Saturday, December 17, 2011

Goldman Sach’s 100 Best and Favourite Charts

Christmas comes early for chart porn addicts this year, courtesy of Goldman Sachs which has compiled its top 100 favorite charts together in one place.

As Goldman’s Hugo Scott-Gall. says:

This is a supplementary chart book to our final Fortnightly Thoughts of the year. In it, we take the best charts that we have published throughout the year and rearrange them to tell the story of the world. Our story is not just of 2011, but also of the years to come, as the world changes at a rapid clip. What follows is a quick read, and hopefully an enjoyable one.

However, there?s a very serious thread running through the following pages. It?s one of realignment, as the different speeds of the world’s economies are shown starkly through a multitude of lenses, including growth in consumption, resources, number of cities, favourite brands, farming yields, trading partners and the role and size of government.

When seen together, the bigger picture of the visible and less visible changes in the world becomes clearer. Our subject matter is drawn from a myriad of areas, from the structure of global trade to the world?s highest paid sports teams.


A Bubble Down on the Farm?

Looks as if some of the mainstream media is catching whiff of the potential for another Fed induced bubble – this time the easy money fueling speculation in farmland. The impact of ‘the financialization of everything’ is having far reaching effects. Too much money chasing too few assets, especially as the Fed sucks up so much of the supply of Treasuries, leaving money that often go there seeking another home. We have seen how this game ends – it will just be a matter of when.

Via WSJ:

  • Farmers like Terry Pratt are a big reason Midwest farmland prices seem to be defying gravity—for now. Inside the tidy red-brick community center here, a hushed crowd of town merchants and growers watched as two of their own bid against each other at an auction for 50 acres of corn and soybean land.
  • The auction was over in 15 minutes. Mr. Pratt’s winning bid of $7,875 an acre was nearly double the rate he paid for a nearby parcel just four years ago. “Chances are if another person bought it, it would have never sold again in my lifetime,” Mr. Pratt said.
  • The big question mark hanging over the farm economy is whether a bubble is building in Midwest cropland. Prices have doubled over the past five years in states such as Nebraska and Indiana. Iowa State University reported Wednesday that the average price of an acre of farmland in Iowa, the nation’s biggest producer of corn and soybeans, reached $6,708 this year, up 32.5% from 2010 for the biggest annual increase in the history of the 70-year-old survey.
  • Part of what has economists and rural bankers on edge is that Midwest farm prices are climbing at rates last seen in the go-go 1970s, the period that set the stage for the farmland bust of the 1980s, when prices sank by half. The bust ignited a rural crisis that pushed many farmers out of business and hundreds of their banks to the brink of collapse.
  • “Land prices are too high. Things are getting out of whack” said Michael Swanson, an economist at banking giant Wells Fargo & Co. He figures that Midwest farmers have historically bought an acre of land for the value of corn it can produce over four years. Now, an acre of land easily fetches six years of crop production—at a time when crop prices are well above historical averages.

  • The Federal Reserve issued a memo to farm bankers in late October warning that the market for cropland “may reflect overly optimistic long-term expectations” and that land values would fall if interest rates increase abruptly and farm profits shrink. (Mark’s note – gee thanks Federal Reserve. This is like the arsonist telling a homeowner her house is on fire due to matches and gasoline the arsonist brought to the scene)
  • Those big returns are attracting some large investors hemmed in by the weakness of the general economy. Since 2007, TIAA-CREF, the retirement system for employees of nonprofits, has acquired 600,000 acres of cropland worth $2.5 billion, about half of which are in the U.S. “If opportunities arose, we could double our portfolio,” said Jose Minaya, TIAA-CREF’s head of natural-resources investments, who sees farmers struggling to keep up with expanding demand, keeping grain prices high for years to come.
  • Sterling Liddell, an agribusiness analyst at Rabobank, said Midwest cropland prices could drop 12% to 15% sometime over the next three years to five years if interest rates climb back to more-normal levels, which would make alternative investments more attractive. (Mark’s note – chances of interest rates being allowed to return to ‘more normal’ levels in 3 to 5 years are slim to none)

Martin Armstrong: What's Up With Gold? The Immediate Outlook

What's Up With Gold?
The Immediate Outlook

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Ann Barnhardt: The Entire Futures Market Has Been Destroyed by the MF Global Collapse

Ann Barnhardt is a very outspoken commentator , somebody called her the female version of Gerald Celente , you can judge by yourself , personally I liked the way she speak out against the banksters and this corrupt system , the more i listened to her the more I liked what I heard and she is a honest broker too (very rare today ) Ann Barnhardt of Barnhardt Capital Management. Ann shut the doors of her brokerage because she felt customer capital was no longer safe.

