from King World News:
James Turk continues: Read More @ KingWorldNews.com
Friday, January 6, 2012
James Turk: Gold is Great, But Silver is the Next Apple
David Dreman “Stocks Cheapest Since Mid-1990s”
The euro is taking a back step because there was an overreaction last year to the 
Some quotes:
“I think we’re probably going to see less emphasis on the whole European situation. They are taking a backseat here.”
“I think there was an overreaction last year.”
“Germany will continue to do well. I think France will do reasonably well. We haven’t seen much slower growth up to now. It is certainly not hurting the United States up to this point.”
How Banks Are Using Your Money to Create the Next Crash
It's a complicated, fancy term in the global banking complex. Yet it's one you need to know.
And if you understand it, you will get the scope of the risks we currently face - and it's way bigger than just Greece.
So follow with me on this one. I guarantee that you'll be outraged and amazed - and better educated. You'll also be in a better position to protect your assets at the end of this article, where I'll give you three important action steps to take. So follow along...
Their Profits on Your Money
Few people know this, but there's a process through which banks and trading houses are leveraging your money to increase their profits - just like they did in the run-up to the last financial crisis. Only this time, things may be worse, as hard as that is to imagine.Consider: In 2007 the International Monetary Fund (IMF) estimated that this form of "leverage" accounted for more than half of the total activity in the "shadow" banking system , which equates to a potential problem that would put this insidious little practice on the order of $5 trillion to $10 trillion range. And this is in addition to the bailouts and money printing that's happened so far.
Wall Street would have you believe this figure has gone down in recent years as regulators and customers alike expressed outrage that their assets were being used in ways beyond regulation and completely off the balance sheet. But I have a hard time believing that.
Wall Street is addicted to leverage and, when given the opportunity to self-police, has rarely, if ever, taken actions that would threaten profits.
Further, what I am about to share with you is one of main the reasons why Europe is in such deep trouble and why our banking system will get hammered if the European Union (EU) goes down.
And w hat makes this so disgusting - take a deep breath - is that it's our money that's at stake. Regulators like the Securities and Exchange Commission (SEC) and their overseas equivalents are not only letting big banks get away with what I am about to describe, but have made it an integral part of the present banking system.
Worse, central bankers condone it.
As you might expect, the concept behind this malfeasance is complicated. But it's key to understanding the financial crisis and to avoiding a possible global recession in 2012 and beyond.
What we're talking about is something called "rehypothecation."
Most people have never heard the term, but trust me, you will shortly. Let me explain what this is, and why you need to know about it. Then, I'll offer three ideas to trade around it. (more)
Copper Remains A Value : COPX, CU, SCCO, TGB
As fears about a slowing global growth have taken hold, a variety of "risk" assets have seen their prices fall. Nowhere is that more prevalent than in the commodities space. Prices for various natural resources, aside from oil and gold, have all seen large slides downwards over the last few months. Broad measures of the sector, like the iShares S&P GSCI Commodity-Indexed Trust (ARCA:GSG), now sit closer to their 52-week lows than their highs. For forward thinking investors, this recent plunge in commodities prices have opened up some interesting opportunities. One industrial metal superstar currently offers a compelling value, which could see its price rise over the next year.
These 8 Analysts See Gold Going to $3,000 – $10,000 in 2012! Here’s Why
So says Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!)
Wilson goes on to report:
Arnold Bock: $10,000
As Bock said in an article entitled $10,000 Gold is Coming in 2012/13! Here’s Why back in mid-June, 2010:
“No wishful thinking here! As I see it gold is going to a parabolic top of $10,000 by 2012 for very good reasons: sovereign debt defaults, bankruptcies of “too big to fail” banks and other financial entities, currency inflation and devaluations – which will all contribute to rampant price inflation.”
Bock wrote another article in March, 2011 entitled Get Ready for Financial Crisis 2.0 in 2012 – It’s Inevitable! Here’s Why in which he expanded on his observations of the economic climate by saying in his opening comments:
“2012 is shaping up to be the blockbuster main event of the ongoing financial crisis. Massive amounts of new debt, vast quantities of additional digital dollars and the spark of higher interest rates will set off version 2.0 of the credit-driven financial implosion.”
