Thursday, November 24, 2011

The Ultimate New Normal Stock: BA

Boeing Company (BA) is the ultimate New Normal company and stock. Remember, the New Normal is characterized by slow to negative growth in the US and Europe, reduced government spending in both regions and much more robust growth in emerging economies. (See my article on the New Frugal Stock).

You all know Boeing, have sat in the company’s planes, watched their Dreamliner be late, be late again and be late yet again, and again. It is late no longer. That is at the core of the company’s fundamentals – a new product that will generate real world, positive cash flow immediately and positive cash flow and profits in several quarters.

The backlog is 495 units and the company has publicly committed to keeping it at that size – putting a new order in once a plane comes off the line. This stabilizes costs.

Wall Street knows this – but it is also afraid of the impact of a failure of the Super Committee on defense spending including the funds that flow towards Boeing. That worry is overblown.

And Wall Street is ignoring the potential upside impact of two revamped versions of the company workhorse, the 737. Well, not ignore – undervalue is a better term. The company announced today a deal to sell more than 200 of these planes to Lion Air of Indonesia, worth more than $20 billion. They will sell thousands, not hundreds of these plans, to emerging airlines and economies in Asia, Latin and South America and Africa.

Do you want to play New Normal emerging markets?

Boeing is one way to do so. They have competitors in this market – Airbus, now struggling a bit as their offerings are not as competitive as Boeing’s except due to state subsidies that may erode with the euro crisis and Embraer-Empresa Brasileira De Aeronautica (ERJ), a Brazilian outfit that announced last week they are not going after that market after all, finding it too expensive to develop a new plane to compete.

About Airbus – they are the only real competitor to Boeing in the Dreamliner and the 737 market – no insult to Bombardier (BDRBF), I like your planes, was just on one, but you need more overhead space in the next generation. And they are directly and indirectly subsidized by European governments. And these subsidies, at their very best, will not grow and in reality will probably be reduced due to the euro crisis and the austerity packages being put in place everywhere. This gives Boeing more opportunities to sell – and sell profitably – more airplanes.

About defense spending – fears are overblown. Boeing has less exposure to the big weapons programs that will be hit the hardest, such as the F-35 made by Lockheed Martin (LMT). Last week Boeing’s CEO said the company’s cost structure is being revamped on the assumption the Pentagon is asked to cut a trillion bucks over the next ten year and I believe him.

Risks? To the company, few other than a worldwide Great Recession. I believe there will be a regular recession in the US and Europe. To the stock, the market – Boeing will trade with movements of the S&P 500 for extended periods of time.

A general downturn will push the stock down. The stock has been flirting around $65, this is a good entry point but take your time. I expect the stock to double in five years or so and if you sell calls and re-invest the cash plus Boeing’s dividends that doubling in value will happen a lot faster.

Conclusions: Boeing is not going to double sales in a year – it is a medium growth company with a medium sized dividend (2.5%). But it is facing excellent growth for an industrial company because its new products save money. And that is the key – airlines and airplane leasing companies can borrow at very low costs and are locking in capital commitments while rates are low.

Why? These new products save a lot of fuel per passenger mile. This gives them a once in a generation opportunity to access cheap capital – their balance sheet – to significantly reduce operating costs-their income statement.

Bottom line: I believe Wall Street is way too cautious about growth for the Dreamliner and the 737 product line. It is far too pessimistic about defense cuts. It’s time to build a new normal position in Boeing.

Sprott Goes For The Silver Fences

Eric Sprott’s PSLV filed a prospectus, as he is required to do, with the intent of purchasing $1,500,000,000 of physical silver for the PSLV. (Click to download the propectus.)

“Though there are a lot of factors at play, such as a volatile silver price, the recent movement could have something to do with Sprott’s recently filed prospectus for a new offering of up to $1.5-billion of new Physical Silver Trust units. For the longest time Eric Sprott had been holding off on such a filing, telling the Globe in May that “there will not be an offering that negatively impacts the premium on the PSLV.” (Source.)

While this is a very exciting development for physical silver holders, I remain very skeptical about if this will really come to fruition. I believe Mr. Sprott is well intentioned and really intends on doing the deed, there is just not enough metal to deliver and I am quite sure heavy pressure will be brought to bear on Mr. Sprott to stop this date with destiny. The counter party to physical silver is a group of criminal men who trade the paper form of it to control the world’s resources. When you read the true story about the Hunt Brothers, the Federal Reserve, SEC and Treasury had daily briefing on the Hunts and rigged the game to break their backs. Mr. Sprott has been very wise not to use debt or leverage to make this move, but I know these guys are not going to give up the ship without a dirty fight.