Ann Barnhardt: "... We are now living in a lawless, Marxist, Communist, usurped, what used to be a representative republic but is no more. This is no longer a nation of laws. This has now transformed into a nation of men. It doesn’t matter what crime you commit. In the case of Jon Corzine, this man has stolen in excess of a billion dollars. I think by the time it is all panned out it is going to be closer to $3 billion of customer funds that he stole. Why did he do it? Is he stupid? Well, of course he’s not stupid. This is a former head of Goldman Sachs. This man doesn’t have a low IQ per se. Why in the world would a man wake up in the morning one day and say you know what, I think I am going to steal all the customer seg funds in this FCM that I’m running, which is the biggest FCM in the country. Yeah, that sounds like a good plan. No. Why would a man like that even engage in a nefarious plot like this? Because he knew going into it he could get away with it. And the reason he could get away with it is he is in tight with the Obama regime. He is one of Obama’s highest fundraisers. Earlier this year Jon Corzine had a fundraiser dinner at his New York City apartment for Barack Obama where it was charged at $35,000 a plate. Okay? He bundled high six figures for Obama in one evening! He is a crony of the regime. This is Marxist Communism. There is no rule of law. And these people, these poor MF customers are just sitting out here helpless to do anything because there is no law enforcement because this is no longer a nation of laws. The rule of law no longer exists. There is no longer justice in this nation. And no nation, no culture, no society can survive if there isn’t a foundation of justice. That is why we are teetering on the precipice of collapse and I foresee civil war coming within the next several years. " Ann Barnhardt said in a recent interview with Jim Puplava of the Financial Sense Newshour

The Economist - 17 December 2011

The Economist - 17 December 2011
English | PDF | 168 pages | 49.7 Mb

The Economist is a global weekly magazine written for those who share an uncommon interest in being well and broadly informed. Each issue explores domestic and international issues, business, finance, current affairs, science, technology and the arts. Your paid subscription to The Economist also includes unlimited access to and our searchable archive.

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OPEC says, ‘Don’t Count on Us’ for More Oil Supply

The results of OPEC’s latest meeting to set oil production quotas were announced this morning. Instead of production targets for individual countries, a group production ceiling of 30 million barrels a day was set. This amount is a bit less than OPEC produced in November 2011 (actual 30.367 mbd), according to its reckoning, and less than it would have produced most of 2011, if Libyan production had stayed on line, based on the amounts shown in its November Oil Market Report.

A recent history of oil production from the November Oil Market Report, both for OPEC and in total, is shown in Figure 1.

Figure 1. Recent oil production for World and for OPEC, according to OPEC November Oil Market Report.

According to a Platts report of the meeting, Venezuelan Oil Minister Rafael Ramirez told reporters, “We are going to reduce the level of production of each country to make space for Libya.” That is not what people want to hear–Brent oil price is still over $100 barrel, even with what seems to be record production for both the world and OPEC, based on Figure 1.

The same Platts report also says, “OPEC on Tuesday said it expected demand for OPEC crude next year to average 30.09 million b/d.” Thus, the new production cap is slightly less than what OPEC sees as demand going forward.

It should be noted that the new limit includes Iraq in addition to the “regular” OPEC countries. Thus, the agreement says that if Iraq increases its production, other OPEC countries will reduce their production to keep total production to 30 million barrels a day.

All of this comes shortly after Saudi Arabia announced that it has halted plans to increase capacity to 15 million barrels a day by 2020. I wrote about this in a recent post. Saudi Arabia claims to have 12 million barrels a day in capacity now, but there is little evidence that it can actually produce this amount of oil. Saudi Arabia recently boasted that it would increase oil production above 10 million barrels a day, to help offset the drop in Libyan oil production, but amounts reported by the OPEC Oil Market Report and the EIA report of monthly oil production are still under this amount. The highest Saudi oil production reported by the EIA is 9.94 million barrels a day in August 2011.

There would seem to be several reasons for applying an overall cap to OPEC production:

1. OPEC needs/wants high oil prices. They certainly don’t want the price of oil to fall by very much, if they are to have enough funds to pay for all their social programs. So holding production down is in their best interests. An overall cap provides as direct a way as possible of keeping overall production down.

2. It is not clear that most OPEC members have any spare capacity. Saudi Arabia may, in fact, need to “rest” its wells after pushing production to its recent high of 9.94 million barrels a day in oil production. Writing the agreement as an overall cap gives Saudi Arabia “cover” for resting its wells, as needed.

