Is That A Bell I Hear Ringing?

by Bill Holter, JSMineset.com:

Attached is a chart (www.stockcharts.com) for the HUI index going back 3 years on a weekly basis. I usually do not talk or write about charts because they can and are “painted” to make a picture that the “planners” want us to see. In my opinion, they have painted themselves into a corner where the mining stocks are concerned. So what does this mean to you? It means that IF you have endured and held on to your mining shares and not been scared out, you will FINALLY get paid and get paid BIG! Let me explain.

If you look at the chart, you will see the MACD at the bottom (moving average convergence divergence), these are the two squiggly red and black lines that keep crossing over each other. Whenever the black line crosses over the red line from a high point or low point, it usually tells you the direction of the index for the next couple of months or so. You will notice that the highest crossover point where black crossed red to the downside was back in 2009 (after the ’08 crash). Each successive rally reached a lower height on the MACD’s and the low point crossovers were successively lower. This, while the HUI index is just a little bit higher but has been basically “marking time”. During this period, Gold has outperformed the shares in a huge way. Another way of saying this is that the shares are now more undervalued vs. Gold than they have been over these 3 years. In fact, the shares have only been this undervalued twice since the bull market began, 2001 and 2008.

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How To Profit from Rising Oil Prices

The U.S. consumer remains in a precarious state. Wages are rising at a slow pace, keeping many workers from boosting their earning -- and spending -- power on an inflation-adjusted basis. In fact, consumers may start to feel that they are losing ground if gasoline prices hit $4 a gallon this spring, as many economists now expect. The price of West Texas Intermediate Crude (WTI), the benchmark for U.S. oil prices, has been surging lately, and seasonal effects imply "pain at the pump," come this spring.

I've been thinking about oil prices as I review the holdings in my $100,000 Real-Money Portfolio. Stocks such as Ford (NYSE: F), Alcoa (NYSE: AA) and Hasbro (NYSE: HAS) could all be vulnerable to rising oil prices if consumers start to retrench.

To hedge against such a possibility, it's time to add exposure to crude oil. If prices do indeed rise, then an oil producer is likely to see its stock rise by a significant amount, as was the case in the oil "Super-Spike" of 2008.

Of course, I could simply look to acquire shares of an "oil major" such as ExxonMobil (NYSE: XOM) or ConocoPhillips (NYSE: COP). But I've got my eye on an oil stock with potentially much more upside. Best of all, this company's stock looks undervalued even if oil prices pull back by a moderate amount.

I'm talking about Marathon Oil (NYSE: MRO). The company got its start back in 1887 (known then as the Ohio Oil Co.), was acquired by U.S. Steel (NYSE: X) in 1982, and was spun off as an independent company in 2002. Marathon has recently completed a pair of transactions that help establish broadly-diversified regional exposure, while setting the stage for robust free cash flow in coming years. Against that backdrop, shares are quite inexpensive, trading for less than four times projected 2012 EBITDA.

A cleaner story

Oil production is a very profitable business. Yet many oil-related businesses such as petrochemicals and refining are not always consistent money-makers. That's why Marathon spun off Marathon Petroleum (NYSE: MPC), it's oil refining division, last July. Yet it's a move made a month earlier that has really altered Marathon's trajectory...

In June 2011, Marathon announced plans to acquire Hilcorp Resources Holdings for a hefty $3.5 billion. At the time that seemed to be a stiff purchase price, representing the most-richly valued purchase in the Eagle Ford shale on a per-acre basis. Half a year later, some still question the wisdom of the move, noting that EOG Resources' (NYSE: EOG) production in Eagle Ford appears to be a lot higher than Marathon's Hilcorp acreage.

What those detractors may be missing is that EOG had a two-year head start in plunking down wells. With each passing quarter, Marathon's output in the Eagle Ford shale should rise ever higher. That acreage complements Marathon's already strong presence in the Bakken shale.

But this isn't just another shale play. The charm of this business model is that Marathon is exposed to oil (60% of current production) and gas (about 40%), and has operations in the United States and abroad. This insulates the company from the vagaries associated with oil and gas prices, while removing country-specific risk. And Marathon actually derives more than half of its $51.6 billion in 2011 sales were from foreign projects in places like Norway, Poland, Kazakhstan and Libya. (Production in Libya, of course, took a hit in 2011, but should be back to full output later this year.)