I would like to suggest to Mr. Sprott that he keep hitting singles instead of a huge spectacle buy. I know, I know, you are all saying he should just go for it. If you knew the kind of scum he was up against, and you cared about Mr. Sprott, you would encourage that too. If he goes for the gusto and stands for 50 million ounces when there is on 32 million in the Registered Vaults (if you believe that..) he runs the risk of being branded a “market manipulator” and bring the dog howls of bureaucrats, pundits, and politicians. If that does not work, I am sure other under handed efforts will be made to stop reality from setting into the world’s markets.

“You cannot solve a problem with the same consciousness that created the problem.” -Albert Einstein

I hope he does a great majority of his purchases outside of the CRIMEX and go right to the miners and refiners and even overseas. By Mr. Sprott simply participating in the rigged CRIMEX market, he gives it legitimacy. It is a crooked casino and should not be played in. Starve the beast of your time, attention and money. He would be much more effective and wise to do a majority of the purchases in the free market and deal with the miners themselves. (Many of which he already has interest in…)

Couple this silver development with the EU debt crisis, the super fail of the Super Congress, MF Global scandal and 2.7 million ounces leaving the Eligible CRIMEX vaults yesterday, does any one still doubt that one day the whole world will change like a thief in the night?

This is also timed with the largest cup and handle bull market chart I have ever seen. 30+ years in the making for silver to finally break $50 an ounce. We only probably need to break $36 or $40 for the rockets to start roaring again, this time for good.

If you are behind the curve on why you should sell every paper asset you have, right now and buy physical silver, I have create The Ultimate Silver Investor guide with 18 FREE reports. This is for you to have total confidence to take massive action to secure your generational wealth. (Click here for the reports.)

An example of a Cup and Handle chart

Can you name me any asset that is still 30% below what it was in 1980???

Break that handle and let's get this party started!

More Bang for the Buck with Silver

What has happened to gold?

Have you ever held a basketball underwater in a swimming pool and let go? It flies to the upside and pops you in the nose. That is exactly what gold is doing now. After the barbarous relic peaked at $1,922 on August 24, it traded like an absolute pig, giving up 20% in a matter of weeks. I managed to coin it with a couple of quick in and out trades in SPDR Gold ETF (GLD) puts, some doubling over a weekend. So much for gold as the “safe asset” theory.

You can thank hedge fund titan, John Paulsen, for the action. John gained international notoriety when he earned a $4 billion bonus after making huge bets against subprime loans going into the housing crash.

Since then, his touch has grown somewhat icy. He started out 2011 with a huge, bullish bet on US banks, a play, I confess, I never really understood. This was back when Bank of America (BAC) was trading at a lofty $14/share. As a hedge, he backed up these gargantuan positions with big holdings in gold, which quickly made him the largest owner of the ETF (GLD).

John’s P&L held up reasonably well during the first part of the year. As the banks faded, gold went from strength to strength, limiting his damage. That all changed on April 29 when global financial markets flipped into “RISK OFF” mode and gold melted along with everything else. Its hedging capability proved to be nil. By August, John’s losses approached a near death 50%.

Needless to say, his investors failed to see the humor in the situation, and rumors of cataclysmic redemptions started sweeping the street. By implication, this could only mean large scale liquidation of the yellow metal. This was happening when the rest of the hedge fund industry was catching daily margin calls, forcing them to dump even more gold into a downward spiral, their best performing holding for the year. When the sushi hits the fan, you sell what you can, not what you want to. By the time the carnage ended, gold was down $392.

When the crying was over, Paulson had reduced his ownership in the ETF (GLD) from 31.5 million shares to 20.3 million. That’s a haircut of $1.76 billion of the shiny stuff. In the end, Paulson says he only suffered redemptions of 10% of his somewhat reduced funds, much lower than expected.

Gold actually anticipated the new “RISK ON” trade by a week, bottoming on September 26. Since then it has behaved like a paper asset, tracking the S&P 500 almost tick for tick, adding a quick 19.6%. So, what’s up with gold?

