January 27th, 2012

Here are this week’s curated reading diversions for your personal reading enjoyment. Have an awesome weekend!

What Your Looks Say About Your Health

Is your furrowed brow and grooved mouth ratting out your bones? Surprising new research reveals an association between wrinkles and bone health in early-menopausal women.

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Recipes That Bring Luck

New Year is the most important holiday for the Chinese. This year it will be observed on January 23 and it’s the year of the dragon. The holiday is celebrated all across the world, including the Chinatowns of big cities like New York and San Francisco. Messages of good luck and prosperity are not only written on signs, the foods themselves are considered to bring luck because they’re homophones for those messages. For example, the Chinese word for fish, Yu, also sounds like the Chinese word for abundance.

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10 Chinese New Year Recipes That Bring Luck

New Year is the most important holiday for the Chinese. This year it will be observed on January 23 and it’s the year of the dragon. The holiday is celebrated all across the world, including the Chinatowns of big cities like New York and San Francisco. Messages of good luck and prosperity are not only written on signs, the foods themselves are considered to bring luck because they’re homophones for those messages. For example, the Chinese word for fish, Yu, also sounds like the Chinese word for abundance.

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Dehydration Could Make Your Mood Worse, Study Shows

In the study, published in the Journal of Nutrition, researchers found that dehydration was a key factor in causing headaches, loss of focus, fatigue and low mood while exercising and resting, TIME reported.

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Narcissistic personality disorder – MayoClinic.com

Narcissistic personality disorder is a mental disorder in which people have an inflated sense of their own importance and a deep need for admiration. Those with narcissistic personality disorder believe that they’re superior to others and have little regard for other people’s feelings. But behind this mask of ultra-confidence lies a fragile self-esteem, vulnerable to the slightest criticism.

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The Power Of Introverts: A Manifesto For Quiet Brilliance

Many introverts feel there’s something wrong with them, and try to pass as extroverts. But whenever you try to pass as something you’re not, you lose a part of yourself along the way. You especially lose a sense of how to spend your time. Introverts are constantly going to parties and such when they’d really prefer to be home reading, studying, inventing, meditating, designing, thinking, cooking…or any number of other quiet and worthwhile activities.

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How To Be Organized: 5 Uses For Vinegar

Vinegar is more than something you use while cooking and baking. From cleaning to laundry, the sour stuff has a host of other uses. Here are my favorite five ways you can use vinegar inside (and outside) your home.

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Lack of sleep: Can it make you sick? – MSN Health – Sleep Disorders

Yes, lack of sleep can affect your immune system. Studies show that people who don’t get a good night’s sleep or who don’t get enough sleep are more likely to get sick after being exposed to a virus, such as the common cold. Lack of sleep can also affect how fast you recover if you do get sick

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Cooking Light: 8 Healthy Office Snacks

Save your quarters by skipping the vending machine’s peanut butter crackers and packing your own nutritious snack. For a hunger-curbing option, try 10 multigrain wheat crackers (such as Multigrain Wheat Thins) and a tablespoon of peanut butter. This nutrient-rich snack rings in at just 193 calories and offers 2 grams of fiber. The combination of complex carbs and protein help to keep your blood sugar stable and keep you feeling full longer.

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4 Health Rules You Can Break-Getting Enough Produce – Oprah.com

A serving of broccoli is about five florets. A serving of raw spinach, one cup. A serving of mango, roughly the size of a fist. “It’s not surprising that people get confused over what, exactly, a serving is,” says Washington, D.C., dietitian Rebecca Scritchfield. Her advice: Stop counting and instead make half of every meal produce. “You don’t need a big mound on your plate. Six asparagus spears at dinner, a spinach salad at lunch, and a sliced banana and some berries at breakfast should do it.” And quality counts: Even two or three daily servings of deeply hued fruits and veggies (like blueberries, bok choy, or red peppers) may help reduce your risk of cancer and heart disease, Scritchfield says. “It’s like darts. The goal is to hit the bull’s-eye. But hitting nearby is good, too.”

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Nutritional Benefits of Eating Peels, Stems and Rinds – Oprah.com

The peel contains more than four times as much fiber as the fruit inside, and more tangeretin and nobiletin—flavonoids with anticancer, antidiabetic, and anti-inflammatory properties. A 2004 study on animals suggests that these nutrients may even reduce harmful LDL cholesterol better than some prescription drugs.

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Kristin Kirkpatrick, M.S., R.D., L.D.: 5 Things Never To Feed Your Child

Cola tops the list of foods consumed by America’s youth that have the most sugar. Regular cola is high in both sugar and caffeine and, according to a 2003 study, drinking cola may also lead to excessive caloric intake (derived by this sugar). To give you some perspective, consider this: a typical 12-ounce bottle of cola has about 40 grams of sugar or about 10 teaspoons. That’s the equivalent of 2.5 chocolate glazed doughnuts or three servings of vanilla ice cream. Furthermore, a 2008 study in the journal Hypertension found a direct relationship between salt intake and sugar-sweetened soft drink consumption.

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10 Secrets to Success | PickTheBrain | Motivation and Self Improvement

Go back to school or read books. Get training & acquire skills.
Becoming a life long learner would benefit us all and is something we should instill in our kids. It’s funny that once you’re out of school you realize how enjoyable learning can be. What have you learned today?

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10 Ways to Instantly Build Self Confidence | PickTheBrain | Motivation and Self Improvement

Self confidence is the difference between feeling unstoppable and feeling scared out of your wits. Your perception of yourself has an enormous impact on how others perceive you. Perception is reality — the more self confidence you have, the more likely it is you’ll succeed.

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Tags: Admiration, bone health, Brilliance, Chinatowns, Chinese New Year, Chinese New Year Recipes, Chinese Word, Curated, Dehydration, Diversions, Furrowed Brow, Journal Of Nutrition, Manifesto, Menopausal Women, Mental Disorder, Narcissistic Personality Disorder, Nutrition Researchers, Personal Reading, Reading Enjoyment, Year Of The Dragon
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January 27th, 2012

by Jaswant Singh, former Indian Finance Minister, via Project Syndicate

2012-01-25

NEW DELHI – Will 2012 prove to be a year of renewal for India, or another annus horribilis? No country progresses unerringly, but India cannot afford another politically and economically torpid year like 2011. For India, last year is a year best forgotten. India has been so deeply mired in political paralysis that the Nobel laureate economist Amartya Sen recently said that the country has “fallen from being the second best to the second worst” South Asian country, and that it is currently “no match for China” on social indicators. This is a damning comment on a country that held such promise just a short time ago.

In early January, the American social critic James Howard Kunstler described India as “a nation with one foot in the modern age and the other in a colorful hallucinatory dreamtime.” Kunstler’s view is harsh, but perhaps prophetic: India’s “climate-change-related problems are doing heavy damage to the food supply. Their groundwater is almost gone. The troubles of the wobbling global economy will take a lot of pep out of their burgeoning tech and manufacturing sectors.” Indeed, suddenly, India’s economy has begun spinning out of control. Last year, the country’s GDP growth slowed, manufacturing plummeted, and inflation and corruption grew uncontrollably. Elected and unelected government officials alike, including cabinet ministers, members of parliament, and civil servants, were implicated in corruption scandals. The situation triggered recollections of Prime Minister Indira Gandhi’s fraudulent call for a state of emergency in 1975, when she ruled by decree for 21 months, suspending elections and civil liberties.

The population’s outraged response to these events was visceral, and previously unknown figures such as the anti-corruption activist Anna Hazare rallied thousands of Indians in meetings across the country to protest against government corruption. As Prime Minister Manmohan Singh’s government floundered, the opposition vainly sought to gain the upper hand. But, to ordinary Indians, this political gamesmanship appeared to be merely a farce – the blind pretending to lead the unsighted. Perhaps for the first time ever, India’s government failed to enact even a single piece of legislation, much less undertake any economic reforms, restore price stability, or address widespread civil disorder.

Read the complete article here.

Copyright © Project Syndicate

Tags: Annus Horribilis, Civil Liberties, Civil Servants, Corruption Scandals, GDP Growth, Global Economy, Hallucinatory, Indian Finance Minister, Indira Gandhi, James Howard Kunstler, Jaswant Singh, Manufacturing Sectors, Members Of Parliament, Nobel Laureate Economist, Political Paralysis, Prime Minister Indira, Project Syndicate, Social Critic, Social Indicators, South Asian Country
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January 27th, 2012

Below is a table highlighting the year to date stock market returns for 78 countries around the world.  Of the 78 countries shown, 59 (75%) are in the black for the year, while 19 are in the red.  Twelve countries have posted double digit gains already in 2012, with Argentina leading the way at 18.11%.  Russia ranks second with a gain of 13.70%, followed by Hungary in third and Greece (yes, Greece) in fourth.