Porter Stansberry: $10,000
In Stansberry’s December 2009 article entitled This Little-Known Rule Could Send Gold to $10,000 he wrote:
” [Back in 1999] two well-known economists – Alan Greenspan and Pablo Guidotti – published a secret formula in a 1999 academic paper. The formula is called the Greenspan-Guidotti rule. The rule states: To avoid a default, countries should maintain hard currency reserves equal to at least 100% of their short-term foreign debt maturities. The world’s largest money-management firm, PIMCO, explains the rule this way: ‘The minimum benchmark of reserves equal to at least 100% of short-term external debt is known as the Greenspan-Guidotti rule. Greenspan-Guidotti is perhaps the single concept of reserve adequacy that has the most adherents and empirical support.’
The principle behind the rule is simple. If you can’t pay off all of your foreign debts in the next 12 months, you’re a terrible credit risk. Speculators are going to target your bonds and your currency, making it impossible to refinance your debts. A default is assured.
Greenspan-Guidotti means the U.S. is likely to have a severe currency crisis within the next two years. How high will gold go during this crisis? Nobody can say for sure. We’ve never been in the situation we are now. The numbers have never been so large and dangerous but I wouldn’t be surprised at all to see gold at $10,000 an ounce by 2012. Make sure you own some.”
Taran Marwah: $6,000
“Our target for Gold since October 2010 has been US$6000 by December 2012… thru Q2 2013… Excess money printing will cause debasing of the mighty US Dollar. In this scenario of hyperinflation, wherein the…US Dollar is collapsing, the only way to protect your wealth is holding on to ‘Physical Gold’. Please start thinking on the lines of “wealth protection” and “preservation”. Physical Gold is the only financial asset in the world that is not simultaneously somebody else’s liability. That is the reason why we have been advising everyone since 2009 to buy ‘physical Gold’ [and recommending that they] store the bars outside the commercial banking system as most commercial banks in USA and Europe will be “insolvent” by December 2012. We repeat – Physical Gold is the only asset which will give “best returns” from 2009 through 2012.”
Goldrunner: $3,000+
Goldrunner uses fractal analysis off the gold bull market of the 1970s to arrive at his assessment of where gold is now in the bull run and where it is going. In his November, 2011 article he set forth the basics of his technical analysis and said:
“Early this year we suggested a 50% rise in Gold to $1860 – $1,920 into mid-year. Now, we see the Gold tsunami realizing an approximate 100% rise that will crest at $3,000+ into the middle of 2012.”
Bob Chapman: $2,500 – $3,000
In Chapman’s August, 2011 issue of the International Forecaster he had this to say about gold:
“Debt monetization will lead to ever-higher inflation…and explain the systemic problem of many nations, which have nowhere to turn to except the creation of money and credit to temporarily keep their economies going…[and] when you put it all together you get higher gold and silver prices…We would expect a move to $2,000 to $2,200, some backing and filling and a move to $2,500 to $3,000 by the end of February 2012, as we earlier predicted.”
Ian McAvity: $2,500 – $3,000
Ian McAvity, author of the newsletter, Deliberations on World Markets, speaking on Mineweb.com’s Gold Weekly podcast in June of 2010, said that while he is a gold bug, buying gold in the current economic climate is very much like buying life insurance for a short term capital gain. McAvity says that he expects gold to head north toward the $3,000 level over the next two years [i.e. sometime in 2012] but, says he cannot yet quantify “the magnitude of the crisis that takes it higher”. According to McAvity, one of the most critical factors for the gold price currently is the return on risk-free capital which is currently negative in real terms saying:
“As long as the yield on treasury bills is 40 to 50 basis points, then the perceived inflation rate is 200 to 300 basis points – basically holding paper is negative. And that is one of the strongest underlying features of the gold market and we basically have the central bankers and their quantitative easing load saying that they’re going to try and keep interest rates as close to zero as possible, until they successfully borrow their way out of debt. The concept of borrowing your way out of debt is I guess, the new math that I haven’t quite grasped yet.”
