Friday, December 30, 2011
Lindsey Williams The Middle East will be in flames in 2012
A Big Bet On Hard Asset Producers: BHP, CRBQ, DBC, GCC, GNAT, GNR, GRES, GSG, HAP, XOM
Throughout 2010 and the beginning half of this year, commodities were one of the strongest performing asset classes. Then the bottom dropped out. Worries about China's slowing appetite for natural resources, coupled with growing concerns about Europe's burgeoning debt crisis, took the wind out of the sails of the sector. Investors dumped risk assets and flocked to the U.S. dollar and treasuries, which exacerbated the fall in hard assets. However, while the headlines continue to focus on the problems with the PIIGS, slow growth and debt issues, longer focused investors can now add some quality exposure to commodities at real fire sale prices.
Cheap Prices, Strong Demand
For portfolios, the commodities sector continues to offer a bargain relative to long term demand trends. The recent short- to medium-term global macroeconomic worries has caused both the producers and physical goods to crater. Overall, the GreenHaven Continuous Commodity Index (ARCA:GCC), which tracks 17 equally-weighted commodity futures, is down around 5.4% this year.
Despite the short term stumble, the long term picture for the asset class is rosy. The United Nations predicts that the global population will increase by 11% leading up to the year 2020 and will jump by 20% by the time we hit 2030. This population growth will continue to place a greater strain on the limited supplies of the world's natural resources. Metals and other materials will be needed to build vital infrastructure. Vast amounts of energy resources are needed to provide electricity and to power Western-style transportation. Tons of soft and agricultural commodities will be required to meet the world's growing middle class demand for meat and other foods. As emerging and frontier markets continue to grow, it is the commodities sector that will see gains as well.
In addition, various governments' quantitative easing, stimulus and money-printing programs designed to encourage economic growth have produced some unintended consequences; an ever-increasing money supply and raised inflation expectations. Hard assets continue to hold appeal in the long run, as investors are able to protect themselves from price changes in real goods. While inflation has generally been mild, so far, the recent rout in commodities can allow portfolios to add some future inflation production on the cheap.
Gaining Exposure
Making up nearly 15% of the world's market cap, there are plenty of individual hard asset companies to choose from. However, given the vast variety of firms across the various subsectors, a broader approach may be better. Luckily, the recent exchange traded fund boom has opened up a wide variety of ways to play the hard asset sector. Here are a few picks.
Holding roughly 340 securities across six different hard-assets sectors, the Market Vectors RVE Hard Assets Prod ETF (ARCA:HAP) provides one of the widest swaths of commodities funds. Heavy weights such as BHP Billiton (NYSE:BHP) and Exxon (NYSE:XOM) dominate the top holdings, but the fund does include exposure to water and renewable energy firms. This added exposure has helped the fund outperform its two main rivals, the WisdomTree Global Natural Resources (ARCA:GNAT) and the SPDR S&P Global Natural Resources (ARCA:GNR). Expenses run a cheap 0.59% and the index that the fund tracks was developed by hard asset guru Jim Rogers.
One of the more unique offerings in the commodities space is the IQ Global Resources ETF (ARCA:GRES). The fund provides exposure to a basket of hard asset producers, but then shorts the S&P 500 and MSCI EAFE Indexes. This isolates the return generated through movements in commodity prices. In essence, you get a product that tracks commodity futures, but it uses stocks to do so. This eliminates the hassle of dealing with a K-1 statement come tax time, unlike investors in the more popular PowerShares DB Commodity Index (ARCA:DBC) and iShares S&P GSCI Commodity-Index (ARCA:GSG) funds. The IQ fund charges 0.75% in expenses.
The Bottom Line
For investors, the recent rout in the commodity markets can provide just the opportunity they are looking for. With the long term trends still in place, the sector is ripe for the picking. The previous broad exchange traded funds, along with the Jefferies TR/J CRB Global Commodity Equities (ARCA:CRBQ) are great ways to add exposure to the sector.
Chart of the Day - Google (GOOG)
The "Chart of the Day" is Google (GOOG), which showed up on Wednesday's Barchart "52-week High" list. Google on Wednesday posted a new 4-year high of $645.00, although it then showed some weakness by closing slightly lower by 0.09%. TrendSpotter has been Long since Dec 2 at $620.36. In recent news on the stock, Canaccord on Dec 7 initiated coverage on Google with a Buy and a target of $725. Search Engine Land on Dec 6 reported that Google controlled 44% of global online ads in 2010 and Yahoo was a distant second at 8.3%. Google, with a market cap of $205 billion, provides web-based search and advertising services.