The US currently ranks 33rd on the list with a gain of 4.73% year to date.  The US ranks fourth among G7 countries behind Germany (10.88%), Italy (6.77%) and France (6.44%).  The UK has been the worst performing G7 country so far in 2012 with a gain of 4%.

Last year the BRICs were significant underperformers versus the rest of the world, but they’ve bounced back so far in 2012.  As mentioned above, Russia is up 13.70% year to date, which is the best of the BRICs.  Brazil ranks second with a gain of 10.92%, India isn’t far behind at 10.50%, and China ranks fourth with a gain of 5.44%.

Tags: Argentina, Brazil, BRICs, China, Countries Around The World, Country Stock, France 6, G7 Countries, G7 Country, Greece, Hungary, India, Italy, Leading The Way, Rest Of The World, Russia, Stock Market Performance, Stock Market Returns, Stock Performance, Year To Date
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January 27th, 2012

One of the central tenants of Ron Paul’s presidential campaign is a return to the gold standard.

In this video, Russ Koesterich, iShares Global Chief Investment Strategist, explains what it would mean for the US and global economies if Ron Paul’s wish was granted and the US dollar was once again tied to gold.

This video is the first in what will be an ongoing series from Russ on the market implications of the presidential campaign and policies proposed by the candidates.

Tags: Chief Investment Strategist, Global Economies, Gold Standard, Great Depression, Market Implications, Presidential Campaign, Ron Paul, Russ, US Dollar
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January 27th, 2012

by Matt Tucker, iShares

A picture is worth a thousand words:

Equity Performance vs. Bond Yields

Source: Bloomberg (1/13/11-1/16/12)

On the back of improving US economic data, equities have rallied off of autumn lows, and yet US Treasury yields have continued to surf bottom with the 10-year note trading below 2% for the first time on record.  Why haven’t interest rates recovered in support of improving data?  Do US Treasury investors know something that equity investors don’t?

The answer may lie across the pond in Europe.  The European crisis intensified significantly in the fall, causing equity markets (and most risky assets for that matter) to sell off and US Treasury rates to fall, despite the August downgrade.

The chart below shows the on-the-run credit default swap contract for a basket of European sovereign credits, including the peripheral countries.  As the chart shows, spreads widened significantly in late summer / early fall and have yet to recede meaningfully, despite grinding progress on the political front and some prominent actions by the European Central Bank to stabilize liquidity.

Source: Bloomberg

While the United States certainly has well publicized fiscal problems, it is, as our colleague Jeff Rosenberg of BlackRock Fundamental Fixed Income states, “the best house in a bad neighborhood.”  To this point, Russ Koesterich estimates that the fair level of rates for the US Treasury 10-year yield based upon historical economic relationships is around 2.5-3%.  The current yield of ~1.85% essentially reflects a liquidity or “safety” premium that investors are willing to pay in order to have relative safety in the neighborhood (protection money, if you will).  Additionally, the Fed continues with Operation Twist, which is intentionally designed to keep a lid on longer term US Treasury rates (in response to concerns that the European overhang could damage the fragile US recovery).

How long will US Treasuries stay at this level, and will they eventually move up to reflect tentatively improving economic conditions in the United States?  It all depends upon Europe.  If the European situation deteriorates from here, US equities will almost certainly retreat, and US Treasury investors will look justified in having accepted a low yield, since it was low in anticipation of this risk.  In that situation, US Treasury yields could move even lower.

If Europe claws its way out of the worst potential outcome and gets to a point of relative stability, the liquidity premium in US Treasuries will likely dissipate and yields may move to more fundamentally justified levels.  But for now, it does appear that bond market and equity market investors are making very different bets.

Past performance is not indicative of future results. Bonds and bond investments will decrease in value as interest rates rise.

Copyright © iShares

Tags: Bad Neighborhood, Bond Market, Bond Yields, Credit Default Swap, Current Yield, Economic Data, Economic Relationships, Equity Investors, Fiscal Problems, Jeff Rosenberg, Matt Tucker, Neighborhood Protection, Overhang, Protection Money, Relative Safety, Risky Assets, Swap Contract, Treasury Rates, Treasury Yields, Us Treasury
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January 27th, 2012

Liz Ann Sonders
Senior Vice President, Chief Investment Strategist, Charles Schwab & Co., Inc.

January 25, 2012

Key Points

• The Federal Reserve opted to keep short-term interest rates on the floor and extended the period of time during which rates are likely to remain near zero.
• Newly published forecasts show slightly better growth, a bit less inflation and a lower unemployment rate.
• Fed Chairman Ben Bernanke got hit with a lot of questions about the risks of extending zero-rate policy for 2 ½ more years.

First, the statement

The Federal Reserve was more explicit in its statement today, which accompanied the finale of the Federal Open Market Committee’s (FOMC) two-day meeting today.

“…the Committee decided today to keep the target range for the federal funds rate at 0 to ¼ percent and currently anticipates that economic conditions—including low rates of resource utilization and a subdued outlook for inflation over the medium run—are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014.”

The reference to 2014 was an extension of the Fed’s previous pledge to keep rates low at least until mid-2013. Although several Fed officials have said even further easing (read: quantitative easing round three, or QE3) is needed to revive hiring and housing, there was one notable dissent today: “Voting against the action was Jeffrey M. Lacker [Richmond Federal Reserve Bank President], who preferred to omit the description of the time period over which economic conditions are likely to warrant exceptionally low levels of the federal funds rate.”

The Fed did say it would continue its “Operation Twist” program, which has been extending the average maturity of its $2.6 trillion securities portfolio.

Frankly, I have reservations about the two-and-a-half year span during which the Fed expects to keep short rates effectively pegged at zero. Much can and will likely happen between now and then, be it economic conditions and/or inflation trends. Given that the Fed has often been criticized in the past for being behind the curve, it almost guarantees it will do it again by this effective promise. And, it can also be seen as yet another hit to savers and retirees.

As noted by High Frequency Economics, “they are now too cautious, expecting only ‘modest’ growth as far as the eye can see. We see no mention of the sustained surge in bank business lending, the rebound in survey data, the upturn in every housing indicator and only a tangential reference to the plunge in the pace of layoffs. The markets face two dangers if these emerging trends persist. First, the Fed might have to renege on its ‘promise’—the word ‘likely,’ after all, is not a solemn vow—or, second, they might tighten by reversing QE, while sticking to zero rates. Either way, fingers get burned in the markets.”

Second, the forecasts

Shortly after the release of the FOMC statement, the Committee released expectations of the five Fed board members and 12 district bank presidents. Of these 17 Fed officials, nine expect short-term interest rates to remain below 1% by the end of 2014, while six expect rates to remain at zero into 2015. The Fed also lowered its estimates for growth and inflation this year, a move consistent with its statement as noted above.

These projections are new for the Fed—it’s the first time in FOMC history that it’s explicitly laying out its forecast for growth, inflation and rates. Assuming an increase in rates sometime in late 2013 or 2014, it would be the first rate hike since June 2006. Think about that: as noted below, there are two Committee members that think the first hike should come in 2016—if that’s the case, it would mean a full decade of no rate hikes.

There was no unanimity with regard to the pace at which the Fed should raise rates:

• Three officials believe they should begin rising this year.
• Another three believe they should begin moving higher next year.
• Five say they should go up in 2014.
• Four say 2015.
• And two even believe the first hike shouldn’t come until 2016!

By the way, the Fed

It’s estimated that US economic growth, as measured by real gross domestic product, will be between 2.2% and 2.7% (from the fourth quarter of 2011 through the fourth quarter of this year). For 2013, US growth is forecasted to be between 2.8% and 3.2%. (The forecasts are calculated using a “central tendency forecast,” which excludes the three lowest and highest projections.)

As for inflation, it’s projected to drop below the Fed’s newly stated goal of 2%, with the majority of officials expecting inflation in a range between 1.4% and 2.0% through 2014. These are marginally lower inflation projections than those published last November.

And, in keeping with the recent traction seen in job growth, the Fed’s forecasts for the unemployment rate have also ticked down and now sit at between 8.2% and 8.5% for 2012, 7.4% and 8.1% for 2013 and 6.7% and 7.6% for 2015. These forecasts are below the prior forecasts published last November.

(For a more detailed look at the Fed officials’ economic projections, see the full chart in today’s Fed release.)