Kurtis Hemmerling: $2,500 – $3,000
In an August 2011 article posted at Seeking Alpha entitled How to Play Parabolic Gold Prices With a $2,500-8,000 Target Hemmerling says:
“While I put a one year price target of $2,500 – $3,000, it is difficult to know with any surety…but I think some added ‘shock news’ as we toy with another recession and the convoluted problems of the euro-zone, compounded by inflationary stimulus – will see the U.S. dollar-based price of gold go much higher over the next few months. My target is largely based on the recent steep climb that is getting dangerously close to setting up a parabolic price move. Fear is the catalyst, and I think resistance will be met at $2,000 based on it being a round psychological number. After some churning when it breaks that – we could see another big run between $2,500 and $3,000.”
Mary Anne and Pamela Aden: $2,000 – $3,000
In the April 2010 issue of The Aden Forecast the Aden sisters expressed their view that:
“[In the chart below] you can see an interesting pattern that’s been going on since 1969. Note that each major eight year low was followed by a major peak 11 years later. The only exception was the 1993 low, but in that case the low was mild within an essentially quiet market (see asterisk).
If this 11 year pattern continues, we could see gold shoot up to the $2000 – $3000 level within the next two years [i.e. by 2012]. But since today’s economic situation is historically extreme, we could see much higher prices for a longer period of time… well beyond 2012, and more like 2017-2018.
In their latest (November 2011) forecast they were still optimistic saying “gold is near a normal high area within a major uptrend, but it has yet to experience any type of explosive action. This is likely still to come once this current period of weakness is over.”
It should be noted here that the leverage of gold mining shares vis-a-vis the price performance of gold bullion plus the added leverage of the warrants of such companies vis-a-vis the performance of their associated stock supports the possibility of amazing gains for the right warrants of the right junior miners in the years ahead. For the implications that the Adens’ forecast would have on the prospects for long-term warrants please read this article.
Out of the 140 analysts who are on record as stating that gold will eventually undergo a parabolic move in price to $3,000 and beyond (see here) only the above 8 analysts have made specific price projections for 2012.
WELCOME TO THE PARANORMAL: Bill Gross Warns Of Financial Market Implosion And The End Of Economic Life As We Know It
Bill Gross starts 2012 with a bang in a new note titled "Towards The Paranormal", with "paranormal" being an international successor to PIMCO's famous 'new normal' descriptor.
Gross' letter is very gloomy.
The world has too much debt, too little trust, and is vulnerable towards total collapse.
He writes:
How many ways can you say “it’s different this time?” There’s “abnormal,” “subnormal,” “paranormal” and of course “new normal.” Mohamed El-Erian’s awakening phrase of several years past has virtually been adopted into the lexicon these days, but now it has an almost antiquated vapor to it that reflected calmer seas in 2011 as opposed to the possibility of a perfect storm in 2012. The New Normal as PIMCO and other economists would describe it was a world of muted western growth, high unemployment and relatively orderly delevering. Now we appear to be morphing into a world with much fatter tails, bordering on bimodal. It’s as if the Earth now has two moons instead of one and both are growing in size like a cancerous tumor that may threaten the financial tides, oceans and economic life as we have known it for the past half century. Welcome to 2012.
The Old/New Normal
But before ringing in the New Year with a rather grim foreboding, let me at least describe what financial markets came to know as the “old normal.” It actually began with early 20th century fractional reserve banking, but came into its adulthood in 1971 when the U.S. and the world departed from gold to a debt-based credit foundation. Some called it a dollar standard but it was really a credit standard based on dollars and unlike gold with its scarcity and hard money character, the new credit-based standard had no anchor – dollar or otherwise. All developed economies from 1971 and beyond learned to use credit and the expansion of debt to drive growth and prosperity. Almost all developed and some emerging economies became hooked on credit as a substitution for investment in tangible real things – plant, equipment and an educated labor force. They made paper, not things, so much of it it seems, that they debased it. Interest rates were lowered and assets securitized to the point where they could go no further and in the aftermath of Lehman 2008 markets substituted sovereign for private credit until it appears that that trend can go no further either. Now we are left with zero-bound yields and creditors that trust no one and very few countries. The financial markets are slowly imploding – delevering – because there’s too much paper and too little trust. Goodbye “Old Normal,” standby to redefine “New Normal,” and welcome to 2012’s “paranormal.”