3. This approach is at least theoretically easier to administer. One or two or three countries can make a change in production, if desired, to bring total oil production down to the desired level, if others raise their production.

4. This approach gives a framework for future agreements that can be helpful if Iraq’s oil production should actually increase by very much. Iraq’s production is in effect pulled back in under the agreement.

5. This approach provides great “cover” if one or more OPEC countries experiences a decline in oil production. There is no need for embarrassment if an individual country should experience declining production, since a country can simply blame the result on a need to keep overall production within the selected limit, and thus “save face”. A country with very high stated reserves might be especially embarrassed by an unexplained decline in production, since this might also suggest that the stated reserves were inaccurate.

Why the Market Discounts the New Cap

I am aware that the price of oil dropped after the announcement of the new 30 million barrel a day cap. The view underlying this decline is that the new cap is similar to the individual country caps, and likely to be exceeded if circumstances are right. Furthermore, the 30 million barrel a day cap is similar to what OPEC has recently been producing, so there is no expectation of a cut in production at this time.

It seems to me, though, that OPEC is gradually changing from an association whose primary purpose is to hold down production, to an association of mostly aging oil countries who need to cover up the fact that their oil production may not be able to keep up much longer. The new methodology works much better, if part of the purpose is to cover up the reason for declining production of a few countries.

Figure 2 is a graph I showed in a recent post. It shows Middle Eastern and North African (MENA) oil production as a percentage of world oil production.

Figure 2. Middle East and North Africa oil production as percentage of world total, plus oil price in 2010 dollars. Amounts from BP Statistical Report. Oil includes NGL. Oil price comparable to Brent.

The countries included in MENA are not the same as OPEC, but there is a large overlap with the older OPEC members. Figure 2 shows that this group has not raised production relative to world production by very much, even when oil prices were high, suggesting that they have little capacity to do so.

As the very old wells in MENA countries age further, declining production can be expected to be an increasing problem, adding to the need for countries to “save face” as production declines, as mentioned in Point 5 above.


It will take a while to see how the new cap works out in practice. The important effect may not be in the next three months, but over the longer term, especially if Iraq’s production increases.

Both EIA and IEA are expecting that OPEC will provide the majority of future increases in world oil production. If my interpretation is right, OPEC is suggesting that they will decide how much, if any, increase in production will be allowed through to the rest of the world–that is, assuming that the increase in OPEC production is really there in the first place, and not offset by other OPEC declines.

My expectation is that oil price will really depend on how well the world economy is doing. The world economy is threatening to slip into recession now. If it does, prices may go down. If it does not, and OPEC indeed keeps its production capped at 30 million barrels a day, we should expect higher oil prices ahead.

In any new agreement, the real question is how the agreement is administered in practice. I have suggested one way the new agreement may be used. It will be interesting to see what actually happens.

Major Blunders In Portfolio Construction

The investment industry has its fair share of black sheep, and as a result there are an enormous number of poorly constructed portfolios. Problem portfolios come about for many reasons, but one thing is certain: they can lead to investments that cause more harm than benefit for investors. By investigating these problems, you will be better able to prevent portfolio construction abuses in your own investments.

Common Portfolio Problems
A one-sided approach results in portfolios containing only products from the bank or financial institution used by the investor. In other words, if you go to a particular bank and it represents a certain collection of funds, it is likely that those are the ones it will recommend, despite the fact that they may not be the most cost-effective or the best performers. Realistically, you are going to get a truly objective selection only from an advisor that is not tied to any specific product or bank. After all, that is what independent really means.

Another core problem is what economists call lumpy risks. This is a dangerous over-investment in a certain sector or asset class which means the value of your portfolio will go up or down in large, unwieldy chunks based on the movements of the over-invested sector. This presents a problem for investors because too much of any one type of investment is risky. It is important to note that diversification is not achieved by having lots of different types of equities or different types of bonds or any other asset class. Instead, diversification is achieved by a prudent mixture of non-correlating asset types, which means you generally need at least all three - bonds, equities and property - along with other funds.

A less obvious, but equally serious, problem is a lack of liquidity . This is created when there is a timing difference between investment goals and the need to access money from the portfolio. For example, an investment in equities for most investors should be made with a long-term focus. However, if you need money in the short- to medium-term (one to three years or even up to five) for a specific purpose such as buying a house or car, the funds earmarked for the purpose ought to be kept out of the equities markets. Nothing can be more disastrous than desperately needing money from an investment that is currently way below its purchase price.