Third, the press conference

My friend Steve Liesman, from CNBC, asked the first question, and it was a good one. He essentially wanted to know whether the Fed was doubting the economic improvement that’s been seen in the past few months. Bernanke did acknowledge improvement in some areas, but “mixed results” in others; specifically: “We continue to see headwinds emanating from Europe, coming from the slowing global economy.” He also said, “I don’t think we’re ready to declare that we’ve entered a new, stronger phase at this point. We’ll continue to look at the data.”

There were additional questions that got to this subject. One asked whether there was risk of a backlash from the Fed’s new information, particularly by hurting confidence by suggesting the economy is weaker than people think. Bernanke’s response: “Those considerations are outweighed by the need to maintain accommodative conditions,” so it’s attractive for companies to invest and hire, and for people to buy houses.

Bernanke did address the fact that the individual forecasts don’t have names attached to them. He indicated that they aren’t disclosing the identities for a reason—to ensure discussion at meetings and to depersonalize monetary policy.

Bernanke did not escape politics in the questioning, and was asked about the hostility toward the Fed during many of the Republican debates. In particular, he attempted to fight back against the criticism that Fed policy is crushing savers and retirees: “The savers in our economy are dependent on a healthy economy in order to get adequate returns.”

Finally, the Chairman was asked about his confidence in the Fed’s forecasting abilities. At least he was honest when he replied, “Our ability to forecast three and four years out is obviously very limited. Nevertheless we have to make a best guess, a provisional plan,” much like companies do. “It’s certainly possible we will be either too optimistic or too pessimistic,” which suggests the Fed may have to adjust to the realities of the actual data.

We think that’s a real possibility.

Important Disclosures

The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Data contained herein from third party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed.Examples provided are for illustrative purposes only and not intended to be reflective of results you can expect to achieve.

Tags: Bank President, Ben Bernanke, Charles Schwab, Chief Investment Strategist, Fed Chairman, Fed Officials, Federal Funds Rate, Federal Open Market Committee, Federal Reserve Bank, Journey To The Center, Lacker, Liz Ann, Open Market Committee, Qe3, Resource Utilization, Senior Vice President, Target Range, Twist Program, Unemployment Rate, Zero Rate Policy
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January 27th, 2012

I had proposed at the beginning of QE2, we are now in a QEn environment.  My working assumption is when QE2 ended last spring we’d have about a 6-8 month window before the desperate Federal Reserve began QE3.  I was thrown a curveball with Operation Twist instead – although my time frame was accurate; it was just a program of a different flavor.  But no worries, yesterday Bernanke kicked the door open and whispered songs of additional measures at every opportunity possible during his news conference.   This fits with my working theory that aside from LTRO this incredible strength in the market was similar to the “pre game” we saw ahead of the official QE2 announcement.  This is the “David Tepper” effect we saw fall 2010 where “if the economy improves, it is good for the market – buy stocks.  If the economy falters, it is good for the markets as the Fed will QE – buy everything.”

Hence, go forward we have to change our working assumption to one that includes another massive program of asset purchases (many believe these will be concentrated on mortgage backed securities to get mortgage rates even lower than their current record rates).  Whatever the case, gold (and silver) reacted accordingly….

……and we are in another round of global stimulus – this time with the ECB joining forces.  I’d also point out the UK printed a poor GDP figure yesterday and we certainly should expect a new round of quantitative easing out of the Bank of England shortly as well.   Of course, in the very short term this is now all “known” news, so we’ll see how long the market can continue the non stop ‘teflon’ rally without nary a resting point.

Via Reuters:

• Bernanke on Wednesday opened the door a bit wider for the Fed to return to buying securities in the months ahead to buttress a weak recovery and keep inflation from slipping too far below its newly adopted 2-percent target.
• “It sounds like the finger is on the trigger,” said Thomas Simons, a money market economist at Jefferies & Co.
• “Probably the main take-away from the press conference is the sense conveyed by Bernanke that it would not take much of a disappointment in growth or inflation to get the Fed to start another round of QE,” said Michael Feroli, chief U.S. economist at J.P. Morgan. ”In fact, from his answers it’s not even clear any disappointment would be necessary to see more QE,” Feroli wrote in a note, adding he was not forecasting another round of asset purchases even if the bar for action was low.
• “I think it could happen any time now, based on the language that we saw today,” said Eric Stein, a portfolio manager at Eaton Vance in Boston.
• Economists at 12 of 18 primary dealers, the large financial institutions that do business directly with the Fed, believe the central bank will undertake further quantitative easing, according to a Reuters poll after Bernanke’s news conference.
• The Fed has trained its sights on the stalled housing market in recent months, so any move to QE3 is most widely expected to involve buying mortgage securities to help bring down further already record-low mortgage interest rates.

Disclosure Notice

Any securities mentioned on this page are not held by the author in his personal portfolio. Securities mentioned may or may not be held by the author in the mutual fund he manages, the Paladin Long Short Fund (PALFX). For a list of the aforementioned fund’s holdings at the end of the prior quarter, visit the Paladin Funds website at http://www.paladinfunds.com/holdings/blog

Tags: Asset Purchases, Bank Of England, Buy Stocks, Curveball, David Tepper, ECB, Fait Accompli, Gold And Silver, Known News, Last Spring, Massive Program, Mortgage Backed Securities, Mortgage Rates, News Conference, Qe, Qe2, Resting Point, Reuters, Stimulus, Target
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January 27th, 2012

Yet another eye opener via the New York Times utilizing Apple (AAPL) as an example in describing the Chinese supply chain, especially via Foxconn.  Foxconn if you recall suffered from a spate of suicides about 12-24 months ago, and was prominent in the news.  While many will argue that even the worst job at Foxconn is a step up from many opportunities in China, these stories are interesting from the perspective that many of Apple’s consumers are of the ‘higher end’ type, some of which supposedly make purchasing decisions not just on price point but a broader range of reasons.  While I doubt these stories will put much of a dent (if any) into the unwavering demand for the latest cool electronic gadget they are quite interesting reads.

• …the workers assembling iPhones, iPads and other devices often labor in harsh conditions, according to employees inside those plants, worker advocates and documents published by companies themselves. Problems are as varied as onerous work environments and serious — sometimes deadly — safety problems.
• Employees work excessive overtime, in some cases seven days a week, and live in crowded dorms. Some say they stand so long that their legs swell until they can hardly walk. Under-age workers have helped build Apple’s products, and the company’s suppliers have improperly disposed of hazardous waste and falsified records, according to company reports and advocacy groups that, within China, are often considered reliable, independent monitors.
• More troubling, the groups say, is some suppliers’ disregard for workers’ health. Two years ago, 137 workers at an Apple supplier in eastern China were injured after they were ordered to use a poisonous chemical to clean iPhone screens. Within seven months last year, two explosions at iPad factories, including in Chengdu, killed four people and injured 77. Before those blasts, Apple had been alerted to hazardous conditions inside the Chengdu plant, according to a Chinese group that published that warning.
• Apple is not the only electronics company doing business within a troubling supply system. Bleak working conditions have been documented at factories manufacturing products for Dell, Hewlett-Packard, I.B.M., Lenovo, Motorola, Nokia, Sony, Toshiba and others.
• Some former Apple executives say there is an unresolved tension within the company: executives want to improve conditions within factories, but that dedication falters when it conflicts with crucial supplier relationships or the fast delivery of new products.    Executives at other corporations report similar internal pressures. This system may not be pretty, they argue, but a radical overhaul would slow innovation. Customers want amazing new electronics delivered every year.
• “We’ve known about labor abuses in some factories for four years, and they’re still going on,” said one former Apple executive who, like others, spoke on the condition of anonymity because of confidentiality agreements. “Why? Because the system works for us. Suppliers would change everything tomorrow if Apple told them they didn’t have another choice.”
• “We’re trying really hard to make things better,” said one former Apple executive. “But most people would still be really disturbed if they saw where their iPhone comes from.”
• Apple typically asks suppliers to specify how much every part costs, how many workers are needed and the size of their salaries. Executives want to know every financial detail. Afterward, Apple calculates how much it will pay for a part. Most suppliers are allowed only the slimmest of profits.  So suppliers often try to cut corners, replace expensive chemicals with less costly alternatives, or push their employees to work faster and longer, according to people at those companies.
• “The only way you make money working for Apple is figuring out how to do things more efficiently or cheaper,” said an executive at one company that helped bring the iPad to market. “And then they’ll come back the next year, and force a 10 percent price cut.”
• “You can set all the rules you want, but they’re meaningless if you don’t give suppliers enough profit to treat workers well,” said one former Apple executive with firsthand knowledge of the supplier responsibility group. “If you squeeze margins, you’re forcing them to cut safety.”
• Many major technology companies have worked with factories where conditions are troubling. However, independent monitors and suppliers say some act differently. Executives at multiple suppliers, in interviews, said that Hewlett-Packard and others allowed them slightly more profits and other allowances if they were used to improve worker conditions.
• “You can either manufacture in comfortable, worker-friendly factories, or you can reinvent the product every year, and make it better and faster and cheaper, which requires factories that seem harsh by American standards,” said a current Apple executive.  “And right now, customers care more about a new iPhone than working conditions in China.”