2012 Paranormal
This process of delevering has consistently been a part of PIMCO’s secular thesis but “implosion” and “bimodal fat tailed” outcomes are New Age and very “2012ish.” Perhaps the first observation to be made is that most developed economies have not, in fact, delevered since 2008. Certain portions of them – yes: U.S. and Euroland households; southern peripheral Euroland countries. But credit as a whole remains resilient or at least static because of a multitude of quantitative easings (QEs) in the U.S., U.K., and Japan. Now it seems a gigantic tidal wave of QE is being generated in Euroland, thinly disguised as an LTRO (three-year long term refinancing operation) which in effect can and will be used by banks to support sovereign bond issuance. Amazingly, Italian banks are now issuing state guaranteed paper to obtain funds from the European Central Bank (ECB) and then reinvesting the proceeds into Italian bonds, which is QE by any definition and near Ponzi by another.
So what does it all mean? Basically that the future could be characterized by horrible, zero-rate growth on one hand, or implosion on the other hand.
This new duality – credit and zero-bound interest rate risk – is what characterizes our financial markets of 2012. It offers the fat-left-tailed possibility of unforeseen – delevering - or the fat-right-tailed possibility of central bank inflationary expansion. I expect the January Fed meeting to mirror in some ways what we have first witnessed from the ECB. It won’t take the form of three-year financing by a central bank – but will give assurances via language that the cost of money will remain constant at 25 basis points for three years or more – until inflation or unemployment reach specific targeted levels. QE by another name I suggest. If and when that doesn’t work then a specific QE3 may be announced – probably by mid-year – and the race to reflate will shift into high gear. But the outcome of left-tailed delevering or right-tailed inflation is not certain. Both tails are fat.
Gartman Flip Flops Again, Now Sees Bull Market For Gold: Time To Sell Everything?
Confirming once again that anyone who subscribes to newsletters looking for guidance on market inflection points, trend, and momentum deserves to lose every last penny, is the just released mea culpa from "world renowned economist" and lately even more renowned flip-flopper Dennis Gartman who has just admitted that his call from December 13, which stated that "gold is in the "beginnings of a real bear market" and conveniently mocked right here, may have been, well, wrong. Financial Post, which apparently is one of the subscribers to said newsletter, reports that "In his daily investment letter Thursday, Mr. Gartman officially reversed his outlook for gold, saying he now views the precious metal as being in a bull market. The new position follows a month where Mr. Gartman was the subject of some high-profile name calling from fellow investment letter writer, Peter Grandich. Mr. Grandich called Mr. Gartman “one of the Three Stooges” of gold forecasting after the latter declared that gold was officially in a bear market (if you’re wondering, the other two accused of being in that trio are Jeff Christian of CPM Group and Jon Nadler of Kitco)." Frankly there is no point to devolve to name calling - those who are not familiar with Gartman need but take one look at the performance of his ETF since inception - suffice it to say that with Gartman now flip flopping to the long side, it is likely time to get the hell out of dodge.
More:
Mr. Gartman’s reversal comes as he has failed to buy back gold below the price he sold it at a few weeks ago. He said that now that gold priced in euros has taken out its previous interim high, he sees the metal returning to a bull market.
“The bear run that began in August has now officially ended, for the string of lower lows and lower highs is over,” he said in his Gartman Letter. “This does not help us in hoping for/expecting/indeed demanding some weakness into which to buy, but it does give us “permission” to become officially bullish once again.”
...
For what it’s worth, Mr. Gartman admitted his call on gold was a bad one.
