John Williams: No Way Out! Hyperinflation is all but guaranteed

John Williams, Executive Editor of Shadow Government Statistics, received an A.B. in Economics, cum laude, from Dartmouth College in 1971, and was awarded a M.B.A. from Dartmouth's Amos Tuck School of Business Administration in 1972, where he was named an Edward Tuck Scholar. During his career as a consulting economist, John has worked with individuals as well as Fortune 500 companies. Formally known as Walter J. Williams, his friends call him John. For nearly 30 years, John has been a private consulting economist and, out of necessity, had to become a specialist in government economic reporting.

Today on Financial Sense Newshour, John Williams discusses with Jim Puplava America's day of reckoning and hyperinflation.  CLICK HERE FOR AUDIO (WINDOWS MEDIA)

Good as Gold? George Soros Sells the Metal, Buys the Miner

Hardcore gold investors made a grand killing over the past few years as spot prices more than doubled. But since the beginning of 2011, hanging on to gold has meant stomaching some disturbing downs. Here's this year's price chart of an exchange traded fund designed to track the price of gold.

Mixed signals from currency markets and inflation indices are making it harder than usual to predict the direction of gold prices. Tentative dollar strengthening has sent gold prices down. But higher interest rates, which appear to be inevitable soon, usually send gold prices higher.

Even the most successful investors in the world can't agree on how to interpret this. John Paulson is buying gold. George Soros, selling. Those who prefer fewer Rolaids with their investment portfolios are shying away from buying gold bars at today's prices, or even exchange-traded funds for gold. But there is a better way to invest in gold now. Just watch Soros. Soros is selling his gold but buying miners. The trade gives him exposure to rising gold prices but some protections from losses if the price of gold declines.

Unlike the commodity or gold index funds, miners offer investors cash and assets that make their shares more valuable than the price of their product alone. They can raise profits by cutting costs, finding ways to get more gold out of their mines or buying competitors. They can offset gold price declines by mining other ores, investing in other products, or hedging fuel and currency. YCharts Pro finds the shares of two gold mining companies attractive now:Barrick Gold Corp. (NYSE: ABX  ) and Newmont Mining Corp. (NYSE: NEM  ) .

Toronto-based Barrick is the largest gold mining company in the world. It has gold mines in North and South America, Africa and Australia, and it also mines silver and copper. Newmont also is one of the world's biggest gold miners. Based in Denver, the company has mines mainly in the U.S., Peru, Indonesia, Ghana and Canada. North and South America, Southeast Asia and West Africa. It also is involved in several mining joint ventures. Both companies have seen big sales gains as the price of gold went higher. But Barrick's gains have been much bigger because of acquisitions.

It's surely one of the reasons Soros picked Barrick over Newmont when he went looking for miners. Barrick management plans substantial growth through acquisitions, and in April, the company announced plans to purchase copper producer Equinox Mineral's Ltd.

But Newmont does at least as well as Barrick in turning its revenue gains into profits. (For purposes here, we can ignore the big dip for each company; they reflect changes in hedging strategies that both companies adopted at different times.)

Fundamentally, the companies look remarkably similar. They both have very low debt, plenty of cash, and roughly equal gross profit margins. They both offer a modest dividend. The shares of both companies are cheaper today than they have been in 10 years. But Barrick's investments in silver and copper are a comforting diversification at a time of gold price uncertainty. And unlike Newmont, Barrick has managed to turn its strong sales and earnings growth into impressive gains for its shareholders.

A drop in gold prices certainly would be a hard hit to Barrick. But with diversification and an acquisitive nature, the company can still offer investors growth. That's something you can't get from a rock.

Gold Crash: What Could Trigger the Inevitable

John F. Wasik is a columnist for Reuters.com and author of The Audacity of Help: Obama's Economic Plan and the Remaking of America. The opinions expressed are his own.

Before you sell that last piece of jewelry, keep in mind that the gold price will not go up indefinitely. There are number of reasons why it might crash.

If you’re overweighted in gold or commodities, the warning is the same: A stronger dollar, strengthening U.S. economy or rising interest rates could derail the epic yellow metal mania. Who knows? Congress could even reach an agreement to clear up its balance sheet and pay down its debt.

What are the chances of any of this happening? It’s beyond the limits of my minuscule, clouded crystal ball, which is about the size of a pinhead. Nevertheless, you should prepare your portfolio for any number of eventualities, which can be easily accomplished with exchange-traded funds.

Gold is troublesome in my book because it really isn’t an investment. It’s a reserve currency of sorts that’s heavily traded by institutional investors. It doesn’t pay any dividends or interest and is bought in times of widespread fear.

The savviest traders buy gold as a hedge against the dollar. In the past few years, it’s also been a bulwark against the Euro as well, which has been bruised by sovereign debt woes in Greece, Ireland and Portugal.

Is the Euro financial fizzle over? I don’t think so, but it’s still not a reason to load up on gold.