Egon Von Greyerz: Gold Will Trade $3,000 – $5,000 in 2012
With the gold price tumbling, along with silver, today King World News interviewed the man who told clients in 2002, when gold was $300, to put up to 50% of their assets into physical gold, held outside of the banking system. Egon von Greyerz is founder and managing partner at Matterhorn Asset Management out of Switzerland. When asked about the plunge in gold, von Greyerz said, “Well, Eric, I’m not really surprised because last time I talked to you I did say gold could go down to $1,550 support and maybe even $1,420. In my view that would be quite normal in a very thin market and I said that would probably happen by the year end.”
Egon von Greyerz continues: Read More @ KingWorldNews.com
Four Stocks On Sale Right Now : AA, ACI, GSH, WHR
Stocking Full of Coal
It has been anything but an easy year for shareholders of Arch Coal (NYSE:ACI). Investors in this name have been handed about a 60% loss since the beginning of 2011. The beating that this stock has sustained could very well be overdone.
The stock now trades at a price-to-book ratio (P/B Ratio) of around 0.9 and a forward P/E ratio of about 5.6. Over the long term, Arch Coal is positioned well to benefit from coal supply constraints in the U.S. as well as the completed integration of previously acquired International Coal Group. Other aspects of this stock that I find attractive right now are its 3% dividend yield and the fact that officers of the company have been buying shares of Arch Coal in recent weeks.
Moving to the aluminum space, Alcoa (NYSE:AA) has had a similarly rocky year as its stock price has fallen approximately 42% year-to-date. The stock now trades at a price-to-book ratio of about 0.6 and a forward P/E of around 9.3. Alcoa's earnings miss in Q3, however, would leave me inclined to remain on the sidelines on this stock, at least until after the company reports its Q4 results on January 9.
Other Candidates
The appliance maker Whirlpool (NYSE:WHR) has not been able to get out of its own way in 2011. Whirlpool shares have been in a state of freefall for much of year and are now about 47% lower than where they began the year. This stock now trades at a price-to-book ratio of around 0.84 and a forward P/E of approximately 7.7.
The company blind-sided investors in October when it cited higher material costs as a reason for slashing its full-year profit outlook to a range of $4.75 to $5.25 per share versus a previous range of $7.25 to $8.25. Although Whirlpool will face some tough sledding in the coming quarters, I like the stock for some of the same reasons that I like Arch Coal. Whirlpool's 4.4% dividend yield and an insider buying spree that resulted in four different insiders combining to purchase more than $600,000 worth of WHR shares after the lowered guidance are motivating factors for giving this stock a second look.
One other stock that can be debated as a potential value play is Guangshen Railway (NYSE:GSH). GSH trades at a price-to-book ratio of about 0.7 and a trailing P/E of around 8.7. This stock could be trading higher if it were not for the cloud of skepticism that has been cast over the accounting practices of a number of Chinese companies that are listed on U.S. stock exchanges. Unfortunately, I think it could be some time before investors are able to feel confident in relying upon the financial statements that have been put forth by these companies. This sentiment will continue to be a drag on the stock prices of companies that are being punished for the actions of their peers.
The Bottom Line
Each of these four stocks presently trade at valuations that make them likely to be picked up by most value screens. The challenge now is for investors to determine whether these stocks have been unjustly punished or if they have been priced correctly and are headed lower. The answer often lies beyond the numbers and in factors that are not easily quantifiable. The message here is for potential investors to take a deeper look into the operating prospects of these four stocks rather than purchasing any of them strictly on valuation grounds.
Buy the Dip in Silver
I am working furiously right now buying silver and I hope you are too. I have gone to extreme measures to free up capital everything from selling our second car, garage sales, and now dumping all the gold that I can to buy silver. In the past week or so I have made that largest silver purchases since 2005, even more than I bought in the 2008 smackdown. With the Commercial Short position at a decade low, the explosive upside potential is awesome. After the 60% 2008 smackdown silver went up 400%, if we match that we would see $125 silver. Let’s be honest here, if that happens this time with no exponential short position for the banks to worry about, in such a limited physical market, during a paper fiat financial crisis, silver will not be available at any fiat price.
If you need to get a backbone to buy into this market, re read the Silver Bullet and the Silver Shield. The case is even more bullish now than it was last February. I have a few more videos to do for The Greatest Truth Never Told until I get to the Silver Bullet and the Silver Shield video series. The original article was read by over 350,000 people and translated into 7 languages. I believe the video version will do much more than that as silver is the gateway drug into the deeper issues of what is truly at stake here. BTFD!