Perhaps the greatest appeal is the relative maturity of the company's operations. Marathon is spending heavily in 2012 to ramp up output in the acquired Eagle Ford acreage, but otherwise has relatively fewer capital requirements in most of its other regions. And the company's various acreage plays appear to have an extended usable life, perhaps into the latter part of this decade, so Marathon's production isn't likely to drop due to well depletion, as is the case with some other energy firms.

And that sets the stage for ongoing robust free cash flow generation. A spike in capital spending, from about $3.4 billion in 2011 to about $4.8 billion in 2012, is likely to push free cash flow in 2012 down to around $1.5 billion, from $3.5 billion in 2011. But that figure should rebound to the $2.5 billion to 3.0 billion-level for 2013 and stay there for an extended period, assuming energy prices stay constant. This means Marathon sports a free cash flow yield in excess of 10% based on 2013 and subsequent projected results.

Note that phrase "assuming energy prices stay constant." Management uses a benchmark price of $85 per barrel of West Texas Intermediate (WTI) crude (and around $100 for the pricier Brent crude oil) in its forecasts. Notably, the spot market is already $15 to $20 above that figure and could head up another $15 if global economic activity picks up in coming years or tensions in the Middle East rise further.

Simply put, I like this stock with that West Texas oil price at $85 -- I really, really like it at $100, and I absolutely love it at $115. As a point of reference, analysts at JP Morgan recently boosted their WTI forecast to $111 a barrel by the end of 2012. (It's important not to confuse this with Brent Crude, which is often $10 to $20 per barrel more expensive.)

The Downside Protection --> Shares likely have tangible support at current levels, trading at around four times projected EBITDA, which assumes $85 for a barrel of WTI crude. If the U.S. economy slumped anew and oil prices fell back to levels seen in 2009 and 2010, then shares would likely fall from the current $35 to a range of $25 to $30.

Upside Triggers --> Management appears to have set a fairly conservative tone in terms of expected output in the United States and abroad. All signs point to Marathon exceeding the production targets it has laid out. Assuming $85 WTI crude and production output that looks quite attainable (but above the low guidance), this stock could move up from the current $35 into the low $40s. If WTI stays near $100 for the rest of 2012 and into 2013, then shares are likely to approach $50. If WTI keeps rising up toward $115, then shares could hit $60. The downside appears well in place, and the potential upside appears to be significant.

Frankly, if crude oil prices fail to rally, then the rest of my $100,000 Real-Money Portfolio will be on more solid ground. So look at a position in Marathon Oil as portfolio protection, and not just another potentially winning trade.

Philadelphia Fed president notices that Fed is rigging markets

That makes two U.S. central bankers:

http://www.gata.org/node/10839

“Market intervention is exactly why central banking was invented. Intervening in markets is what central banks do. They have no other purpose.”

– A high school graduate at GATA’s Washington conference, April 18, 2008. (http://www.gata.org/node/6242)

* * *

Plosser Says Fed MBS Purchases May Be Breach Into Fiscal Policy

By Joshua Zumbrun
Bloomberg News
Friday, February 24, 2012

http://www.bloomberg.com/news/2012-02-24/plosser-says-fed-mbs-purchases-…

Philadelphia Federal Reserve Bank President Charles Plosser said that central bank purchases of mortgage-backed securities may be an inappropriate foray into policy that should be conducted by the U.S. Treasury.

“When the Fed engages in targeted credit programs that seek to alter the allocation of credit across markets, I believe it is engaging in fiscal policy and has breached the traditional boundaries established between the fiscal authorities and the central bank,” Plosser said according to prepared remarks of a speech he’s giving in New York today.

Federal Reserve Chairman Ben S. Bernanke and the Federal Open Market Committee are debating a new round of mortgage bond purchases to help boost the housing market and the economy.

“Central banks and monetary policy are not and cannot be real solutions to the unsustainable fiscal paths many countries currently face,” Plosser said on a panel at the University of Chicago’s Booth School of Business 2012 U.S. Monetary Policy Forum. “The only real answer rests with the fiscal authorities’ ability to develop credible commitments to sustainable fiscal paths.”

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5 Water Stocks To Tap Into : AWK, AWR, CWT, SJW, WTR

Usually when the talk shifts to resources where demand outstrips supply, the focus is oil or precious metals, but there is another resource that is finding its way into these discussions - clean water.

Two-thirds of the Earth's surface is covered by water, but only a fraction of that is potable. While desalinization efforts may help satisfy some of the demand, increasing population and pollution has made water a very fragile and important resource.

Another factor to consider is the high cost to tap sub-surface water supplies, and to create the infrastructure necessary to transport it to remote areas. Unfortunately, this makes accessing and distributing water quite difficult for struggling economies. Companies that treat waste water are also important because they play a major role in keeping our environment clean and preventing transmittable diseases. Investors may get in on the demand for clean water by investing in this resource.