As we approach yearend, the downward pressure of this redemption selling is waning, hence my basketball analogy. New bull arguments have also come to the fore. The contagion in Europe has prompted massive buying of all precious metals by panicky individuals, including Silver ETF (SLV), ETFs Physical Platinum Shares (PPLT), ETF Physical Palladium Shares (PALL), and even neglected rhodium, with a collapse of the Euro imminent. And how will the ECB eventually end the crisis? With a continental TARP and quantitative easing, which we here in the US already know is hugely positive for gold prices.

How far will the gold get this time? The gold bugs say we’re going to break the old high and power on through to the inflation adjusted high at $2,300. I’m not so sure. I am not willing to bet the ranch here on an asset class that could plunge $1,000 going into the next recession, which could be just around the corner.

But there may be a trade here in precious metals space for the nimble. My pick has been to buy lagging silver, which offers much more bang per buck if the sector starts to build a head of steam. The white metal will not get hit with IMF gold sales, which are also a rumored part of any European bailout package.

Why Now is the Ideal Time to Buy Apple : AAPL

Apple (NASDAQ:AAPL) – This great American success story saw its stock put under pressure following the death of founder Steve Jobs. But the new management team was handpicked by Jobs and is expected to perform well.

Analysts are estimating sales growth of 30% in FY 2012 (ending in September) versus a projected 67% rise in FY 2011. At just 9.6 times FY 2012 earnings estimates the stock looks undervalued.

The Trade of the Day recommended AAPL on Oct. 10 after it bounced from its 200-day moving average. The stock is in a powerful bull trend, and any time it dips to its bullish support line and 200-day moving average it should be bought.

A recent report from Credit Suisse analysts targets AAPL at $500 within 12 months. Technically a quick trade could take the stock to its 50-day moving average at $395 and much higher longer term.

Trade of the Day – Apple (NASDAQ:AAPL)

Funny Pic of the Day

The Real Reason Gold Will Rally: Armstrong Economics

The End of Capitalism
Now What's Going On

download here

Europe's "Liquidity Run" Has Begun Because There Is An Unsolvable $30 Trillion Problem

No, not that Sarkozy. His half-brother - the one who actually can use a calculator. In an interview on CNBC, the Carlyle group head had the temerity to tell the truth, the whole truth, and use math - that long-forgotten concept which one has to scour various backwater blogs to rediscover - to explain nothing but the truth which is that Europe needs many more trillions than either the EFSF or the ECB can afford to give. Actually, we take that back. The ECB can inject the needed €3-5 trillion, but after that concerns about localized episodes of (hyper)inflation, especially now that Kocherlakota has confirmed that the transmission mechanism between bank reserves and inflation may be broken, will be all too justified. In the meantime, Sarkozy on Europe math fail: "The math i'm working with is very simple. In the US banking sector, we had 3 trillion of wholesale funding that needed to be stabilized, got stabilized by the implementation of TARP which saw the US treasury buy $212 billion worth of preferred in the banking sector to stabilize that $3 trillion, give our banks the time to work through hair problem their problem assets. In Europe, that $3 trillion is $30 trillion. so if you multiply the $212 by 10, you get the $2.12 trillion. In my view, the issues on the European banks are bigger than the issues on the books of the US Banks. So if you want to stabilize that $30 trillion and in my view it's not that you want to, it's that you have to, you do not have a choice, you're going to have to be at least at 2.1 trillion and i suspect it may need to be more." Q.E.D. - there, the math wasn't that difficult, was it?

And for his other clips from the morning click here and here.

McAlvany Weekly Commentary

A View from the Top of the Bond Market: An Interview with the Aden Sisters

A Look At This Week’s Show:
-The interest rates are being artificially held low by our government. This makes calling the timing of the top of the bond market uncertain. But it will top nonetheless, and it will be ugly when it happens.
-Gold is one of the only safe haven investments during a time of rising inflation and falling bond prices.
-People always fear and dislike change. Adaptability and acceptance of the inevitable change coming to our lifestyle is a skill that should be exercised now.

About the Guests: The Aden Forecast is one of the most influential investment publications in the world today. Its easy to understand format and powerful advice has consistently produced double-digit profits for subscribers in 21 out of the past 25 years…That’s an 83% batting average, one of the best and most consistent long-term track records in the business.

How to Trade Using Market Sentiment & the Holiday Season

The months of November and December are the second strongest back to back months for the financial markets. Many traders and investors use this time of the year to reap big gains as they close the year out. The fact that most traders and investors are sitting in cash and underweight stocks in their portfolio’s leaves me to believe a Santa Clause rally is just around the corner. Reason being is everyone has cash on hand to buy stocks because they are selling their positions in this pullback we are in right now. I know traders well enough, they will buy back into the market trying to catch the holiday rally in the coming weeks.

