Thursday, February 14, 2013

Crisis Investing 101: Everything You Need to Know About Gold and Oil

Protecting profits and preparing for an economic crisis is likely the furthest thing from your mind right now. The stock market is on a tear higher and the economic picture is looking brighter by the day.

Thanks to an unfettered quantitative easing policy of the Federal Reserve combined with ultra-low interest rates, it appears that the U.S. economy has finally averted a major crisis. This massive intervention is unprecedented in U.S. economic history. No one really knows whether it will successfully serve to kick the economy into high gear so that the cash infusions can be scaled back or will only serve to create the next crisis.
This is why wise investors are using these boom times to design portfolios that can withstand and even profit from the next economy crisis, regardless of when it strikes.

As I wrote in this introductory article, no one knows for certain what the future holds. The only sure thing is that diversification into various "crisis-proof" asset classes is the smartest move.
Two of the most popular crisis investments, gold and oil, are known to stand strong during an economic crisis. (more)

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Four In 10 Americans Are Living Paycheck to Paycheck

by Walter Hamilton
LA Times

More than four in 10 Americans are living paycheck to paycheck and nearly one in 10 doesn’t earn enough to pay for essentials, according to a study released Tuesday.
The survey, conducted for the Allstate insurance company by FTI Consulting Inc., underscored the conflicted emotions and attitudes about personal finances among ordinary people.
It showed the challenges that people are facing in a soft economy and troubled labor market, but it also demonstrated that many people make unwise financial decisions even when they know better.
The survey found that 59% of Americans say they generally know how to handle money and make the right financial decisions. But 47% of respondents said they’re saving less money than they should be.
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Auto Industry Stock Outlook - Feb 2013: TM , TEN , SUP , NSANY , MTOR , MGA , HMC , GT , GM , FIATY , F , DDAIF

The auto industry is highly concentrated. The top 10 global automakers account for roughly 80% of the worldwide production and nearly 90% of total vehicles sold in the U.S.

In January 2013, General Motors Company (GM - Analyst Report) led with an 18.7% market share in the U.S., followed by Ford Motor Co. (F - Analyst Report) with a 15.9% market share, Toyota Motors Corp. (TM - Analyst Report) with a 15.1% market share, Chrysler-Fiat with a 11.3% market share, and Honda Motor Co. (HMC - Analyst Report) and Nissan Motor Co. (NSANY - Analyst Report) at the last spots with 9.0% and 7.8% market shares, respectively.

Toyota recaptured the sales crown from General Motors by selling 9.75 million vehicles globally in 2012, which exceeded GM’s sales of 9.29 million vehicles. Germany ’s Volkswagen AG (VLKAY) came third with sales of 9.07 million vehicles for the year. Toyota’s victory can be attributed to its impressive product lineups and marketing initiatives.

Toyota lost its No.1 position to GM in 2011 after gaining the title from GM in 2008. The loss of crown was driven by declining reputation due to a series of safety recalls as well as negative impact from natural disasters in Japan and Thailand in 2011. However, the automaker had vowed to regain the top position by increasing its dependence on the non-U.S. markets, especially the high growth emerging markets. (more)

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5 Reasons Not To Buy Gold (Hulbert)

by Mark Hulbert, Barrons

Humphrey Neill, the father of contrarian analysis, famously wrote that “when everyone thinks alike, everyone is likely to be wrong.”
That’s a sobering thought when it comes to gold, since the belief in gold’s investment virtues seems to be almost universal.
For this column I am taking Neill’s advice to heart, with help from a new study published by the National Bureau of Economic Research in Cambridge, Mass. “The Golden Dilemma,” by Claude Erb, a former commodities portfolio manager for Trust Company of the West, and Campbell Harvey, a finance professor at Duke University, calls the conventional wisdom into question.
I should stress that the study’s authors are not predisposed against gold. For example, Erb told me, he frequently bought and held gold for the commodities portfolio he used to manage. Here’s a summary of the study’s findings:
#1 – Gold as inflation hedge
This is perhaps the most widely held belief about gold, and the one that the study’s authors devote the most energy to analyzing. They found that gold does not live up to the widely held belief that gold’s price in real terms remains more or less constant.
Over any of the time periods assumed by investors — from the short term to as long as 20 years — gold’s real price has fluctuated wildly. Interestingly, Erb and Prof. Harvey told me in separate interviews that this finding …
Read More …

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3 Incredibly Cheap Stocks Could be the Best Rebounds of 2013

It's always helpful to keep an eye on losing stocks. Whether it's a scan of the stocks making fresh 52-week lows, or a screen for stocks that have fallen sharply in recent quarters, you may come across tomorrow's winning trades.
Case in point: Shares of Netflix (Nasdaq: NFLX), which saw its shares slump from $300 in the summer of 2011 to just $60 a year later. Snapping up this losing stock in the fall of 2012, when most investors were fleeing, turned out to be a wise move as shares have rebounded a stunning 200% -- in less than five months.
The 10 Worst Performers of the Past 12 Months*