Disclosure Notice

Any securities mentioned on this page are not held by the author in his personal portfolio. Securities mentioned may or may not be held by the author in the mutual fund he manages, the Paladin Long Short Fund (PALFX). For a list of the aforementioned fund’s holdings at the end of the prior quarter, visit the Paladin Funds website at http://www.paladinfunds.com/holdings/blog

Tags: Aapl, Advocacy Groups, Chengdu, Dorms, Eastern China, Electronic Gadget, Excessive Overtime, Eye Opener, Harsh Conditions, Hazardous Conditions, Independent Monitors, Iphone, New York Time, New York Times, Safety Problems, Seven Months, Spate, Work Environments, Worker Advocates, Workers Health
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January 27th, 2012

The US economy grew at a 2.8% annualized pace in the supposedly blistering fourth quarter, yet the number was a disappointment not only in that it missed estimates of 3.0% (and far higher whisper numbers) but when one looks at the components, where a whopping 1.94% of the upside was attributable to a rise in inventories as restocking took place. And as everyone knows in this day and age a spike in inventories only leads to sub-cost dumping a few months later. In other words, the economy grew at a 0.8% pace ex inventories. Yet for all intents and purposes, this is considered “growth.” Personal consumption was also weaker than expected coming in at 2.0% on estimates of 2.4%. Perhaps the only silver lining was Core PCE which came at 1.1% on expectations of 0.9%, however as discussed extensively before, this was driven by an unsustainable surge in credit-binge spending, primarily for iStore trinkets, and is hardly sustainable especially as the US Savings Rate fell to 3.7% in the fourth quarter, the lowest since Q4 2007. In other words Joe Sixpack is living large, especially since Joe Sixpack no longer has to pay his mortgage. Unfortunately this is a collision course with every economic principle and the next taxpayer funded bank bailout is only a matter of time. Bottom line: the artificial economic pick up is over and Q1 will see inventories actually detract from GDP: as a reminder Q1 2011 GDP subtracted 1.8% points from the final 0.4% GDP, and that was following only a 0.9% inventory rise in the preceding quarter, Q4 2010. And that is not even mentioning the tight fiscal situation no longer being a benefit to growth. Oh yes, and gas is no longer falling. To paraphrase Lester Burnham, “It’s all downhill from here.”

Finally a chart of the GDP Price Index. It just printed the third lowest since 1963.

Tags: Bank Bailout, Binge, Collision Course, Core Pce, Economic Principle, Fiscal Situation, Fourth Quarter, Gdp Price Index, Intents And Purposes, Inventories, Joe Sixpack, Lester Burnham, Matter Of Time, Paraphrase, Personal Consumption, Q4 2007, Q4 Gdp, Silver Lining, Trinkets, Whisper Numbers
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January 27th, 2012

New Year, Same Crisis

by George Soros, Soros Fund Management, via Project Syndicate

DAVOS – The measures introduced by the European Central Bank last December, especially the Long Term Refinancing Operation (LTRO), have relieved the liquidity problems of European banks, but have not cured the financing disadvantage of the highly indebted member states. Since high-risk premiums on government bonds endanger the capital adequacy of banks, half a solution is not enough. Indeed, that supposed solution leaves half the eurozone relegated to the status of Third World countries that have become highly indebted in a foreign currency. Instead of the International Monetary Fund, it is Germany that is acting as the taskmaster imposing tough fiscal discipline on them. This will generate both economic and political tensions that could destroy the European Union.

I have proposed a plan that would allow Italy and Spain to refinance their debt by issuing treasury bills at around 1%. I named it in memory of my friend Tomasso Padoa-Schioppa, who, as Italy’s central banker in the 1990’s, helped to stabilize that country’s finances. The plan is rather complicated, but it is legally and technically sound. I describe it in detail in my new book Financial Turmoil in Europe and the United States. European authorities rejected my plan in favor of the LTRO. The difference between the two schemes is that mine would provide instant relief to Italy and Spain. By contrast, the LTRO allows Italian and Spanish banks to engage in a very profitable and practically riskless arbitrage, but has kept government bonds hovering on the edge of a precipice – although the last few days brought some relief.

My proposal is to use the European Financial Stability Facility (EFSF) and the European Stability Mechanism (ESM) to insure the European Central Bank against the solvency risk on any newly issued Italian or Spanish treasury bills that it may buy from commercial banks. This would allow the European Banking Authority to treat these various T-bills as the equivalent of cash, because they could be sold to the ECB at any time. Banks would then find it advantageous to hold their surplus liquidity in the form of T-bills as long as these bills yielded more than bank deposits held at the ECB. Italy and Spain would then be able to refinance their debt at close to the ECB’s deposit rate, which is currently 1% on mandatory reserves and 25 basis points on excess-reserve accounts.

Read the complete article here

Tags: Capital Adequacy, Commercial Banks, Efsf, European Authorities, European Banks, European Stability, Financial Turmoil, Fiscal Discipline, Foreign Currency, George Soros, Government Bonds, International Monetary Fund, Liquidity Problems, Political Tensions, Project Syndicate, Risk Premiums, Soros Fund Management, Spanish Banks, Third World Countries, Treasury Bills
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January 27th, 2012

HORIZONS ETFS ANNOUNCES JANUARY 2012 DISTRIBUTIONS

TORONTO, January 20, 2012 – Horizons Exchange Traded Funds Inc. (“Horizons ETFs”) and its affiliate AlphaPro Management Inc. are pleased to announce the distribution amounts per unit (the “Distributions”) for certain of the Horizons ETFs family of exchange traded funds (the “ETFs”), for the period ending January 31, 2012, as indicated in the table below.

The ex-dividend date for the Distributions is anticipated to be January 27, 2012, for all unitholders of record on January 31, 2012. The Distributions will be paid in cash or, if the unitholder has enrolled in the respective ETF’s dividend reinvestment plan (DRIP), reinvested in additional units of the applicable ETF, on or about February 10, 2012.

[Complete Press Release] Horizons ETFs Announces January 2012 Distributions
HORIZONS GOLD YIELD FUND ANNOUNCES JANUARY 2012 DISTRIBUTION

TORONTO, January 20, 2012 – Horizons Exchange Traded Funds Inc. (“Horizons ETFs”) and its affiliate AlphaPro Management Inc. are pleased to announce the monthly distribution rate for the Horizons Gold Yield Fund (the “Fund”) for January 2012 in the amount of $0.07780 per Class A unit and Class F unit of the Fund. The Class A units of the Fund are listed for trading on the Toronto Stock Exchange (“TSX”) under the symbol HGY.UN. The Class F units of the Fund are not publicly listed.

This distribution rate, which is equivalent to $0.9336 per annum or a yield of 9.34% per annum on the initial issue price of $10.00 per Class A unit and Class F unit, will be applicable to the distributions declared for January, February and March 2012. The January distribution ex-dividend date is anticipated to be January 27, 2012, for all Class A and Class F unitholders of record on January 31, 2012. The distribution is payable on February 10, 2012.

[Complete Press Release] Horizons Gold Yield Fund Announces January 2012 Distribution

HORIZONS ENHANCED U.S. EQUITY INCOME FUND ANNOUNCES MONTHLY DISTRIBUTION

TORONTO, January 20, 2012 – Horizons Exchange Traded Funds Inc. (“Horizons ETFs”) and its affiliate AlphaPro Management Inc. are pleased to announce the monthly distribution of the Horizons Enhanced U.S. Equity Income Fund (the “Fund”) for January 2012 in the amount of $0.07679 per Class A unit of the Fund. The Class A units of the Fund are listed for trading on the Toronto Stock Exchange (“TSX”) under the symbol HES.UN.

The distribution represents a 9.04% annualized yield on the Fund’s initial public offering price of $10.00 per Class A unit. The January distribution ex-dividend date is anticipated to be January 27, 2012, for all Class A unitholders of record on January 31, 2012. The distribution is payable on February 10, 2012.

[Complete Press Release] Horizons Enhanced U.S. Equity Income Fund Announces Monthly Distribution

For further information:
Martin Fabregas, Investor Relations, (416) 601-2508 or 1-866-641-5739.

