Monday, March 26, 2012

Yamana Gold Is Low Enough to Mine

Yamana Gold (NYSE:AUY) — This large-cap Canadian-based miner of gold properties in the Americas has been recommended several times by us, the last was on March 8 around $17.

The fundamental analysts, like Credit Suisse (NYSE:CS), have raised their target from $18 to $21 because of the company’s increase in gold reserves and its ability to meet estimates and increase its dividend.

AUY’s chart pattern has evolved into a powerful bull channel with clearly defined support and resistance lines. Our “buy-under” for AUY on March 8 was $16 with a target of $22. It closed under $16 yesterday, and so AUY should be bought “at the market.”

Art Cashin – Expect Chaos in Markets if War with Iran Begins

from King World News:

Today Art Cashin told King World News many people are concerned about history repeating itself in the form of sudden and sharp inflation. Cashin, who is Director of Floor Operations for UBS, (which has $612 billion under management), also said the Dow could see a 1,000 point move in a day if war breaks out with Iran. Here is what Art Cashin had to say: “I think what people are concerned about is there is an enormous amount of tinder, in that the LTRO in Europe put a lot of assets in the hands of banks who have temporarily parked it at the ECB. The same thing is true here in the United States.”

Read More @

Watch the S&P 500 for a buy signal

Disappointing economic data from Europe and China sent stocks lower yesterday, despite a better-than-expected initial jobless claims number. Stocks that are exposed to global growth, like energy and materials, sustained the biggest selling. FedEx (NYSE:FDX) fell 3.46% following an earnings report that saw revenues fall short of estimates and forecasts that could miss Street expectations.

Other global stocks were hit hard, as well, with U.S. Steel (NYSE:X) off 5.82%, Alcoa (NYSE:AA) down 2.53%, Deere & Co. (NYSE:DE) off over 2% and Caterpillar (NYSE:CAT) off 2.36%. The Dow Jones Industrial Average fell 78 points to 13,046, the S&P 500 was down 10 to 1,393, and the Nasdaq lost 12 points to close at 3,063. Volume on the NYSE totaled 762 million shares while 411 million traded on Nasdaq. Decliners outpaced advancers on the Big Board by a ratio of 2.8-to-1, and on Nasdaq decliners were ahead by 2.2-to-1.

Since much of the blame for yesterday’s decline rested on Europe and China, you would think that they had reversed their bull markets with devastating plunges.

Trade of the Day Chart Key

But instead of a bearish DAX chart (the index that lists most European stocks), we see much the same pattern as our S&P 500 and DJIA. One big difference is that the DAX has so far failed to break the June/July highs. Also note the fresh MACD sell signal telling us to look for a correction to the next support at around 6,800 and then at the 50-day moving average (blue line).

Supposedly, the real driver of yesterday’s selling was weak economics in both Europe and China. The Hang Seng Index trades in Hong Kong and represents most of the influential Chinese stocks. Yesterday the index was up almost 45 points. It is in a correction within a bull channel, with current support at the 50-day moving average (blue line) and major support at the 200-day moving average and bullish support line — both intersect at 20,000.

The S&P 500 broke to new highs in February with little in the way of resistance above it. Yesterday’s decline of more than 10 points broke the index into its first major support zone at 1,375 to 1,400. It also triggered a MACD sell signal, and so we expect to see a pullback to the bottom of the zone with chances very high that the pullback will be contained. The near-, intermediate- and long-term trends are up.

We have, however, received our first technical signal that a minor correction is in progress. Get your buyers’ wish list ready, because at 1,375 you should be a strong buyer of U.S. stocks.

Breaking News : MF Global Missing Money went to JP Morgan

House Committee Releases MF Global Email : the House Financial Services Committee has released an email from MF Global Holding's global treasurer that says former CEO John Corzine sent "direct" instructions to transfer client funds.a key MF Global official writing in an email earlier that the transfer of customer funds from a segregated customer account was per JC's, Jon Corzine's direct instructions ...

How Housing Affordability Can Falter Even as House Prices Decline

The assumption that lower home prices improves the affordability of houses ignores two critical inputs: interest rates and income.

That the U.S. housing market is still in a post-bubble slump is no secret, as revealed by this chart courtesy of note that despite unprecedented intervention, including the complete socialization of the U.S. mortgage market (99% of all mortgages are guaranteed by the Federal government) and the socialization of subprime market for poor credit risks (3% down and easy credit from FHA), this chart punctures the happy-talk illusions of a rebound in housing.

Credit-asset class bubbles cannot be reinflated because they follow an S-curve. No matter how much taxpayer money the Federal government throws into the housing market, it will not reinflate. The financialization (credit/leverage bubble) of housing follows an S-curve as a system, and tweaking the parameters of the inputs (lowering interest rates, buying up toxic mortgages, etc.) doesn't change the curve.