The clearest threat to gold’s reign as the reserve currency of nervous Nellies is a possible rebound of the dollar. Given the congressional wrangling over the debt limit, budget and growing inflation, betting on the buck is like trying to figure out whether a racehorse will finish. They often pull up lame.

What’s interesting is the relationship between gold, mining stocks, the dollar and the S&P 500 Industrial Index, the broad basket of the largest U.S. companies.

When the dollar shows signs of reviving, gold drops. Shares in ETFs like SPDR Gold Shares will reflect that decline. The fund holds bullion and tracks spot prices fairly closely.

If you wanted to hold gold mining shares that reflect earnings from precious metals companies, it’s like a leveraged play on the price of gold. In one monthly period (from April 23 to May 23), the price of the Market Vectors Etf Gold Miners Trust fell about 10 times as much as the SPDR fund. Market Vectors reflects an index of gold mining companies. Similar funds showed the same kind of decline.

During the period I chose — in which the dollar showed a minor rebound — the Powershares DB US Dollar Index Bullish Fund was up almost three percent. The fund basically makes money when the dollar gains against other currencies.

By now, you can see a pretty simple pattern. Gold and the dollar generally move inversely to one another. It gets more complicated when you add stocks in the mix, which are based on expected earnings. They are often hurt by predictions of higher inflation or lower economic growth, both of which are uncertain now.

In a speculative portfolio, you can go long on worldwide stocks through a fund like the Vanguard Total World Stock Index ETF, own gold through the SPDR fund and go either way on the dollar. Powershares has a bearish version of its dollar index fund. And, last but not least, you can also bet against gold through the Proshares Ultrashort Gold ETF.

That brings up a key question that most individual investors struggle with when they start worrying: What should I be most concerned about?

Stick to your long-term goals. Only professional traders who have the discipline to make quick trades will get out and make a profit. If you try to time or short any vehicle, you’ll be stuck holding the bag.

If you need income, forget about the rest of the world and find the safest investments at the lowest possible cost. Your second goal would be to protect yourself against loss of purchasing power through a fund like the Vanguard Inflation-protected securities fund.

Still stuck on the need to own gold? What about the imminent collapse of the American and European economies?

Before you pawn your wedding ring, keep in mind that in real times of crisis the metal won’t replace food or water. As Voltaire reminded us in Candide, it would be better to tend to our gardens.

5 Hot Semiconductor Stocks: AMCC, CCMP, ISSI, MOSY, STP

One of the most commonly used tools in active trading is known as the moving average convergence divergence (MACD) indicator. Although the name of this indicator seems intimidating, it is actually quite simple to use and it can often generate profitable trading ideas.

IN PICTURES: 7 Tools Of The Trade

As you can see from the chart below, the indicator consists of two parts: the MACD line and the signal line. The MACD line is simply the difference between two exponential moving averages, typically the 12-day and 26-day averages. The reason that traders pay attention to varying lengths of moving averages is because they want to figure out how the short-term momentum is changing relative to the longer-term momentum. If the short-term average rises faster than the long-term average, the MACD moves upward. Traders use this to suggest that the buying pressure is increasing.

The signal line, shown as the dotted blue line on the chart, is also known as a trigger line and is created by taking a nine-period moving average of the MACD line. The signal line is plotted alongside the MACD line and is used to predict changes in a stock's direction.

The most common buy sign is triggered when the MACD line crosses above the signal line (illustrated by the right arrow in the chart above). A MACD cross above the signal line tends to predict that the bulls are gaining control of the direction and it generally leads to a short-term move higher. Interestingly, traders have been spotting bullish MACDcrossovers on the charts of many semiconductor stocks. The bullish movement in the semiconductor sector could be used by active traders to suggest that the economic recovery is on track and could be stronger than many of the pundits have been suggesting. (For more on this, check out Riding The Semiconductor Wave)

In the table below you will find a list of semiconductor stocks have recently experienced a MACD buy sign:

Company Name	Recent Price
Applied Micro Circuits Corp. (Nasdaq:AMCC)	$10.38
Cabot Microelectronics Corp. (Nasdaq:CCMP)	$50.05
Integrated Silicon Solution Inc. (Nasdaq:ISSI)	$9.18
MoSys Inc. (Nasdaq:MOSY)	$6.14
SunTech Power Holdings (NYSE:STP)	$8.36
Source: Yahoo! Finance as of 05/31/2011

Bottom Line
It is interesting from a technical perspective to see strong relative strength in the area of the small-cap semiconductor sector. The bullish MACD crossovers occurring on the charts of the above companies could suggest that the economic recovery is stronger than many traders may think it is. It is also important to note that the short-term nature of the MACD indicator can often lead to being whipsawed in and out of a position several times before being able to capture a strong price movement so be sure to use this tool in conjunction with other technical/fundamental indicators to ensure a more accurate idea about a stock or sectors direction. (For further reading, check out A Primer On The MACD)

Chart of the Week: XIV Celebrates Six-Month Birthday

Yesterday marked six months since the launch of the VelocityShares Daily Inverse VIX Short-Term ETN (XIV).