Tags: Annum, Complete Press, Distribution Amounts, Distributions, Dividend Reinvestment Plan, Drip, ETF, ETFs, Ex Dividend Date, Exchange Traded Funds, Horizons, Initial Issue, January 20, January 27, January February, Management Inc, Press Release, Toronto Stock Exchange, Tsx, Yield Fund
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January 26th, 2012

PIMCO’s Bill Gross commented/tweeted yesterday that “Financial repression” and possibly three more rounds of QE lie ahead, in response to the Fed’s statement.

From Bloomberg:

• The U.S. will suffer “financial repression” as the Federal Reserve implements additional quantitative easing, according to Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co.
• A third, fourth and fifth round of easing “lie ahead,” Gross wrote in a Twitter post.
• The Fed will probably hold its benchmark interest rate at near zero percent for at least the next three years, the post said. Chairman Ben S. Bernanke said yesterday the Fed is considering additional bond purchases to boost growth after extending its pledge to keep interest rates low through at least late 2014.

• “Financial repression depends on negative real yields and until inflation moves higher for a period of at least several years, central banks will hibernate at the zero bound,” Gross wrote in his monthly investment outlook on Jan. 4.
• Policy makers are “prepared to provide further monetary accommodation” and bond buying is “an option that’s certainly on the table,” Bernanke said after officials gathered for a meeting yesterday. The central bank has purchased $2.3 trillion of securities in two rounds of large-scale asset purchases known as quantitative easing.
• The Fed is in the process of replacing $400 billion of shorter-maturity Treasuries in its holdings with longer-term debt to “put downward pressure on longer-term interest rates,” based on a statement announcing the plan in September.
• Gross increased U.S. government and Treasury debt in the $244 billion Total Return Fund to 30 percent of assets in December, the highest in 13 months, after betting against the securities during a rally last year.

Tags: Asset Purchases, Benchmark Interest Rate, Bernanke, Bill Gross, Bond Fund, Central Banks, Downward Pressure, Federal Reserve, Financial Repression, inflation, Investment Management, Investment Outlook, Maturity, Pacific Investment Management Co, Qe 2, Term Debt, Term Interest, Treasuries, Trillion, Zero Percent
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January 26th, 2012

Our discussions (here, here, and here) of the dispersion of deleveraging efforts across developed nations, from the McKinsey report last week, raised a number of questions on the timeliness of the deflationary deleveraging process. David Rosenberg, of Gluskin Sheff, notes that the multi-decade debt boom will take years to mean revert and agrees with our views that we are still in the early stages of the global deleveraging cycle.

He adds that while many believe last year’s extreme volatility was an aberration, he wonders if in fact the opposite is true and that what we saw in 2009-2010 – a double in the S&P 500 from the low to nearby high – was the aberration and market’s demands for more and more QE/easing becomes the volatility-inducing swings of dysphoric reality mixed with euphoric money printing salvation. In his words, perhaps the entire three years of angst turned to euphoria turned to angst (and back to euphoria in the first three weeks of 2012?) is the new normal.

After all we had angst from 1929 to 1932 then ebullience from 1933 to 1936 and then back to despair in 1937-1938. Without the central banks of the world constantly teasing markets with more and more liquidity, the new baseline normal is dramatically lower than many believe and as such the former’s impacts will need to be greater and greater to maintain the mirage of the old normal.

From David Rosenberg, Gluskin Sheff:

Meet The New Paradigm, Same As The Old Paradigm

Tying It All Together.

The people I speak to tell me that the extreme volatility and general market weakness last year was the aberration. The normal was the bounce we saw in 2009 and extension into 2010 — even though that extension was in dire need of a late-year round of QE2 intervention.

I’m actually wondering if it isn’t the opposite. That last year was normal and what we saw in 2009 and 2010 — a double in the S&P 500 from the low to the nearby high —was the aberration.

Or maybe, just maybe, the entire three years of angst turned to euphoria turned back to angst (and back to euphoria in the first three weeks of 2012?) is the new normal. After all, we had market angst from 1929 to 1932 then ebullience from 1933 to 1936 and back to despair in 1937-38.

If there is one thing to take away from the McKinsey report, it is that we are into a completely different set of post-recession realities than what we were accustomed to through the post-WWII era. The prior 10 recessions before the epic 2007-09 downturn were nothing more than brief and small corrections in real GDP in the context of what was a generational secular credit expansion — an expansion that went asymptotic from 2002 to 2007. But make no mistake — this was a multi-decade debt boom and will take years to mean revert. As the McKinsey report concluded, we are still in the early stages of the global deleveraging cycle, and once it starts in the government sector, absent a notable upturn in private sector spending, recession risks will remain acute, if not a reality.

This is the lens from which we have to assess the economic base-case scenario, understanding that the range of outcomes are extremely wide, but the probabilities still skewed more towards the downside. What is to be considered “normal” should not be through the prism of the post-WWII period, when the secular credit expansion ensured that recessions were short and shallow and expansions long and strong—to the extent that central banks started to believe their own press that they had managed to defeat the business cycle and with that in mind, coined their own term of success: “The Great Moderation”.

Indeed.

Today’s “normal” is seen through the prism of the McKinsey report — what life looks like after a post-credit bubble collapse. And so far, what we have seen in the markets and the macro economic data—an initial sharp bounce, then a stalling out, wide fluctuations, ultra-low policy rates and bond yields, endless signs of economic fragility and recurring double-dip risk — is indeed quite normal in this context.

This by no means suggests that investment themes have vanished and that you can’t make money and preserve capital in this sort of environment. There were plenty of ways to generate returns in 2011 —they just didn’t really exist that much within the equity market universe. But let’s go through where to prudently put money to work in the current and prospective backdrop, since we have to face up to the reality that you will not build up wealth or savings in T-bills, bank deposits or money market funds at today’s near-zero percent interest rate environment:

1.    Market volatility is part and parcel of every post-bubble deleveraging cycle. This means an ongoing focus on long-short relative value strategies that have little directional exposure with the overall market but take advantage of the inherent mispricing across sectors during these periods of heightened volatility.

2.    Deflation trumps inflation as the primary trend in a deleveraging cycle. This means an emphasis on defensive sectors with earnings stability and predictability characteristics. It also means a focus on squeezing as much income as possible out of the portfolio. This is why “income equity” strategies make so much sense.

3.    Balance sheet quality becomes so much more important in cycles like these. Already, we have seen the amount of AAA-rated government paper plunge 70% in the past three years from $19 trillion to $6 trillion. As such, emphasis on good quality corporate bonds in noncyclical sectors, attractive spreads, high net free cash flow yields, low debt ratios, high liquidity ratios and light refinancing calendars make prudent sense. Our good friend and top-ranked credit analyst Marty Fridson told me yesterday that even in the high-yield space, spreads off of government bonds have more than 100 basis points of tightening potential based on the current set of fundamentals.

4.    Always be on the lookout for assets priced for recession. Not only are wide swaths of the credit market priced for such, but so are parts of the commodity complex and segments of the ex-North American equity market where P/E ratios are in single-digits and PEG (P/E to growth) ratios below unity.

5.    In this post-bubble environment, policy rates will remain near the floor for years. As such, the risks of any sustainable bear market in bonds are very low since the cost of carry is so vitally important to the fixed-income markets, especially for longer duration product (keeping in mind that yield curves are still steep by historical standards).

6.    Keeping policy rates low means that real rates will remain negative. Even if the CPI turns negative, the central banks around the world will de facto ease policy by printing money. In this sense, the secular bull market in gold bullion remains intact and, as such, dips should be bought (especially dips below the moving averages).

7.    Global deleveraging cycles almost invariably bring on heightened geo-political tensions. This is why the oil price has such a high floor established underneath it. Protectionism will continue to emerge as a new normal, as part of the globalization trend gets reversed. Exposure to crude oil and materials makes good sense from a strategic point of view.

8.    Populist policies win the roost in these types of cycles. The 99% extract their pound of flesh from the 1%. Conservatives like Newt end up sounding like Krugman when debating the likes of Romney. Luxury retailing, or any other fashion that benefits from the spending trend of the upper class, is probably a good shorting opportunity.

Tags: Aberration, Amp, Baseline, Boom, Central Banks Of The World, David Rosenberg, Developed Nations, Dispersion, Ebullience, Euphoria, Extreme Volatility, liquidity, Market Weakness, Mckinsey Report, Mirage, Money Printing, New Paradigm, Qe, Swings, Timeliness
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January 26th, 2012

Bloomberg details the latest from the Fed:

Chairman Ben S. Bernanke said the Federal Reserve is considering additional asset purchases to boost growth after extending its pledge to keep interest rates low through at least late 2014.