Hubris-soaked central Planners are incapable of understanding that their numerous policy interventions have essentially zero impact on the curve. But if you can't believe systems don't respond to frantic policy measures, then consider these factors:

1. Tens of millions of households are too poor to buy a home (the FDIC calculated 40% of the U.S. households have insufficient income and credit to buy a home) without massive subsidies, and with no skin in the game their purchase is basically a lease with an option to sell later for a private gain at the expense of the government.

if it doesn't work out then it's last one on, first one off: they default with little loss and possibly much to gain, i.e. two years living rent-free in a not-yet foreclosed house.

2. Tens of millions of other households are drowning in underwater mortgages they can afford to pay (barely) but that have crippled their net worth and borrowing power. They are out of the housing market except as potential defaulters.

3. Millions of other credit-worthy buyers have woken up to the fact that buying a house is a form of consumption and a risky "forced savings" investment, as property taxes spiral ever higher and prices continue sagging in many markets. The risk is high and the potential gain is uncertain.

Those snapping up housing for cash are either buying to rent the homes or to speculate that a resurgent housing market will arise and they can "flip" for big profits. This segment simply isn't large enough to soak up all the millions of homes languishing in the "shadow inventory" of homes being held off the market in the vain hope prices will bubble higher.

The general idea of lower home prices is that once prices fall to some magic threshold, buyers will jump in and liquidate the inventory. That notion makes two enormous assumptions:

Interest rates will stay near-zero when inflation is factored in

Household income will stop declining.

In other words, there are three inputs to housing affordability, and price is only one of them. Interest rates and disposable income are equally important. Note that income in all quintiles (the entire spectrum of income--high, middle and low) has been declining since the housing bubble topped in 2007:

Official inflation has been running at around 3% a year, and many other measures suggest that number grossly understates reality by gaming the percentages of various inputs.

But taking the official 3% as a reasonable approximation, then buyers of 4% 30-year mortgages are earning a wafer-thin 1% in real return (4% - 3% = 1%) and they are taking a stupendous risk that inflation will remain well under 4% for the next three decades. Any surge in inflation and rates would destroy much of the value of their investment.

Let's take two examples. Let's say a house that sold for $400,000 at the top of the bubble is now selling for $250,000, $50,000 down (20%) with a $200,000 mortgage at 4%. let's say the household earns $50,000, so the mortgage is exactly four times gross income. The interest on the mortgage is $8,000 annually (principal, property taxes, insurance etc. are added to make up the total mortgage payment).

Now let's say the house declines in price to $225,000, so the down payment drops to $45,000 and the mortgage is $180,000. But let's say investors are now demanding 3% above nominal inflation and mortgage rates are now at the historically moderate level of 6%. Meanwhile, the household income has slipped to $45,000 annually as bonuses and hours are trimmed and workers transition to lower paid positions.

The ratio of income to mortgage is still 4-to-1, but the annual interest payment is now $10,800, $2,800 higher--a 35% increase. By any measure, the house is less affordable despite declining $25,000 in price.

This is how affordability can decline even as home prices continue to slide.

Chart of the Day - Madison Square Garden (MSG)

The "Chart of the Day" is Madison Square Garden (MSG), which showed up on Thursday's Barchart "All Time High" list. MSG on Thursday posted a new all-time high of $33.68 and closed up 1.36%. TrendSpotter has been Long since Feb 7 at $29.77. In recent news on the stock, Maxim on Feb 21 reiterated its Buy rating on Madison Square Garden and raised its price target to $42 from $36. Madison Square Garden, with a market cap of $2 billion, is a fully-integrated sports, entertainment and media business with assets including the New York Knicks (NBA) and the New York Rangers (NHL).


US Weekly Economic Calendar

time (et) report period Actual forecast previous
MONDAY, March 26
8 a.m. Speech by Fed Chair Bernanke
10 a.m. Pending home sales Feb. 2%
TUESDAY, March 27
10 a.m. Consumer confidence March
70.0 70.8
wednesday, March 28
8:30 a.m. Durable-goods orders Feb. 2.9% -3.7%
thursday, March 29
8:30 a.m. Initial jobless claims 3-24 346,000 348,000
8:30 a.m. Gross domestic product Q4 3.1% 3.0%
friday, March 30
8:30 a.m. Personal income Feb. 0.3% 0.3%
8:30 a.m. Consumer spending Feb. 0.6% 0.2%
8:30 a.m. Core PCE price index Feb. 0.1% 0.2%
9:45 a.m. Chicago PMI Mar. 62.8% 64.0%
9:55 a.m. Consumer sentiment, final Mar. 75.0 75.3