Another common problem is home bias . Most investors rely too much on domestic investments, which places a limit on diversification. A good portfolio will not shy away from foreign investments. While they often seem riskier, in fact, they may carry no more risk than products back home and their non-correlation with domestic products can reduce the overall risk of a portfolio. In other words, even if a particular foreign fund is high risk in itself, having a sensible amount may lower the risk of your investments as a whole. However, keep in mind that foreign investments do come with their own specific risks, including currency translation risk.

If you or your portfolio manager fails to monitor your portfolio regularly, this can also be disastrous for your returns. The investment and capital markets can change rapidly and often substantially. There are times when it is good to have more equities than bonds and vice versa. Similarly, there are times when it is best to have relatively large amounts of cash, while at other times this is unwise. Monitoring also allows you to ensure that the reasons behind your investments remain intact and if they have changed, you will be able to make adjustments before your portfolio's performance is affected adversely. Therefore, nothing is more important than checking your portfolio regularly - doing so as often as every three months is usually necessary. Only by doing this can you ensure that the level of risk in your portfolio is appropriate to your needs and requirements, and that there are no investments that should be sold off.

An associated problem is portfolio drift , which means that your portfolio changes in nature and risk on its own. This danger is all too familiar to investors who got burned in the late '90s by owning portfolios that had become far too equity-heavy over the decade. In other words, you may start off the decade with a well-balanced portfolio, but if, over time, the value of your equities increases substantially and that of bonds does not, you will ultimately have a high-risk almost all-equity portfolio. Furthermore, this is likely to happen at precisely the time when equities are overpriced and likely to go down in value, or even crash. The main protection against this danger is to ensure that the proportion of your money in the equity markets is never more than you really wish to risk.

Finally, there is the awkward issue of having no loss control. Merely buying "good shares," even blue chips, does not protect against market losses; having a real strategy is the only way to do that. Many investors, particularly in the 1990s, assumed their brokers or fund managers had some kind of loss-prevention strategy in place when, in fact, this was rarely the case. This assumption led to some devastating losses.

Mediating Risk
It is not easy to find an appropriate strategy, but it is certainly worth trying. With equities, setting a lower limit on shares (stop losses) is one way of preventing disaster. If shares drop below a certain specified limit, you simply sell them. It is also possible to monitor ratios such as price or earnings and sell shares that seem overpriced. There are also so-called "package products," such as mutual funds, which tend to have some form of capital guarantee.

All these methods have their pros and cons, and none presents a perfect solution. Nonetheless, such strategies should certainly be considered and people need to know whether their money has any formal protection. A vague promise of professional management, fine stock-picking skills or even of rapid reaction to market change may mean little or nothing in practice. And by the time you discover this, it may be too late.

The Bottom Line
There are a few basic rules in portfolio construction that must be adhered to. All too often, so-called professionals do just the opposite. Yet, it is not particularly difficult to ensure that you have and maintain a well-balanced and sensible portfolio. However, you need to make sure this is what you really get. Many advisors simply do not bother to get things right, or they deliberately sell you what makes them the most money, rather than what you really want or need.

5 Dow 30 Stocks With Huge Dividends: GE, MRK, PFE, T, VZ

The Dow Jones Industrial Average (DJIA) was launched by Charles Dow way back in 1896, making it one of the oldest stock indexes. At the time, it was simply an average of the stock market's top 12 stocks.

Since then, the calculating of the Dow has gotten a little more complicated, although it has lost its cachet as the premier benchmark of the stock market; that title now belongs to the S&P 500. However, it isn't time to forget the Dow altogether: the most blue chip stocks of the U.S. stock market belong to this index, making it a great choice for risk-averse investors who are looking for an index-tracking ETF.

Unfortunately, the Dow 30 as a whole has a low dividend yield (only around 2.5%). Therefore, if you are an income investor who is counting on a reliable stream of dividend payments, the Dow 30's low yield might make it less attractive as a core holding.

However, if you sift through the index's 30 component stocks, you will notice that a number of them are high-yielding, consistent dividend payers. The index also includes a number of blue chips with solid dividend yields.