The Gold to Silver Ratio is VERY BULLISH to dump gold and buy silver.
Read my case for the 1 to 1 Gold to Silver Ratio.
Five Best Trade Ideas for the Next Two Weeks
The last week of the year volume tends to be light due to the fact that big money traders are busy enjoying the holidays and waiting for their yearend bonuses.
This Wednesday turned out to be an exciting session with all 5 of my trade ideas moving in our favour right on queue.Charts of the 5 investments moving in the directions we anticipated …
- Dollar bounced off support
- Stocks are topping and selling off today
- Oil looks to have topped and is selling off
- Gold and Silver are moving lower
- VIX (Volatility Index) just bounced
Many of my readers took full advantage of my recent analysis and trade ideas which is great to hear. All the different ways individuals used to make money from Friday’s analysis is mind blowing…
The most common trade is the oil one with most traders adding more to Tuesday when the price reached its key resistance level on the chart. Also many traders took partial profits Wednesday locking in 3% or more in two days using the SCO ETF.
It’s amazing how many people like to trade the vix using ETFs. The best trade from followers thus far was an 8% gain in TVIX which was bought 4 days ago anticipating the pop in volatility which I had been talking about last week. Keep in mind ETFs for trading the vix are not very good in general. I stay away from them, but TVIX is the best I found so far.
Currently stocks are oversold falling sharply from the pre-market highs. Meaning stocks have fallen too far too fast and a bounce is likely to take place Thursday.
Also we saw some panic selling hit the market today with 14 sellers to 1 buyer. That level tells me that the market needs some time to recover and build up strength for another selloff later this week or next. We will see this pause unfold when the SP500 drifts higher for a session or two with light buying volume. This will confirm sellers are in control and give us another short setup.
In my Wednesday morning video I explained how/where to set stops when using leveraged ETFs because I know 90% of traders using them do not have a clue as to how to do this and they get shaken out of their trades just before a top or bottom. So if you want to learn more about it watch this morning’s video please: http://www.youtube.com/watch?v=lDagN5Vpvys
I hope this helps you understand things more… Over time you will pickup on a lot of new trading tips, tools and techniques with this free newsletter so just give it time and keep trades small until you are comfortable with my analysis.
What Are Bollinger Bands and How To Profit With Them
Bollinger Bands
Bollinger bands are used to measure a market's volatility.
Basically, this little tool tells us whether the market is quiet or whether the market is LOUD! When the market is quiet, the bands contract and when the market is LOUD, the bands expand.
Notice on the chart below that when price is quiet, the bands are close together. When price moves up, the bands spread apart.
That's all there is to it. Yes, we could go on and bore you by going into the history of the Bollinger band, how it is calculated, the mathematical formulas behind it, and so on and so forth, but we really didn't feel like typing it all out.
In all honesty, you don't need to know any of that junk. We think it's more important that we show you some ways you can apply the Bollinger bands to your trading.
Note: If you really want to learn about the calculations of a Bollinger band, then you can go to www.bollingerbands.com.
The Bollinger Bounce
One thing you should know about Bollinger bands is that price tends to return to the middle of the bands. That is the whole idea behind the Bollinger bounce. By looking at the chart below, can you tell us where the price might go next?
If you said down, then you are correct! As you can see, the price settled back down towards the middle area of the bands.
What you just saw was a classic Bollinger bounce. The reason these bounces occur is because Bollinger bands act like dynamic support and resistance levels.
The longer the time frame you are in, the stronger these bands tend to be. Many traders have developed systems that thrive on these bounces and this strategy is best used when the market is ranging and there is no clear trend.
Now let's look at a way to use Bollinger bands when the market does trend.
Bollinger Squeeze
The Bollinger squeeze is pretty self-explanatory. When the bands squeeze together, it usually means that a breakout is getting ready to happen.
If the candles start to break out above the top band, then the move will usually continue to go up. If the candles start to break out below the lower band, then price will usually continue to go down.
Looking at the chart above, you can see the bands squeezing together. The price has just started to break out of the top band. Based on this information, where do you think the price will go?
If you said up, you are correct again!
This is how a typical Bollinger squeeze works.
This strategy is designed for you to catch a move as early as possible. Setups like these don't occur every day, but you can probably spot them a few times a week if you are looking at a 15-minute chart.
There are many other things you can do with Bollinger bands, but these are the 2 most common strategies associated with them.