While XIV’s launch was received with little fanfare, I was a huge fan of this ETN right from the start. Less than one week after XIV was launched, I shared my thoughts about XIV in the Bespoke Investment Group’s second annual roundtable. When asked about some of my favorite picks for 2011 and beyond, I predicted:

“2011 will mark the rise of volatility as an asset class.  Part of the reason for this rise will be the runaway success of VIX-based ETNs and ETFs, notably the recently launched XIV, which will prove that volatility vehicles can be good buy-and-hold investments.”

During the course of its first six months of trading, XIV has managed to return 82% to anyone who was fortunate enough to buy some of this ETN when it launched. As shown in this week’s chart of the week below, XIV's ride has been a wild one and has included a pullback of about 33% in one month during all the turmoil associated with the Japanese earthquake + tsunami + nuclear meltdown.

Looking ahead, I am going to go out on another limb and say that 82% in six months was not a fluke. Sure XIV is an extremely volatile security that will experience sharp drawdowns on a regular basis, but for the patient investor who is able to steer clear of margin issues, XIV can be an excellent way to spice up one’s portfolio with stunning long-term returns.

That being said, just as shorting VXX is a strategy suited to only a small slice of the investment community, so is XIV not appropriate for everyone, in spite of the upside potential. For those who think they may be up to the task, I highly recommend a comprehensive risk management plan and a review of Managing Risk with a Short VXX Position.

CHART OF THE DAY: The Housing Double Dip Is "CONFIRMED" And There's No Relief In Sight

"Confirmed" is the word used in the latest announcement from Case-Shiller, which showed a surprise 3.61% year-over-year decline in home prices.

This line stands out from the announcement:

“This month’s report is marked by the confirmation of a double-dip in home prices across much of the nation. The National Index, the 20-City Composite and 12 MSAs all hit new lows with data reported through March 2011. The National Index fell 4.2% over the first quarter alone, and is down 5.1% compared to its year-ago level. Home prices continue on their downward spiral with no relief in sight.” says David M. Blitzer, Chairman of the Index Committee at S&P Indices.

See the dotted line here to see that markets have now fallen to fresh lows, below the previous dip.

Comin' this summer... $5 gas

The forecast for the summer driving season: Hit the road early. Not to beat the traffic, but to beat the higher gas prices expected in mid-July.

Goldman Sachs' crystal ball is proclaiming that oil will soon soar to $135 a barrel, and likely have service stations jacking up fuel prices to $5 a gallon in New York just like the summer of 2008 that preceded the recession.

Indeed, analysts say Goldman and the other oil trading giant that also has the might to move prices, JPMorgan Chase, have already placed their energy bets for the summer. JPMorgan predicts oil hitting $130 a barrel in the coming weeks.

Despite all the turmoil in the Middle East associated with the Arab Spring rioting, oil has fallen to the $100 level, closing out May with a stunning 12 percent drop.

But before the storm, the calm. There appears to be a backlash by some oil-pit analysts.

"Whoever would buy into these rising prices is just paying homage (to Wall Street firms) and helping the speculative positions," said one oil trading source familiar with energy bets of Wall Street trading desks.

Gas prices, meanwhile, should benefit from the brief respite in oil prices.

"We should be seeing some big declines at the gas pumps after Memorial Day," said energy analyst Peter Beutel of Cameron Hanover.

"Wholesale prices have been dropping, and that could cause some serious revisions downward at the pumps," he said.

"The competition is fierce among the retailers, and whoever lowers his price first gets a big jump on everyone else and a lot of new business."

Pump prices have dropped about 10 cents a gallon this week, while wholesale prices at the Nymex have steadily skidded 50 cents a gallon in the past two weeks.

Those declines came despite upward pressure on wholesale prices here in the past two days due to speculation that Mississippi River flooding could disrupt Gulf Coast refineries.

At the start of the Memorial Day holiday, the national average for gas was $3.80 a gallon.

Tom Kloza, an analyst at Oil Price Information Services, expects gas to fall to between $3.50 and $3.60 between now and the July 4 holiday.

Consumers could use the help.

Economists say households spent an average of $369 on gas during April, or about $168 more than the $201 they spent during April 2009, when gas was averaging around $2.76 a gallon.

Every 50-cent jump in the cost of gasoline takes $70 billion out of the US economy over the course of a year, economists say.

The tourism industry expects a drop in travel because consumers intend to stay closer to home and take more day trips. AAA predicts the typical family will spend $692 on its vacation, down 14 percent from $809 last year.

Meanwhile, demand for gasoline has fallen for eight straight weeks as drivers try to cut back with mixed results.

"Drivers try to do what they can, but they have to go almost all the places they go," says energy researcher David Greene of the Department of Energy Web site fueleconomy.gov. "There's no magic gizmo that will drastically change someone's gasoline use."

And for that reason, as well as global uncertainty, Goldman and JP analysts see a return to high oil and gas prices in the coming months. Without a significant decrease in American demand -- or a sudden desire not to commute or drive to the shore -- $5 a gallon is likely on the horizon.