Subscribers and myself have been short the SP500 for a couple weeks after watching the broad market become overbought and sentiment levels became overly bullish with greedy pigs thinking they could buy stocks after a massive month long rally that had not pullback. Once the selling started you would either get you head handed to you or you were going to make a killing buying leveraged inverse ETFs.

Those who arrived late to the rally are the ones selling out of their positions this week. The interesting thing about this week’s market condition is that I have not seeing any real panic selling in stocks, and I’m not seeing the volatility index spike in value yet.

What does this mean? Well it means we could actually see another big dip in the market which should last 1-2 days and then we get a sharp reversal to the upside.

Take a look at the SP500 & Volatility index below:

This chart allows us to get a feel for fear in the market. Me being a contrarian trader, I focus on market sentiment extremes. When the masses are losing money hand over fist I’m generally on the other side of that trade with open arms. Trading off fear is one of the easiest ways to trade the market. That is because fear is much more powerful than greed and it shows up better on the charts. Spotting panic selloff bottoms is something that can be traded successfully if you know what to look for and how to trade them.

On the chart you can see the pullbacks in the SP500 which triggered a panic selling spike in my green indicator. What I look for is a pullback in the SP500 and for my panic selling indicator to spike over 20. When that happens I start watching the volatility index for a spike also. The good news is that the volatility index typically rises the following day making my panic indicator more of a leading one…

Market Sentiment Trading

Market Sentiment Trading

I could write a 20 page report going into depth this with topic, but that’s not the point of this report. Just realize that the stock market is likely going to put in a bottom very soon and likely end with a STRONG panic selling washout this week or next. If you want to learn more about how to trade market sentiment and panic selling you can read my strategy which was published in Futures Magazine.

Prepare for a sharp drop in the market which should kick start a holiday rally in the next few trading sessions.

3 Charts That Should Scare You

Along with the normal pressures from weak European economies and a failed budget committee, investors had to consider the impact of slower-than-expected GDP growth. The Fed said that Q3 GDP was revised down to 2% from 2.5%. It also announced a new round of stress tests for U.S. banks.

But the Fed also said that it may take “new steps” to bolster the economy, but no new simulative measures were announced. And the Richmond Fed said that its manufacturing index improved last month to zero from minus six the month before.

Stocks lost ground again with the Dow Jones Industrial Average falling 0.46%, the S&P 500 down 0.41%, and the Nasdaq off 0.07%. It was another light-volume day with 877 million shares trading on the NYSE and 460 million on the Nasdaq. Decliners were ahead of advancers by about 1.7-to-1 on both exchanges.

DJI Chart
Click to EnlargeTrade of the Day Chart Key

After stubbornly holding at a support line at 11,650 and its 50-day moving average, the Dow finally broke through both. Its Relative Strength Index (RSI) line is still in neutral territory with a distinct slant down meaning that prices have room to head lower.

The breakdown of this senior index is significant because it represents the highest quality stocks, many of which pay above-average dividends. It is this group of blue chips that many analysts have been recommending as a better investment than bonds because of their higher yields and potential for growth.

CAC 40 Chart
Click to Enlarge

Yesterday we studied the head-and-shoulders top on Germany’s DAX, and today we’ll look at two other major foreign indices:France’s CAC 40 andChina’s Hang Seng.

The CAC 40 index is composed of the 40 most significant values of the 100 highest market caps on the Paris Bourse. Its chart is similar to the DAX, but where the German index has broken from a clear head-and-shoulders pattern, the CAC 40 has plummeted from the low trendline of a short-term channel down.

Note its RSI, which is rapidly falling. The chances are high that the September lows in the CAC 40 will not hold and that a new bear market leg will be established.

Hang Seng Chart
Click to Enlarge

While the Hang Seng index’s bear market pattern is not quite as ominous as the CAC 40, it is nevertheless in a downtrend. It currently rests at just above 18,000, but a break of that line will no doubt lead to a test of the October low.

The RSI of both the CAC 40 and the Hang Seng indicate that declines have further to go on the downside with no support until they reach the September/October lows.

Conclusion: The three indices paint a grim picture for the bulls. Each has broken through important support zones, but it is the Dow that has the best chance of holding above the October lows. Its deep range of trading that began in August could stall the decline enough to move into the new year and a better outlook.