Policy makers are “prepared to provide further monetary accommodation if employment is not making sufficient progress towards our assessment of its maximum level, or if inflation shows signs of moving further below its mandate-consistent rate.”

The immediate market reaction was a risk asset rally, a huge rally in gold (per Calculated Risk: Bernanke made it clear that even if inflation moved above the target – and unemployment was still very high – the Fed would only slowly pursue policies to reduce the inflation rate), and a rally at the belly of the yield curve (the yield curve flattened out to five years… shorter rates couldn’t fall as they are already at or near zero). Why? The “late 2014″ date is much later than the June 2013 date previously projected by Bernanke last summer.
The impact of this announcement (and the previous projected rates) can be seen in the chart below that shows the Fed Funds rate curve (implied by EuroDollar futures) for March 2013 through December 2014, as of various dates over the past year.

What do we see? We see an initial drop between March and June of last year as Bernanke indicated low yields for the foreseeable future, then a huge drop (mid-summer) after Bernanke stated rates would remain zero through June 2013. Today’s announcement really did nothing through June 2013 (that was already projected), but was felt further out along the curve.
The key question is what is the Fed trying to accomplish?
In “normal” times, low yields = cheap financing = increased consumption (it creates an incentive for individuals to borrow and banks to lend), but in today’s zero-bound world the impact is minimal. Increased consumption is limited as individuals are trying to rebuild their own balance sheets and those that might benefit most from borrowing, don’t necessarily have the credit to qualify for a loan. In terms of impact on unemployment, GYSC (of Economic Disconnect fame) states:

Unemployment is a structural problem, not a cyclical one, but the FED is still stuck in the past.

In addition, there are some theories that consumption may actually be negatively impacted by zero bound rates. As I outlined over the summer, I think it is possible that negative real interest rates may actually cause individuals to save more, while Kid Dynamite outlined yesterday that low rates forecasted may cause individuals to hold off from making a loan fueled purchase:

Let me explain: right now, one appealing factor of home buying/selling decisions is that interest rates are very low – you can afford to buy more house. If I think that interest rates are going to remain low for a long period of time, I will be in no hurry to lock in this low rate on the debt I’m borrowing – I will be in no hurry to go out and buy a house.

So what is it then? Corporations!
There is one sector that I think will be positively impacted by the latest announcement…. corporations. Don’t let their record profits as a percent of GDP (while personal income is at record lows) fool you into thinking they don’t need help at the populations expense. Seriously though… my initial reaction upon hearing that rates would be held down near zero through 2014… buy credit… WITH duration out to around ten years (the secondary impact is positive for equities, as explained below).
While Treasury yields are at all-time lows, corporate spreads remain at elevated levels (when yields fell during the summer when we had to deal with the US downgrade and Europe, spreads widened significantly).

In “normal” times, when markets calm these spreads would be expected to narrow, which I still believe is the case. One would also “normally” expect Treasury yields to rise as investors shift out of Treasuries, causing the hard interest rate component of corporate yields (rate + spread = yield) to rise, but this risk has been removed for the foreseeable future out to around ten years. The result is that corporate bonds seem like a very safe investment. This decreased risk should mean even cheaper financing for longer dated maturity corporate bond issuance.
So will this finally set off a round of corporate fueled expansion? If they don’t see aggregate demand improving, then I don’t see how this will impact the underlying economy. But, with the cost of equity high (i.e. what I perceive as fair to cheap equity valuations) and cost of debt low (i.e. these lower yielding corporate bonds), we may see significant change in capital structures (perhaps via private equity).
Source: Barclays Capital

Tags: Asset Purchases, Balance Sheets, Bernanke, Bloomberg, Consistent Rate, Consumption, Eurodollar Futures, Fed Chairman, Fed Funds Rate, Federal Reserve, Foreseeable Future, Inflation Rate, Initial Drop, Mandate, Maximum Level, Mid Summer, Pledge, Rally, Target, Yield Curve
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January 26th, 2012

Below are the 36 S&P 500 stocks that are currently trading more than 15% above their 50-day moving averages.  That’s a very high number and is indicative of how overbought the market has become.  Based on how stocks are trading after hours following the Apple news, it looks like even more stocks could become overbought at the open of trading tomorrow.

As shown, Micron (MU) is the farthest above its 50-day of any stock in the S&P 500 at +26.69%.  Bank of America (BAC) is the second most overbought at 25.74% above its 50-day, followed by Genworth Financial (GNW), JDS Uniphase (JDSU) and Novellus (NVLS).

The average stock in the S&P 500 is currently up 5.5% year to date.  Below are the 50 best performing S&P 500 stocks so far in 2012.  As shown, Sears Holdings (SHLD) ranks first with a gain of 44.24% followed by Netflix (NFLX) in second at 33.74%.  Bank of America (BAC) and JDS Uniphase (JDSU) rank third and fourth and are the only other two stocks that are up more than 30% year to date.  Other notables on the list of 2012′s winners include Pulte (PHM), Goldman Sachs (GS), Morgan Stanley (MS) and Ford (F).

We have also included each stock’s 2011 change as well.  As shown, just two of the fifty best performing stocks so far this year were also up in 2011.  In fact, the average stock on the list below was down 25.5% in 2011.  At this point in the year, 2011′s pain has been 2012′s gain!

Tags: Amp, Apple News, Bac, Bank Of America, Best Performing Stocks, Genworth, Genworth Financial, Gnw, Goldman Sachs, Jds Uniphase, Jdsu, Micron Mu, Morgan Stanley, Moving Averages, Nflx, Notables, Novellus, Sachs Gs, Sears Holdings, Shld
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January 26th, 2012

For a new investor in gold and silver, here is the most lucid piece of advice I can offer. Identifying severe undervaluation points in gold and silver, buying gold and silver assets during these times, and not worrying about interim short-term volatility, even if the immediate volatility is downward, is much more likely to impact your accumulation of wealth in a positive manner than trying to perfectly time market tops and bottoms in the highly manipulated gold and silver game. I am posting this article today to help all gold and silver investors, especially those new to the game, to frame their perspectives about gold and silver price behavior in the proper manner. I hope this article helps gold and silver investors so stand firm and maintain their faith in the face of anti-gold, anti-silver banker propaganda and that it helps investors to identify significant corrections in gold and silver as huge buying opportunities, and not as times of despair, that do not require perfect timing to yield very significantly rewards. During the last week of 2011 and the first couple of weeks of 2012, I posted two articles on our blog that I felt would be critical to investment success this year.

Did Bankers Deliberately Crash MF Global to Crash Gold and Silver Prices?

Gold & Silver Banker-Cartel Prolonged Price Suppression Has Set the Foundation for an Explosive Move Higher in 2012

In the first article, “Did Bankers Deliberately Crash MF Global to Crash Gold and Silver Prices?” I discussed two crucial points that are important to anyone that keeps any amount of digital savings in a bank (due to the fractional reserve system, the majority of the global currency in circulation today exists in digital form only). One, bankers deliberately invented paper markets in gold and silver to kill the influence that the physical demand and supply determinants of gold and silver have over prices. Two, bankers have historically rapidly contracted and expanded paper gold and paper silver contracts (that are backed with nothing but air) to introduce volatile movements in gold and silver with the express intent of scaring people away from real money (physical gold and physical silver) and keeping people invested in their bogus paper and mostly digital money (Euros, USD, Yuan, Yen, Pounds Sterling, etc.).

In relation to the MF Global debacle, we released private messages to our members that warned them that the MF Global liquidation and theft of client assets provided hard direct proof and critical legal precedent, that in the event of a bankruptcy of a major financial firm, clients had zero rights and property theft was now being sanctioned by and approved of by the State. There are still millions of people today that don’t understand the very dangerous precedent that MF Global set for future bankruptcies of financial firms that WILL HAPPEN in coming years.