Water Stocks to Know
The following is a list of larger, better known public companies that provide water services or wastewater treatment:

Company	Market Capitalization
American Water Works Company, Inc. (NYSE:AWK)	5.95B
Aqua America Inc. (NYSE:WTR)	2.94B
California Water Service Group (NYSE:CWT)	783.23M
American States Water Company (NYSE:AWR)	697.50M
SJW Corp. (NYSE:SJW)	453.25M
Data as of 02/27/2012

Bottom Line
The growing world population means that companies that process, deliver and/or transport water will always be in high demand. The stocks covered here are definitely worthy of follow up research for investors looking to capitalize on the attractive long term fundamentals that exist with water.

Silver Prices Rising: Traders Are Betting Big

By now it's no secret that Silver has wildly outperformed the major indexes and it's fully-precious big brother, Gold, so far in 2012. The question, naturally, is whether or not it's too late to get on board.

In the attached clip Jon Najarian and I discuss how the "smart money" is playing silver and what it means for individual investors trading in the pits or at home via the wildly popular iShares Silver Trust etf (SLV).

In addition to the industrial function of silver making the metal a semi-appropriate way to play an economic recovery Najarian says the metal represents, "a cheaper way to play the flood into precious metals." Regardless of silver's 27% run year-to-date and positioning near heavy resistance at $35 an ounce, Najarian still "likes silver a lot."

In no small part what the TradeMonster.com co-founder is seeing are notoriously short-term thinkers in the options pits buying the $35 calls out to June, a stunningly long view for the quick-trigger set.

Also supporting the notion of options players' bullish stance on silver, at least according to Najarian, is the trading activity in a lesser known Proshares UltraShort Silver (ZSL) --a double-inverse trading vehicle designed to move $2 higher for every $1 drop in silver.

"If you thought silver was going to break (lower) people would start buying ZSL calls," Najarian says.

In other words, traders would be levering up their bet in multiple ways by using calls to ramp up risk on an ETF that's levered in the first place. I wouldn't touch such a play with my worst enemy's cash but it is a decent reflection of how the bold traders are positioned.

Relatively lower risk silver bulls are buying the aforementioned calls in massive size, Najarian says. Big as in "monster," as in $10 million wagers that silver will go not just higher, but much higher between now and options expiration in late June.

Why Investors Should Get Off the Sidelines

The long trend in fear finally broke last month.

For seven straight months, investors ran from stocks. Month after month, they pulled money out of stock-based mutual funds [2].

But right now, the tide is turning. We're back at the beginning of the cycle. And we should see many more months of gains in stocks...

For years, I've been watching "the crowd" through the data on how much money is flowing into and out of stock-based mutual funds...

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For long stretches, investors keep putting new money into the market [3]... Then, months after the trend began, the market peaks. After stocks begin to drop, investors sell for long stretches... Then, months after that trend began, we hit a bottom.

Earlier this year I noted, "It's like watching the tide. There's no guarantee [4] the flow of money out of stocks will end this month or next. The important thing is to recognize where we are in this cycle."

Where we are right now, I believe, is at the beginning of a long period of investors pouring money into stocks, which will push stock prices higher.

Last month, investors pushed $16.8 billion into equity funds. That may sound like a lot, but it's a drop in the bucket compared to the $177 billion that rushed out of stock-based mutual funds since May 2011.

Some investors may feel like they missed the boat if they weren't buying at the bottom a few months ago. The truth is, investors almost never "catch the bottom."

And there are huge gains to be had following the trend. If history is any indication, we're likely to see a lot more money boost the market during the first half of 2012. Take a look at the last two bull markets...

Keep in mind, these performance numbers DO NOT assume you caught the bottom and sold at the top. This is how investors did if they bought at the end of the first month that "fund flows" went positive, and then simply rode the uptrend.

I don't expect stocks to go up in a straight line from here – trends always have dips. For traders, the market looks "overbought" right now, as my colleagues Jeff Clark and Brian Hunt noted recently.

Longer term, however, I'd be looking to buy over the next few weeks and months. The Russell 2000 returns show how small-cap stocks tend to do better than large caps during a bull market [5], so I suggest concentrating on that sector.

"The crowd" is just starting to wake up to the fact that the world isn't ending. History shows that these uptrends last for months as investors move their money back into stocks.

You should take advantage.