“We sold gold rather properly several weeks ago; we failed miserably, however, to buy it back for although our intent was clear late last week as we said it was our intention soon to re-buy that which we had sold, we’ve failed to do so,” he said.
There is only one sure thing that will come out of this laughable incident: absolutely nothing, and likely as soon as tomorrow we will see Gartman back on CNBC giving people advice about what to do with their money.
Chart of the Day - Chevron (CVX)
Trading Lesson 4: Picturing Technical Objectives
When prices form pictures on charts, you can obtain realistic objectives for later moves. One of the most reliable chart formations is the head-and-shoulders top or bottom. This easily recognizable chart pattern signals a major turn in trend.
The main advantage of the head-and-shoulders pattern is it gives you a clear-cut objective of the price move after breaking out of the formation. Measure the price distance between the head and the neckline and add it to the price where the neckline is broken. This projects the minimum objective. Although the head-and-shoulders gives no time projection, it predicts a very strong trend in the future.
In most cases, a head-and-shoulders formation will be symmetrical, with the left and right shoulders equally developed. Although the neckline doesn't have to be horizontal, the most reliable formations stray only a little.
Flags and pennants are consolidation patterns which give objectives for further moves. As the formation develops, price action in an uptrending market will look like a flag flying from a flagpole as prices tend to form a parallelogram after a quick, steep upmove. Flags "fly at half-staff." The more vertical the flagpole, the better.
A price objective is obtained by measuring the flagpole and adding it to the breakout point of the formation. The flagpole should begin at the point from which it broke away from a previous congestion area, or from important support or resistance lines. Flags in a downtrending market look like they are defying gravity and slant upward.
Continuation patterns
A pennant also starts with a nearly vertical price rise or fall. But, instead of having equal move reactions in the consolidation phase like a flag, pennant reactions gradually decrease to form short uptrend and downtrend lines from the flagpole.
The same measuring tools used in flags are used in pennants. Add the length of the flagpole to the breakout point to get the minimum objective. Remember, flags and pennants are usually continuation patterns in an overall trend which resumes after the breakout of the consolidation area.
Also, the coil formation, or symmetrical triangle, appears while prices trade in continually narrower ranges, forming uptrend and downtrend lines. This pattern doesn't tell you much about the direction of the next move. After breaking one of the trendlines, the objective is found by adding the width of the coil's base to the breakout point.
Springing from coils
The formation gets its name from the way prices contract and suddenly spring out of this pattern like a tight coil spring. One caution about this formation: It's best if prices break out of the formation while halfway to three-quarters of the way to the triangle's apex. If prices reach the apex, a strong move in either direction is less likely.
Ascending and descending triangles are similar to coils but are much better at predicting the direction prices will take. Prices should break to the flat side of the triangle.
Price objectives from ascending and descending triangles can be obtained two ways. The easiest is to add the length of the left side of the triangle to the triangle's flat side.
Another method of projecting price is to draw a line parallel to the sloping line from the beginning of the triangle. Expect prices to rise or fall out of the triangle formation until they reach this parallel line.
More objectives
In the lesson on trends, we mentioned double and triple tops and bottoms. These formations also provide us with objectives. Once a double bottom is completed, prices should rise at least as far as the distance from the bottom of the "W" to the breakout point.
A double bottom is confirmed when prices close above the center of the "W" formation. This is referred to as the breakout. The difference from the bottom of the formation to the top gives a price objective. Targets for price declines from double tops are figured the same way.
Often, prices will retest the breakout point after completing the formation. After a double top is completed, prices may briefly rebound to test the resistance, which is the same point where the original double top was completed.
I know, it all sounds a bit complicated right? I promise you though, if you put a little practice and effort into learning how to spot these patterns, it will pay off in spades for you.
Time to take that first step...
Can you locate the Flag and Pennant formations in this chart from the MarketClub member's area (Hint: there is one of each)?
4 International Stocks for 2012: BTM, TOT, IX, MTL
For the first time in a long time, the good 'ole US stock market was one of the top performers this past year. And it remains a top investment choice as we begin the New Year.