*representing stocks in the S&P 500 and S&P 400
Here's a look at three deeply-bruised stocks that have serious rebound potential in 2013. (more)
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Mcalvany Weekly Commentary

Michael Pettis: Global Cooperation After the Fall

About this Week’s Show: 
-Involuntary re-balancing of the world
-More investment is not the solution for China
-The Financial Repression “Tax”
About the Guest: Michael Pettis is a Senior Associate at the Carnegie Endowment for International Peace and a finance professor at Peking University’s Guanghua School of Management, where he specializes in Chinese financial markets. Pettis has worked on Wall Street in trading, capital markets, and corporate finance since 1987. Read more: click here

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Explaining The WTI-Brent Spread Divergence

Something totally bizarre has happened in the last three years. Oil in America has become much, much cheaper than oil in Europe. Oil in America is now almost $30 cheaper than oil in Europe.
This graph is the elephant in the room:
3 year brent spread
And this graph shows how truly historic a move this has been:
The ostensible reason for this is oversupply in America. That’s right — American oil companies have supposedly been producing much, much more than they can sell:
This is hilarious if prices weren`t so damn high, but despite a robust export market for finished products, crude oil is backing up all the way to Cushing, Oklahoma, and is only going to get worse in 2013.
Now that Enterprise Products Partners LLP has let the cat out of the bag that less than a month after expanding the Seaway pipeline capacity to 400,000 barrels per day, The Jones Creek terminal has storage capacity of 2.6 million barrels, and it is basically maxed out in available storage.
But there’s something fishy about this explanation. I don’t know for sure about the underlying causality — and it is not impossible that the oil companies are acting incompetently — but are we really supposed to believe that today’s oil conglomerates in America are so bad at managing their supply chain that they will oversupply the market to such an extent that oil sells at a 25% discount on the price in Europe? Even at an expanded capacity, is it really so hard for oil producers to shut down the pipeline, and clear inventories until the price rises so that they are at least not haemorrhaging such a huge chunk of potential profit on every barrel of oil they are selling? I mean, that’s what corporations do (or at least, what they’re supposed to do) — they manage the supply chain to maximise profit.
To me, this huge disparity seems like funny business. What could possibly be making US oil producers behave so ridiculously, massively non-competitively?
The answer could be government intervention. Let’s not forget that the National Resource Defence Preparedness Order gives the President and the Department of Homeland Security the authority to:
(c)  be prepared, in the event of a potential threat to the security of the United States, to take actions necessary to ensure the availability of adequate resources and production capability, including services and critical technology, for national defense requirements;
(d)  improve the efficiency and responsiveness of the domestic industrial base to support national defense requirements; and
(e)  foster cooperation between the defense and commercial sectors for research and development and for acquisition of materials, services, components, and equipment to enhance industrial base efficiency and responsiveness.
And the ability to:
(e)  The Secretary of each resource department, when necessary, shall make the finding required under section 101(b) of the Act, 50 U.S.C. App. 2071(b).  This finding shall be submitted for the President’s approval through the Assistant to the President and National Security Advisor and the Assistant to the President for Homeland Security and Counterterrorism.  Upon such approval, the Secretary of the resource department that made the finding may use the authority of section 101(a) of the Act, 50 U.S.C. App. 2071(a), to control the general distribution of any material (including applicable services) in the civilian market.
My intuition is that it is possible that oil companies may have been advised (or ordered) under the NDRP (or under the 1950 Defense Production Act) to keep some slack in the supply chain in case of a war, or other national or global emergency. This would provide a capacity buffer in addition to the Strategic Petroleum Reserve.
If that’s the case, the question we need to ask is what does the US government know that other governments don’t? Is this just a prudent measure to reduce the danger of a resource or energy shock, or does the US government have some specific information of a specific threat?
The other possible explanation, of course, is ridiculous incompetence on the part of US oil producers. Which, I suppose, is almost believable in the wake of Deepwater Horizon…

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6 High-Yielding Stocks From One of the World's Leading Emerging Markets

Brazil is an undisputed economic powerhouse.

Not only is it the leading emerging market and the largest economy in South America, it is the sixth-largest economy in the world after overtaking England in 2011. The country's incredible rise to global prominence has been driven by its rich trove of natural resources.
Brazil's largest export is iron ore, and is the world's third-largest producer behind only China and Australia. Brazil's iron ore exports are up more than 200% in just the past three years.

Brazil is also a major player in energy. It is currently the 13th-largest exporter of crude in the world, but that's rapidly changing... The country's growth in energy got a big boost in 2006 with the discovery of the Lula oil field off its eastern coast, lifting Brazil's proven and probable reserves by 150% to 50 billion barrels. The Economist projects that will help the country rise to the sixth-largest oil producer in the world by 2020.

Agriculture is also a huge part of Brazil's booming growth story, accounting for 8% of the country's gross domestic product and employing a remarkable quarter of its labor force in more than 6 million agriculture enterprises. Brazil is the world's largest producer of sugarcane and coffee, and a net exporter of cocoa, soybeans, orange juice, tobacco, forest products, and fruits and nuts. (more)

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