For all of you dividend fiends out there, we combed through the Dow 30 to find some of the best yielding stocks:

Company Dividend Yield Market Cap (Billions)
AT&T, Inc. (NYSE:T) 6.24% $163.3B
Verizon Communications Inc. (NYSE:VZ) 5.66% $108.8B

Merck & Co. Inc. (NYSE:MRK)



Pfizer Inc. (NYSE:PFE) 4.34% $141.8B
General Electric (NYSE:GE) 4.07% $155.5B

The Bottom Line
Dividends matter. After all, a dividend check can help investors sleep easily, knowing they own a piece of a stable company with the ability to make money. Best of all, dividends are cash-in-hand, leaving investors with the favorable choice on how to spend or invest them.

The Complete Guide To Day Trading

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Liberty Defined: 50 Essential Issues That Affect Our Freedom by Ron Paul

Liberty Defined: 50 Essential Issues That Affect Our Freedom by Ron Paul
Publisher: Hachette Audio; Unabridged edition (April 19, 2011) | ISBN-10: 9781609419073 | Language English | Audio CD in MP3 | 81 MB

In Liberty Defined, congressman and #1 New York Times bestselling author Ron Paul returns with his most provocative, comprehensive, and compelling arguments for personal freedom to date.

The term "Liberty" is so commonly used in our country that it has become a mere cliché. But do we know what it means? What it promises? How it factors into our daily lives? And most importantly, can we recognize tyranny when it is sold to us disguised as a form of liberty?

Dr. Paul writes that to believe in liberty is not to believe in any particular social and economic outcome. It is to trust in the spontaneous order that emerges when the state does not intervene in human volition and human cooperation. It permits people to work out their problems for themselves, build lives for themselves, take risks and accept responsibility for the results, and make their own decisions. It is the seed of America.

This is a comprehensive guide to Dr. Paul's position on fifty of the most important issues of our times, from Abortion to Zionism. Accessible, easy to digest, and fearless in its discussion of controversial topics, LIBERTY DEFINED sheds new light on a word that is losing its shape.

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Do We Get a Year-End Rally Or Not? Santa Dukes It Out With Mr. VIX

Market cheerleaders see a rally coming; Mr. VIX is issuing a sell signal. Looks like the next few days will be a grudge match between Santa and Mr. VIX.

Everybody wants a Santa rally in stocks: Wall Street, the financial media cheerleaders, mutal fund managers, politicos, pump-and-dumpers, retail investors, gamblers, grifters and even Mrs. Santa all want a year-end stock market rally.

Santa's willing, but he's going to have to get past Mr. VIX.

The VIX volatility index is a remarkably accurate indicator of market highs and lows. You can see how well extremes in the VIX line up with highs and lows in the S&P 500 in the charts below.

I've marked the "Highs/Sells" in red lines and the "Lows/Buys" in black lines.

As you can see, Mr. VIX isn't signaling a big fat buy here--he's signaling a big fat sell. The general idea with Mr. VIX is that when investors are panicky and bearish, then they buy hedges against further declines, and this spikes the VIX up. If the VIX breaches the upper Bollinger Band, that aligns rather closely with the stock market lows.

If complacency is high and few investors feel much need to hedge against declines, then the VIX drops to the lower Bollinger Band. That generally aligns with market tops.

The VIX just plummeted below 25. The last time it fell below 25, the market reversed and sold off hard. Bulls expecting Santa to deliver a rally come heck or high water have to explain why the VIX is no longer relevant, and what looks like a strong VIX sell signal is actually a monster-buy signal.

NOte the giant wedge pattern that suggests a major move in whichever direction price breaks decisively out of the wedge. Also note the support/resistance around the round number 1,200. Interestingly, the lower line of the wedge (the lower trend line) aligns rather closely with the 1,200 area of support/resistance.

To ignore the VIX sell signal, Bulls have to make the case that the global economy is so rock-solid that continued complacency and a reduction in volatility are to be expected.

Uh, right. Is the global economy rock-solid? (If you don't think the U.S. markets are correlated to global issues, just look at copper and the S&P 500. Copper leads, and the U.S. market follows. Ditto with the euro.) Is a sudden decline in volatility really reflecting global realities, or is it merely wishful thinking?

I've also tossed in a chart of the McClellan Oscillator, another tool for identifying buys (lows) and sells (highs) in the stock market. When this indicator plunges to its lows, that typically aligns with stock market lows/buys, and when it reaches peaks, those typically align with market tops/sells.

There are no perfect indicators, but there is a visible correlation between market tops and bottoms and Mr. VIX and the McClellan Oscillator. The problem for Santa is the McClellan Oscillator isn't exactly offering up a screaming buy signal, either.

Maybe Santa delivers a one-two punch to Mr. VIX and serves up a piping hot year-end rally as volatility falls off a cliff. Hey, anything's possible, especially if the referee is on the take.