Thursday, October 6, 2011
Mutual Fund Outflows Surge As NYSE Short Interest Back To March 2009 Levels... Yet Stocks Refuse To Plunge. Why?
ICI has reported the latest weekly mutual fund flow data and it is not pretty: the outflow from domestic equity mutual funds of $5.7 billion for the week ended September 30 is the largest since August 10, and is the 6th consecutive week of redemptions from mutual funds, bringing the total outflow YTD to $89 billion, following $98 billion in 2010. This is almost $200 billion in nearly consecutive weekly outflows from equity funds in the past two years, the bulk of which has gone into bond funds. Is there anyone who still thinks that retail has any interest in investing in stocks? But wait, there's more. According to the NYSE, short interest at the exchange soared to a whopping 15.7 billion shares as of September 15, an 828 million increase in one fortnight, and the biggest since the March 2009 lows. There is one difference: back then the S&P was 40% lower. Which means that the bear cavalry is positioned and waiting for a massive market flush... which keeps on not materializing.
Why?
Because these same mutual funds, despite having record low cash holdings, continue to refuse to sell their stock holdings and replenish cash. The only reason we can attribute to this is that slow money managers keep hoping Bernanke will pull something out of his sleeve and create another Hail Mary market rush into year end, saving quite a few P&Ls, not to mention careers. Alas, with stocks where they are it is increasingly looking like Operation Twist may be the only thing they will get for 2011 - Bernanke needs the S&P in triple digits to have a strong case for a $1-2 trillion LSAP. As such funds find themselves in no man's land, where they will be redeemed at the end of the year unless stocks soar for whatever reason, but will refuse to sell before they absolutely have to, which will be end of December, or whenever the Nash equilibrium fails.
So with less than three months left, every single day that does not result in a massive market move, brings stock ever closer to that proverbial flush which the noted shorts are so stubbornly waiting for. And with every passing day this equilibrium becomes more and more tenuous until one day the selling has to commence. Is it any wonder that hedge funds are now overwhelmingly bearish and also waiting alongside the bear cavalry to scoop up the firesale which should begin if Bernanke does nothing but sits on his gluteus maximus?
NYSE short interest:
Domestic Equity Mutual Fund flows:
Mutual Fund cash balance:
The only stocks you should consider buying aggressively now: MRO, FCX, MSFT, BRK, CSCO
I love bear markets. I'm a greedy investor… And without bear markets, investment bargains don't happen...Without bear markets, I'd likely be out of a job. Bear markets create investment opportunities. Bull markets reduce the opportunity set and guarantee lower future returns. Bear markets are necessary, useful, and highly beneficial to a real investor. Bull markets are a curse because they lower that investor's future return potential.
... This morning, I ran a quick stock screen on Bloomberg. I was looking for companies with relatively little debt, trading at cheap multiples of free cash flow.
Here are the 20 largest names by market cap…
(Note: Enterprise value is market cap plus debt minus cash. It's the value of the business, independent of net cash. So comparing it with free cash flow shows us how cheap it is relative to the cash it's generating.)
| Short Name | |
| Microsoft | |
| Berkshire Hathaway | |
| Pfizer | |
| Cisco Systems | |
| Amgen | |
| Eli Lilly | |
| Freeport-McMoRan | |
| General Dynamics | |
| Ace LTD | |
| Corning | |
| Chubb | |
| Marathon Oil | |
| Activision Blizz | |
| Schwab (Charles) | |
| Applied Material | |
| Netapp | |
| McGraw-Hill | |
| Symantec | |
| Adobe Systems | |
| Altera |
I know a few of these companies well. But I don't know much about most of them.
For the sake of argument, let's say they're all sound, safe businesses. The average multiple of enterprise value to free cash flow is about 6.9 times. That corresponds to a yield of about 14.5%. Right now, the 10-year U.S. Treasury note is yielding just 1.8% today. This group of 20 businesses is yielding eight times more than the obligations of a bankrupt government intent on debasing its currency. Some of these companies have the safest, cash-loaded balance sheets in the world.
The choice shouldn't be difficult. Based on our little exercise, you should sell U.S. Treasurys and buy high-quality U.S. stocks, trading at single-digit multiples of free cash flow. And with the 10-year yield moving up today (and its price moving down), maybe investors are starting to wake up a little to the lousy proposition the government is offering investors.
Commodity companies tend to get pounded in bear markets. The cheapest stock on the list is Marathon Oil at less than four times trailing free cash flow. Freeport McMoRan is also fairly cheap, at 5.5 times free cash flow.
Among the four largest stocks on the list are three of our World Dominator picks – Microsoft, Berkshire Hathaway, and Cisco. All three are either paying dividends and/or buying back shares, creating huge value for remaining shareholders.
That's what I'd buy most aggressively right now – the big, safe, dirt-cheap World Dominators. I don't think the time has arrived to pile heavily into the smaller, more speculative names. I could be wrong. (And for trying to time the market, I'd deserve to be...) But I'd start slow, play it safe... and within that context, be greedy as hell.
I'll have a new addition to the World Dominating Dividend Grower list in the next issue of The 12% Letter, Stansberry Research's income-oriented letter. My research partner – the intrepid Mike Barrett – and I have narrowed it down to two possible names.
The one I like best right now has grown its dividend every year for 38 years in a row. It has grown the dividend at more than 17% per year for the last 10 years. It's the No. 1 company in its industry. It gushes free cash flow. And it's trading for around half what I think it's worth.
McAlvany Weekly Commentary
From European Chaos to New World Order
Posted on 05 October 2011.