Gold & Silver’s Perfect Breakouts

by Warren Bevan – Precious Metals Stock Review
Published : February 27th, 2012

The week was interesting as we basically stalled out for the most part with many US indexes and stocks, especially coming onto the end of the week. This may be a sign that a top is nearing but then again volume is low as we’re not moving higher which is good and we’ve seen these little bases and then runs higher since late 2011.

Now with most of the Greek issue behind us there is no real reason we can’t run higher. One other significant thing I’ve been seeing for a while now is that many of the Dow stocks which are normally sleepers are really perking up and moving faster out of nice bases which is very encouraging overall.

While the markets were sleepy, the precious metals were on fire, well maybe not on fire, but they have broken out decisively and are moving higher. It’s when we say, and mean, that they are on fire that it will be time to be looking for the exits.

On that note let’s check out the excellent looking charts of gold, silver and platinum especially.

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This High-Yield ETF Could Move +20% Higher

By Dr. Melvin Pasternak,
With rock bottom interest rates, Mr. Market remains on the prowl for high-yielding securities. As a result, I've focused several recent Trade of the Week articles on finding secure blue chips with healthy, rising yields.

For traders willing to accept more risk, I've tuned to one of the hottest segments of the market: junk-bond ETFs.

BlackRock Investments reports that inflow into global fixed-income ETFs hit an all-time high of $9 billion this January 2012, up 34.3% from the previous record high of $6.7 billion in January 2009.

According to a recent Wall Street Journal report, in 2011, high-yield bond ETFs saw a 68% inflow increase from the previous year. Traders are likely rushing in for several reasons. First, the Fed has stated interest rates are likely to remain low, until at least 2014. Second, the default rate on junk-bond companies remains at historically low levels.

Risk appetite also seems to be on the rise with upbeat domestic data showing the economy may be starting to mend. For example, January's jobless claim numbers just hit a nine-month low. Lastly, yield spreads -- the difference between the yield on "risk-free" treasuries and junk bonds on comparable term maturities -- are contracting. Since yields and bond prices move inversely, contracting yield spreads means rising bond prices.

Because of its strong chart and bullish technical outlook, my favorite high-yield bond ETF is the SPDR Barclays Capital High Yield Bond ETF (NYSE: JNK).

With a basket of 223 holdings and $11.1 billion in assets, JNK's bonds are primarily allocated in the industrial sector (85.4%). A smaller percentage of holdings are in the utility (7.9%) and financial sectors (6.2%). Top holdings include HCA Holdings (NYSE: HCA) bonds, maturing in 2020, Sprint (NYSE: S) notes maturing in 2018, and First Data bonds maturing in 2021.

As defined by their status as sub-investment grade, all bonds carry a debt rating of "BB" or lower. The "BB" or "junk" status denotes that the companies which issue these bonds carry high debt levels and, therefore, present a greater probability of default or bankruptcy.

However, with this greater risk comes greater reward. JNK offers an attractive yield of approximately 7.4%. The fee, or expense ratio, of JNK is just 0.4%.

From a technical perspective, JNK appears highly bullish. Year-to-date, the fund is up approximately 7.5%, besting the performance of the S&P 500.

Rising steadily off its May 2010 low near $31, JNK met substantial resistance in mid-2011 when it unsuccessfully attempted to break resistance around the $38.75 level.

The fund tested this resistance level three times in May, August and October. Each time, the ETF faltered, retreating to support near $35. On its second breakout attempt, the fund fell to a low of $33.25, briefly breaking the Major uptrend line, before regaining ground.

However, in November 2011, shares again rose above the Major uptrend line. A steep accelerated uptrend line formed shortly thereafter and the ETF has not looked back since.
In early January of this year, JNK finally successfully broke important $38 resistance, bullishly completing an ascending triangle pattern.

The fund has slowly risen since, but, until recently, was capped by resistance near $39.
However, this past February 20th trading week, it successfully surpassed this resistance, bullishly breaking a second small ascending triangle, while hitting a two-year high, near $40.

The measuring principle for a triangle is calculated by adding the height of the triangle to the breakout level; adding the two consecutive ascending triangles together gives a price target of $42.95 ($39.92-$36.89=$3.03; $3.03+$39.92=$42.95). At current levels, this represents a 7.6% gain.

However, with no nearby resistance in sight, the fund could move higher. It's not out of the question the ETF could retest its 2008 high near $48. From current levels, this gain would give traders a 20.2% return. I don't expect this movement to happen overnight; in the meantime, however, traders collect dividends while they wait.

http://web.streetauthority.com/nprint.asp?p=s&d=6153&t=s