Tuesday, February 10, 2015

Is It Time to Buy General Motors: GM Company Stock?

Is General Motors (NYSE: GM  ) stock a buy right now?
It may seem like an absurd question at first glance, because GM had a very tough year in 2014.
Its announcement last winter of a series of recalls that should have been taken care of years ago triggered a big public outcry. Just a few weeks into her tenure, new CEO Mary Barra was faced with lawsuits, heavy fines, harsh lectures from regulators, Congressional grillings -- and a federal criminal investigation that will probably require a hefty cash settlement to resolve. (more)

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Closed-End Funds on Sale

In addition, US stock prices are very high, reflecting economic optimism, while junk bonds (which are similarly exposed to economic fundamentals) are reflecting pessimism.
Investors who are way over-allocated to US stocks should consider trimming them and adding to higher-quality junk-bond closed-end funds (CEFs), which I believe offer commensurate expected returns for lower risk.

A nice bonus is that some of these CEFs may be experiencing yearend tax-loss selling, which will reverse soon. If you’re a more tactical investor, exploiting CEF discount reversion can add a couple of percentage points to your total return.

There are plenty of interesting opportunities. Foremost is PIMCO Dynamic Credit Income (PCI), which, as of this writing, is trading at a discount of more than 10%. Its earnings yield on current market price is around 11%.

I estimate its expected real return, assuming no discount changes, is around 5%-6%, which is higher than the US stock market’s expected real return of 3%-4%.

An encouraging development was lead manager Alfred Murata’s purchase of 10,000 shares at an average price of $21.94 per share on Dec. 4, bringing his total shares owned up to 40,000, or about $850,000 at today’s market prices.

This is probably chump change for Murata, but it’s still a useful signal. PIMCO insiders tend to buy shares at favorable prices, usually when their CEFs are trading at big discounts.

For investors who crave other ideas, I’ve listed some solid to excellent CEFs that are trading at attractive relative and absolute discounts. You should, of course, investigate these funds further before buying.

AllianceBernstein Global High Income (AWF)
BlackRock Debt Strategies Fund (DSU)
DoubleLine Income Solutions (DSL)
LeggMason BW Global Income Opportunities (BWG)
MFS Charter Income (MCR)
MFS Multi-Market Income (MMT)
Prudential Global Short Duration High (GHY)
Prudential Short Duration High Yield (ISD)
Western Asset Global High Income (EHI)
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This Is What Gold Does In A Currency War, Australian Edition

Australia just fired a serious shot in the currency war by cutting its overnight lending rate to a record-low 2.25%.
With the aussie as a result tanking, local holders of bank accounts and cash are quite a bit poorer than they were at this time last year. But owners of gold are doing just fine. While the metal is falling again here in the US (which is at the moment trying to withdraw from the currency war), it’s up about 20% in the past three months in countries like Australia that are on the offensive.
Gold in Australian dollars
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Andy Hoffman: PM Mining and other Near Term Armaggedons

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Where Are Gold Prices Headed? Watch Silver

As a technician that looks at multiple asset classes and stock markets all over the world, I treat them all the same. For us it’s just math. Whether we are looking at shares of MSFT, US Dollar Index, Malaysian Stock Market, Treasury Bonds, etc to us they are all the same. For most market participants this is not the case and people tend to be more interested in certain stocks or markets.That’s understandable. AAPL is a good example, precious metals, Oil lately for obvious reasons, etc etc. These days, I’ve been getting a lot of questions about the price of Gold since the yellow metal has gotten the year off started on such a strong note.
So if you want to know where Gold prices are headed, I think your best bet is to watch Silver. They generally move together, although Silver tends to me the more volatile of the two. Nevertheless, I think if you want to know where precious metals are going as a group, Silver is the cleanest one and that’s our tell.
First of all, you guys know I don’t like to assume correlations like we see some other do so often. I want to responsibly make sure that the math adds up. So after running the numbers, the correlation coefficient between Gold & Silver over the past month is +0.9, over the past quarter it is +0.9 and it is also +0.9 over the past year. They move together.
Now, here is a weekly candlestick chart of Silver going back a few years where we can see that key support near 18.50 throughout the second half of 2013 and into 2014 until it broke last September. Our polarity principles tell us that former support should turn into resistance. This is precisely what occurred over the last couple of weeks. This resistance, or “overhead supply”, is what we want to watch going forward.
2-9-15 si w asc
As you can see on this chart, not only does this former support now represent resistance, but this is also where we run into a downtrend line from the highs in late 2012. In addition, the 18.35 level is exactly the 38.2% Fibonacci retracement from the entire August 2013 – November 2014 Decline. There is a big cluster of resistance levels here that we simply cannot ignore.
Until prices are above all of that resistance, I don’t see any reason to be long precious metals, particularly from a structural perspective. Sure, there will be some volatility and plenty of ups and downs for short-term traders to take advantage of. Therefore, I think it is more important than ever to define your time horizon. To simply ask, “Where is gold going?”, is a bad question. You mean, in the next 10 minutes? Tomorrow? Next month? Next year? Time horizons have to be defined.
As far as I’m concerned, I generally use weekly and daily charts to first get a structural bigger picture perspective, and then break it down to a shorter time frame for executions. Right now, I do not see any reason to be long precious metals, for my time horizon. I think if Silver can break out and stay above the cluster of resistance levels mentioned above, then we can look to put money on the long side. Until then, I don’t see anything to do here.
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