A Look At This Week’s Show:
-Looking ahead, national integration is the trend and likely outcome of the current European mess.
-The Breton-Woods Dollar reserve system will be replaced by a completely new monetary order between 2012-2014.
-Look for a transnational referendum to pass overwhelmingly taking Europe into a new era of transnational leadership and law.
-Be sure to visit: http://www.franck-biancheri.info/ and http://leap2020.eu/
Gerald Celente - Gary Nolan - 27 September 2011
On the Brink of the Greatest Bubble of Our Time?
Interview with Mike Maloney
by Vedran Vuk, Casey Research:
Dear Reader,
Two types of music seem to draw the most animosity – country and rap. Rarely does anyone have a strong hatred of pure rock n’ roll, but pretty much everyone hates either rap or country music. Personally, I was once a huge fan of country, but over time, I’ve become tired and frankly disgusted with it.
At first, I really enjoyed a lot of the lyrics in country music. They’re wholesome, with good values and often a decent message. On the opposite spectrum, rap music often celebrates sloth, indecency, and criminal behavior. However, after some deep thought, there’s something much better about rap than country. It’s not the actual songs or even the lyrics – it’s the realism. Many people aren’t comfortable with the truth; hence, that’s why there’s so much hatred of the music.
The Gold Price Conspiracy Uncle Sam Doesn't Want You to Know About
I don't think so - and neither does China.
That much was revealed in a diplomatic cable recently uncovered by Wikileaks.
According to the 2009 cable from the U.S. embassy, China believes the United States and Europe have, as a matter of policy, suppressed the price of gold to discourage its use as a reserve currency.
And there's a pretty compelling case to be made for a gold price conspiracy.
The Gold Price Conspiracy
The cable summarized several commentaries in Chinese news media sources on April 28, 2009.
"The U.S. and Europe have always suppressed the rising price of gold," it reads. "They intend to weaken gold's function as an international reserve currency. They don't want to see other countries turning to gold reserves instead of the U.S. dollar or Euro. Therefore, suppressing the price of gold is very beneficial for the U.S. in maintaining the U.S. dollar's role as the international reserve currency."
According to the cable, China believes that by building its gold reserves, it can not only safeguard itself against the declining value of the dollar, but encourage central banks around the world to expand their gold purchases, as well.
"China's increased gold reserves will thus act as a model and lead other countries towards reserving more gold," the cable said. "Large gold reserves are also beneficial in promoting the internationalization of the RMB."
Now, if all we had were the Chinese claiming the U.S. and Europe were suppressing gold prices, it would be easy to disregard as superficial propaganda.
But in fact, there's evidence that supports this claim.
In the decade between 1999 and 2009, central banks - dominated by the West - were net sellers of gold in every single year. And that's despite the fact that gold in that time soared from $250 an ounce to $1,200 per ounce - a nearly 400% gain.
Then there's the infamous "Brown Bottom."
Between 1999 and 2002, Gordon Brown, then U.K. Chancellor of the Exchequer (and later Prime Minister), decided to sell nearly half of his nation's gold reserves. At the time, just the advance notice of these substantial sales drove gold's price down from $282.40 an ounce to $252.80.
Those gold sales yielded an average price of $275 an ounce, raising a total of $3.5 billion. Today, those 395 tons of gold would be valued more than $19 billion.
You have to admit, it doesn't make a whole lot of sense to sell a solid asset whose price is moving steadily higher each year - especially when the United Kingdom's debt problem then wasn't nearly as bad as it is today.
The answer: Because there's a conspiracy afoot.
Gold Dust on The Fed's Hands
Here's more damning evidence.
A U.S. District Court this year ordered the U.S. Federal Reserve to disclose to the Gold Anti-Trust Action Committee (GATA) the minutes of an April 1997 meeting of the G-10 Gold and Foreign Exchange Committee, as compiled by an official Federal Reserve Bank of New York.
And it's a bombshell. The minutes suggest that officials from the G-10 governments and their central banks were, in fact, conspired to synchronize their policies to affect the gold market.
It turns out that U.S. policymakers aren't just worried about preserving the dollar's role as the world's main currency reserve. They're also worried about the effects higher gold prices could have on the nation's debt burden.
The minutes include comments by a U.S. delegate identified only as "Fisher," which is likely Peter. R. Fisher, head of open market operations and foreign exchange trading for the New York Fed.
Fisher, the minutes say, made the case that rising gold prices would increase U.S. debt.
Fisher "explained that U.S. gold belongs to the Treasury. However, the Treasury had issued gold certificates to the Reserve Banks, and so gold also appears on the Federal Reserve balance sheet," the minutes say. "If there were to be a revaluation of gold, the certificates would also be revalued upwards; however [to prevent the Fed's balance sheet from expanding] this would lead to sales of government securities. So the net benefit to Treasury would need to be carefully calculated, since sales of government securities would expand the public portfolio of government securities and hence also expand the Treasury's debt-servicing burden."
Indeed, Fisher's remarks are an open acknowledgement that the United States has an interest in suppressing the price of gold.
So, clearly, there is a growing body of evidence that Western governments, central banks, and even some of the largest investment banks have a vested interest to subdue the price of gold. Furthermore, they've already acted on behalf of that interest.
But now the tide is turning. The dollar and the euro are on the ropes and emerging markets have been steadily increasing their gold purchases.
While authorities in developed countries are making it more difficult for investors to build gold holdings, large China and other developing markets are doing just the opposite. They're actually encouraging their populations to adopt physical gold and gold investments like futures and exchange-traded funds (ETFs).
So I think it's high time the average Westerner looked to the East for cues on wealth preservation and their attitude towards gold.