations across the state to gain access to tax free city financing of mega-projects with no-money-down. After the agency debt was downgrade to “junk”, Stockton optimistically stated they only expect a 3.17% drop in property values for 2012. Good Luck on that number!

With muni bonds generally in the hands of older citizens, there has not been the panic selling by institutions when bonds are downgraded. But many individuals have their entire life savings in municipal bonds. When defaults become a reality, the press will run endless stories of tearful traumatized seniors and cringing corrupted politicians. Then there will be panic!

US poverty at new high: 16 percent, or 49.1M

A record number of Americans -- 49.1 million -- are poor, based on a new census measure that for the first time takes into account rising medical costs and other expenses.

The numbers released Monday are part of a first-ever supplemental poverty measure aimed at providing a fuller picture of poverty. Although considered experimental, they promise to stir fresh debate over Social Security, Medicare and programs to help the poor as a congressional supercommittee nears a Nov. 23 deadline to make more than $1 trillion in cuts to the federal budget.

Based on the revised formula, the number of poor people exceeds the record 46.2 million, or 15.1 percent, that was officially reported in September.

Broken down by group, Americans 65 or older sustained the largest increases in poverty under the revised formula -- nearly doubling to 15.9 percent, or 1 in 6 -- because of medical expenses that are not accounted for in the official rate. Those include rising Medicare premiums, deductibles and expenses for prescription drugs.

"As seniors choose between food and medicine, some lawmakers are threatening lifeline programs that provide a boost to those in poverty or a safety net to those grasping at the middle class," said Jo Ann Jenkins, president of AARP Foundation, which represents the needs of older Americans. "With nearly 16 percent of seniors already living in poverty, our country cannot afford to slide further backward."

Working-age adults ages 18-64 saw increases in poverty -- from 13.7 percent to 15.2 percent -- due mostly to commuting and child care costs. (more)

4 Short Squeeze Earnings Trades: TTWO, SODA, NVDA

After a huge rally in stocks in October has come a volatile and slightly down November, and right now, plenty of investors are betting against the market and the economy. Specific names like Green Mountain Coffee Roasters (NASDAQ:GMCR), Netflix (NASDAQ:NFLX) and Research In Motion (NASDAQ:RIMM) have been under attack from short sellers for some time.

We clearly are at a tipping point with both the market and the economy. Too much debt and high unemployment are taking their toll on consumers. Though spending has held up relatively well, it is reasonable to assume that it will not at some point in the future.

On the flip side, corporate profits have been strong and growing at a double-digit pace this year. Does it really make sense for stocks to be flat over the past 10 months of trading? It does if the future is bleak. Essentially what we are seeing is a collapse in the price-to-earnings ratio of the market given the uncertainty of future profit growth.

Remove that uncertainty, and we can see what stocks are capable of doing. Moves to the upside can be explosive. The best places to find those herculean moves are stocks that have plenty of doubters — in the form of short sellers.

Here are four stocks that could see a short squeeze when they report earnings this week:

Take-Two Interactive

Video game titan Take-Two Interactive (NASDAQ:TTWO) releases earnings after the bell Tuesday. Short sellers are not optimistic about the numbers, but those selling TTWO stock have been big losers since the end of August. Take-Two shares are up 45%, recovering most of the value lost during the July market plunge.

Despite the gains, Take-Two still has plenty of nonbelievers. As of Oct. 14, 13.9% of shares outstanding were being sold short. That is a hefty number and could provide fuel to the bull move for TTWO if it provides a strong earnings report.

In the last quarter, Take-Two missed expectations by seven cents per share. For the quarter ending Sept. 30, Wall Street is looking for the company to lose 57 cents per share. Ninety days ago, the expectation was for a loss of only five cents per share. The drastic change shows sentiment might be too negative.

So far, revenue numbers in the video game industry are growing nicely. Take-Two might lose money in the period, but it won’t be as bad as the shorts expect.


SodaStream (NASDAQ:SODA) is poised for rapid growth. SodaStream, capitalizing on the beverage market, allows consumers to make beverages from the comfort of their own home, and its model is actually somewhat similar to Green Mountain.

That said, SodaStream still is in the very early stages of its development. The company has yet to reach the tipping point with the market in the same way Green Mountain has. Of course, that has not stopped bullish momentum investors from bidding up shares. Prior to late July, SodaStream was up nearly 150% since last November.

Those gains were a bit premature. In the last earnings report, SodaStream beat Wall Street expectations but kept guidance level. That, combined with a bearish market, was enough to send investors fleeing to the exits. Today, SODA stock trades for just about where it was priced one year ago.

As of Oct. 14, 6.5 million shares were held short out of a total 13.5 million shares outstanding. That is a huge — and undeserved — short interest. With SodaStream selling products at Bed, Bath & Beyond (NASDAQ:BBBY) and rollouts expected at behemoth retailers Wal-Mart (NYSE:WMT) and Target (NYSE:TGT), sales are likely to explode.

For now, Wall Street is looking for the company to make $1.06 in the current year, growing 25% to $1.33 in 2012. At current prices, SodaStream trades for 33 times current-year estimated earnings. If the company gets more optimistic with its forecast when it releases earnings before the bell Wednesday, watch out! (more)