If you have not been keeping up-to-date with the MF Global dispute over hundreds of millions of dollars of client money, then I highly urge you to read these three articles below:

MF Global Clients May Lose in $700 Million Bankruptcy Fight

SW Minnesota Farmer Testifies in Commodity Scam

How JP Morgan And George Soros Ended Up With MF Global Customer Money

The first MF Global article shows you that it is still a strong possibility that clients will lose $700+ million of their money they had with MF Global before it declared their bankruptcy. That is not a sum to sneeze at by any means. The second MF Global article is in regard to a Minnesota farmer that has not been able to recover $253,000 he held at MF Global. The farmer claimed, “This money was real money in real banks. It wasn’t under somebody’s mattress,” a statement that underscores the lack of understanding about our monetary system that exists among the masses. In fact, the opposite of what the farmer stated is becoming true today. The vast majority of money that is used in global financial transactions today exists only in digital form, not even in paper form, so paper money stored under one’s mattress is more “real” than any digital bytes on a computer at your bank. Secondly, real money is not fiat digital or paper currency but real money is physical gold and physical silver, NOT paper gold and paper silver as those that bought gold futures contracts with MF Global, hoping to take delivery of physical gold with their paper contracts, sadly discovered. The third MF Global article emphasizes, just as the US & many EU countries demonstrated during the 2008 free fall of financial stocks, that lawmakers and regulators are in the back pockets of bankers and will always change the laws at their whim to benefit the bankers and to defraud the people.

In 2008 to prevent bank stocks from plummeting that were deservedly plummeting, lawmakers in the EU and the US forced a short squeeze higher in financial stocks by arbitrarily changing the laws and banning any short sale of any bank stocks. Even though MF Global was clearly operating as a commodities firm, they applied for and were granted, the right to be dissolved as an equities firm. In this case, everyone from the legal system and the trustee of MF Global are merely ignoring the law to profit the bankers and defraud the clients.

“Rather than being treated as a bankruptcy of a commodities brokerage firm under sub-chapter IV of the Chapter 7 bankruptcy law, MF Global was treated as an equities firm (sub-chapter III) for the purposes of its bankruptcy, and this is why the MF Global customer money in so-called segregated accounts ‘disappeared’. In a brokerage firm bankruptcy, the customers get their money first, while in an equities firm bankruptcy, the customers are at the end of the line.”

In laymen’s terms, the unfolding debacle regarding MF Global also has critical repercussions and implications regarding the implied safety of any money you have in a money market account or savings account at a bank. Remember MF Global clients believed that their money was being held in “segregated” accounts that protected their assets in the event of a bankruptcy. If you don’t believe that the MF Global bankruptcy proceedings has affected how banks view their clients’ deposits, then you are hugely mistaken. At the end of last year, Bloomberg ran a story titled “BofA Said to Split Regulators Over Moving Merrill Derivatives to Bank Unit.” In this article, the journalist stated, “The bank doesn’t believe regulatory approval is needed”. ZeroHedge explained why BofA was making this move in their article “Bank Of America Forces Depositors To Backstop Its $53 Trillion Derivative Book To Prevent A Few Clients From Departing The Bank”:

“it shifted anywhere up to the total of $53 trillion of the total derivatives it held as of June 30 (as Zero Hedge previously reported) on its books at Q2 from the Holding Company, which was downgraded last by Moody’s from A2 to Baa1 (the third-lowest investment grade rating) to its retail bank, which was downgraded to the far more palatable A2 (from Aa3). The reason for the transfer? Bank customers who were uneasy with the fact that suddenly the collateral backstoping the operating entity handling their counterparty risk was downgraded to just above junk, demanded that said counterparty risk be mitigated by the bank’s $1 trillon in deposits.”

The MF Global case has clearly demonstrated that any insurance of banking accounts up to $100,000 or $250,000, no matter what country in which you reside, is simply MEANINGLESS if

(1) the insurance company insuring the aggregate deposits in your country is severely underfunded;

(2) the ruling corporatocracy allows financial firms to steal your property in the event of a bankruptcy; and

(3) banks are using customer deposits as collateral against the riskiest of their junk assets.

All three of the above have already been proven to be the case inside the United States and will likely be the case in countries around the world as well. From the US Federal Deposit Insurance Corporation’s (FDIC) own website, you can find this statement:

“On July 21, 2010, the President signed the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) into law. The Dodd-Frank Act established a minimum designated reserve ratio (DRR) of 1.35% of estimated insured deposits, [and] mandates that the FDIC adopt a restoration plan should the fund balance fall below 1.35 percent.”

As recently as March, 2009 the US Deposit Insurance Fund had as little as $13 billion to insure nearly $4.83 trillion of deposits in US banks. By mid-2009, five US banks, Citigroup, JPMorgan Chase, Bank of America and Wells Fargo, held about 39% of all deposits in the US and in 2012, that figure is almost certainly higher given the large number of US bank failures since mid-2009 until the present day, including very large US banks like Washington Mutual (which yours truly predicted in advance). It doesn’t take a math genius to understand that should just one of these top US banks fail,

(1) the Deposit Insurance Fund would be completely wiped out, thus rendering the $250,000 guarantee of bank deposits worthless and meaningless; or

(2) necessitate the creation of trillions of new money to maintain the guarantee, thus severely degrading the value of all existing money, thereby making the guarantee worthless once again.

Should a large US bank or European bank go bankrupt, a highly likely event in the future that can only be prevented by excessive monetary creation out of thin air, backed by nothing, (which in essence is an admission that the bank is bankrupt), then once can refer to the recent MF Global debacle to understand that no one will have any rights in recouping any money that is lost during a bank’s bankruptcy. If push truly comes to shove during a bankruptcy of a financial firm, and a decision must be made to either make the clients whole or the creditors of the bank whole, we all know that the clients (us) will lose the battle.

These critical talking points lead nicely into our second blog article, “Gold & Silver Banker-Cartel Prolonged Price Suppression Has Set the Foundation for an Explosive Move Higher in 2012.” As we stated in that article, sentiment was the lowest in nearly three years regarding gold & silver mining stocks at the end of 2011 and that entering 2012, bankers were still heavily distributing propaganda that silver was going to crash to $20 an ounce and gold was going to crash to about $850 to $1,000 an ounce. I made it clear in that article that strong fundamentals in the gold & mining sector combined with super low bullish sentiment in the mining sector produced a super strong buying opportunity and fantastic valuation for gold & silver mining stocks. In this article, I stated:

“there are still many reasons to expect a stellar next couple of years from gold and silver performance, including the mining stocks. From a technical standpoint, gold and silver appear to be on the verge of making a very significant run higher. I’m not saying that this will happen tomorrow, but it does look very probable within a short-time period. From a manipulation factor standpoint, gold and silver also look poised for a run higher too.”

and

“we see 2011 as nothing more than a temporary setback in gold/silver mining stocks…from a technical standpoint, gold and silver appear to be on the verge of making a very significant run higher. I’m not saying that this will happen tomorrow, but it does look very probable within a short-time period.”

Given the severe undervaluation of gold and silver and the fact that nobody should ever trust paper gold and paper silver futures as a means of taking delivery of real physical gold and real physical silver ever again. We believe that the divergences between paper gold and silver futures and spot prices and real physical gold and silver prices will eventually become enormous, as we first started predicting would happen in 2008, with premiums in the price of physical gold and physical silver eventually rising so high above the paper prices that the paper gold and paper silver markets will either

(1) eventually be ignored for purposes of price discovery; or

(2) eventually implode into its own current cesspool of lies, fraud and deceit.

Many new investors to gold and silver investing always make the mistake of trying to time exact bottoms and also to repeatedly time exact tops and to exit and re-enter markets repeatedly during the year. Given the enormous amount of volatility that the global banking cartel has introduced into all paper gold and paper silver products, including mining stocks, we believe that this type of mentality is counter-productive when the long-term picture in gold and silver has been as clear as it has been for the past several years. For example, when silver dropped below $30 an ounce last year, it was entirely irrelevant to one’s long-term wealth whether one purchased silver at $30, $29 or $28 an ounce given the fact that the probability silver will eventually rise to triple-digit dollar prices is extremely high.

We have always told our members that is a mistake to try to time the absolute bottoms of these corrections. When tremendous value exists in a sector, as existed in mid-January in the mining sector, then we always tell all new members to our services to “go all in” in their buying strategies during these times and to not worry about any short-term downside volatility or any of the misinformation being spewed by the financial mass media during these times about collapsing gold and silver bubbles. Furthermore, when the US Federal Reserve announced recently on January 25, 2012 that they would be extending low-rates into late 2014 and jump-started a one-day 5%, 6%, 7%, 8% explosion in gold and silver stock, this underscores my point even further. When the global banker cartel slams gold & silver mining stocks by 10% or more as they did at the end of last year, taking an already undervalued sector to greatly undervalued status, if one understands fundamentals, one will always view this as nothing more than a buying opportunity and not as a time to panic.