Although far from robust, the US economy should provide 'good enough' growth to drive healthy earnings growth in 2012. And given that the S&P trades at just 12X earnings, stocks look very attractive, especially next to cash or bonds.
Meanwhile, Europe is facing a mild recession at best as it implements painful but necessary austerity measures, and Japan appears stuck in a perpetual 'Lost Decade'. And the former untouchable BRICs just posted their second consecutive year of stock market underperformance as their economies all face mounting issues.
But don't write off international stocks completely in 2012.
Price Doesn't Always Equal Value
During periods of heightened fear in the markets, stocks around the globe tend to move in one direction: down. Europe, Asia and Latin America all got hit the hardest in 2011 as investors fled to the relative safety of the US, buying up blue chips, the US dollar and Treasuries.
And it's exactly when price decouples from value that creates the best opportunities for value investors. The often quoted but seldom followed advice from Warren Buffett is to "be greedy when others are fearful". In this case, that means investing in companies headquartered in the hardest-hit markets of 2011.
4 International Stocks for 2012
Brazil - Brasil Telecom (BTM)
People used to joke that Brazil was "the country of the future, and it always will be". But it looks like this bustling Latin American country of 195 million may finally be arriving. Although Brazil's economic growth in 2012 may not be quite as robust as in years past, where do you think the economy will be will be five or ten years from now? My guess is significantly higher.
And there to capitalize on that growth will be Brasil Telecom, which provides telecommunications services throughout the country. This unloved stock trades at just 4x 2012 EPS and 0.2x book value. Oh, and it pays a dividend that yields a solid 3.0%.
France - TOTAL (TOT)
It seems like everyone wants to short Europe these days. Buying shares of this French oil and gas company would fly in the face of conventional wisdom. And that's just fine for the contrarian.
For the first 9 months of 2011, sales were up 15%, EPS up 16% and cash from operations up 11%. But with shares trading at just 7x 2012 consensus EPS, it seems like investors have priced in a pretty big economic slowdown in 2012.
If the global economy isn't as bad as feared in 2012 and oil prices don't crash, expect another year of solid results for this European company. And that could mean big gains for this discounted stock. In the meantime, investors will be rewarded with a hefty 5.1% dividend yield.
Japan - Orix Corporation (IX)
Remember when Japan was going to take over the world? Well, two 'Lost Decades' later, and the country is barely on investors' radar screens these days (look at all the 'Asia ex-Japan' funds out there). But this has caused some strong Japanese companies to be overlooked.
Formed in 1964, Orix Corporation is a diversified financial services company operating in 6 segments: Corporate Financial Services (15% of revenue), Maintenance Leasing (9%), Real Estate (25%), Investment & Operation (8%), Retail (28%), Overseas Business (15%). Unlike some of its former competitors, Orix managed to stay profitable throughout the financial crisis and is expected to grow EPS at a healthy clip over the next few years.
Nevertheless, shares trade at just 0.5x book value and 8x forward earnings. And its PEG ratio is an attractive 0.65 based on a long-term growth rate of 12.3%.
Russia - Mechel OAO (MTL)
Arguably the least favorite of the BRIC countries the last couple of years has been the 'R': Russia. In fact, the Market Vectors Russia ETF (RSX) is down more than 40% since the beginning of 2008. Although the country still faces many challenges, Russia is expected to see healthy economic growth in 2012.
And many solid Russian companies have gotten their teeth kicked in as investors shun the country. Mechel is one of those companies. It is the largest coking coal producer and sixth-largest steel producer in Russia. Through the first 9 months of 2011, revenue was up +38%, with operating income up +40%.
Despite this, shares trade at just 3x the 2012 Zacks Consensus Estimate. It's also trading at only 0.7x book value. These multiples could rapidly expand if the low expectations for the global economy improve. Another potential catalyst: the Russian presidential election in March.
The Bottom Line
Considering how awful 2011 was for international stocks, the US had a relatively good year. And the US is still among the favorites to outperform this year. But don't count out foreign stocks completely in 2012. These 4 international stocks look like bargains.