The performance of our Crisis Investment Opportunities newsletter portfolio, in August of 2010, was flat YTD, but then piled on whopping +33% gains in the last four months of the year. In 2008, our portfolio gains of a nominal 3.21% gain was followed by explosive gains of +63.32% in 2009. Though last year was our most difficult year to date since we launched our newsletter in June of 2007, our cumulative gains from June, 2007 to December 31, 2011 of +135 .18% has still outperformed the S&P 500, the FTSE 100, the ASX 200 respectively by +153.12%. +152.37%, and +169.20%. Thus, our track record of outstanding performance over time backs up our strong belief that worrying about every rise and fall in gold and silver every year will do nothing but drive you crazy and merely prevent you from handling your investments properly and intelligently. It is impossible to predict every single global banking cartel smash down of gold and silver with perfect accuracy; however, as long as one can foresee enough of them, as our outperformance of the PHLX Gold/Silver index by +104.75% over the last 4-1/2 years proves, and maintain the nerve and confidence to stay invested in gold and silver even when the “pundits” are screaming at you to get out, as they were at the end of last year and the beginning of this year, then you will do quite fine in continuing to build wealth as the monetary crisis deepens.

If one understands the possibility that all digital credits in your bank and investment accounts could disappear given the failure or a major global bank (an inevitable event it seems right now), then one should clearly understand that owning physical gold and physical silver is NOT an option but a necessity if you are to survive the second phase of this global monetary crisis. Even if we are wrong about the failure of digital financial products and fraudulent paper derivatives in the future, we will still be right, as owning physical gold and physical silver will continue to protect the purchasing power of people’s money as this monetary crisis deepens. Remember, though many have been jumping on the gold and silver bandwagon this week, we, at SmartKnowledgeU, have been publicly advocating gold (and) silver ownership since 2006, and privately, for years prior to 2006, for the same exact reasons we’re still advocating it today.

The global banking & monetary system is a fraud, a mess, and there is no turning back from US dollar & Euro destruction at this point.

Just click here to read our 2006 article “Gold’s Speculative Stigma is Unwarranted.”

It has taken about five years since we wrote that article for the public-at-large (at least in the Western world) to understand that gold’s label as a speculative investment is not deserved and is mere banker propaganda. Within the next five years, the remaining skeptics will be forced to finally recognize that gold and silver are real money, and that Yen, Pounds, USD, and Euros are not. Given the severe undervaluation of gold/silver mining stocks, junior mining stocks in particular, and the undervaluation of gold and silver right now, we believe now is an optimal time for new investors to gold and silver to begin their journey. To help all newbie investors to gold/silver begin their journey, we are currently cutting as much as 30% off of all our major services during a special, limited two-week sale that will run from January 26, 2012 to February 9, 2012. To receive the coupon codes for this sale, please visit us at www.smartknowledgeu.com and please join our mailing list.

About the author: In 2006, fed up with the rampant immorality of Wall Street, JS Kim, walked away from his job with a Wall Street firm to found and become the Chief Investment Strategist of SmartKnowledgeU, a fiercely independent investment research & consulting firm. Since then, JS has tirelessly campaigned to increase understanding about real money like gold and silver and about the fraudulent nature of fiat money.

Tags: Explosive Move, Fractional Reserve System, Global Currency, Gold And Silver, Gold And Silver Prices, Investment Success, Market Tops, Mf Global, New Investor, Paper Markets, precious metals, Price Behavior, Silver Assets, Silver Game, Silver Investors, Silver Price, Supply Determinants, Term Volatility, Tops And Bottoms, Tyring
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January 26th, 2012

• BOJ Should Be Allowed $643 Billion Fund to Buy Foreign Bonds, Iwata Says (Bloomberg)
• Banks Hoarding ECB Cash May Double Company Defaults (Bloomberg)
• China Police Open Fire on Tibetans as Protests Spread (Bloomberg)
• Sarkozy Presidential Rival Hollande Would Lower Retirement Age, Lift Taxes (Bloomberg)
• IMF takes tougher stance over Greek debt (FT)
• Iran threatens to act first on EU embargo (FT)
• PM says ‘no complacency’ on economy (FT)
• George Soros: How to pull Italy and Spain back from the edge (FT)
• Japan’s NEC to slash 10,000 jobs (Reuters)
• Obama Planning Corporate Tax Overhaul (Bloomberg)
• French police arrest PIP implant boss Mas (Reuters)

Press Digest

WSJ

* With its $6 billion hostile offer for Illumina Inc , Swiss drug-giant Roche Holding AG is making an expensive and risky bet that genetic mapping will soon be common practice in doctors offices and hospitals.

* U.K. regulators fined Greenlight Capital and owner David Einhorn a total of $11.2 million for alleged insider trading in shares of Punch Taverns.

* Bank of America Corp plans to give investment bankers more of their year-end bonuses in stock, in Wall Street’s latest wallet-squeezing response to a wrenching year.

* Former HealthSouth Corp chairman Richard Scrushy could be released from prison and enter a halfway house within the next month after an Alabama judge on Wednesday reduced his sentence for a 2006 bribery conviction by one year, said Mr. Scrushy’s lawyer.

* Federal Reserve officials said they expect to keep short-term interest rates near zero for almost three more years and signaled they could restart a controversial bond-buying program in yet another campaign to rev up the disappointing economic recovery.

* Hasso Plattner, who 20 years ago designed a computer program that supercharged SAP AG’s growth, has been pursuing another breakthrough that could determine the software giant’s fate.

Now SAP’s chairman, the 68-year-old engineer is trying to take advantage of cheaper memory chips in servers to speed up complex business calculations and allow companies to do in seconds what currently can take hours or days. The aim is to allow executives to quickly access and analyze business data even on hand-held devices.

* Large public pension plans are pouring more money into private-equity funds, deepening ties between government workers and an industry currently under the harsh glare of U.S. presidential politics.

* The sharp drop in natural-gas prices has thrown a wrench into the plans of Chesapeake Energy Corp, the country’s second-largest gas producer. But that might not be the biggest challenge it faces. Chesapeake must also complete a slew of asset sales to continue with its business plans

FT

EINHORN AND GREENLIGHT FINED BY UK FINANCIAL REGULATOR

David Einhorn, one of the world’s highest profile hedge fund managers, and his firm, Greenlight Capital, have been fined 7.2 million pounds ($11.22 million) by UK regulators for trading before a 2009 equity fundraising by Punch Taverns. http://link.reuters.com/pyd36s

EX-LLOYDS CHIEF JOINS UK ADVISORY FIRM

Eric Daniels, former chief executive of Lloyds Banking Group and one of the most high-profile figures in the financial crisis, is joining a little-known advisory firm. http://link.reuters.com/faf36s

IRAN THREATENS TO ACT FIRST ON EU EMBARGO

Iran has threatened to pre-empt a European embargo on its oil by halting its exports to the region immediately, a move that could hit economically weak southern European countries. http://link.reuters.com/def36s

NORWEGIAN CARRIER PLACES HUGE ORDER IN RECOVERY BET

Norwegian Air Shuttle plans to buy 222 new aircraft worth $21.1 billion from Boeing and Airbus in a move that heralds its ambition to become one of Europe’s leading low-cost airlines. http://link.reuters.com/mef36s

PEACOCKS STORES INTEREST DISCOUNTERS AND SUPERMARKETS

Discount retailers and supermarkets are eyeing Peacocks’ 563-store portfolio in case administrators fail to find a buyer for all or part of the distressed value fashion chain. http://link.reuters.com/nef36s

CONOCO TO CUT U.S. GAS OUTPUT

ConocoPhillips, the third-largest U.S. oil and gas group by market capitalisation, has said it plans to cut its North American gas production this year as it shifts to more profitable oil reserves, becoming the latest group to announce output reductions after gas prices fell to a 10-year low. http://link.reuters.com/pef36s

SAP BULLISH AS IT BRUSHES OFF SLOWDOWN

SAP has shrugged off Europe’s economic slowdown as the world’s biggest business software maker by sales indicated it may raise its 2015 sales goal after achieving record annual profits and setting double-digit growth targets for this year. http://link.reuters.com/qef36s

UK’S CAMERON BACKED ON EU COURT OVERHAUL

David Cameron’s calls for an overhaul of the European Court of Human Rights to reduce its judges’ interference with the decisions of national governments have received firm backing from the head of the Council of Europe. http://link.reuters.com/ref36s

NYT

* The prominent money manager David Einhorn and his hedge fund, Greenlight Capital, were fined about $11 million by Britain’s financial regulator on Wednesday for using confidential information to trade in the stock of a British pub chain.

* The Federal Reserve said it was not likely to raise interest rates until the end of 2014, adding 18 months to the expected duration of its response to the slump.

* After a haltingly poor performance in the middle of last year, Netflix reported fourth-quarter earnings on Wednesday that exceeded analysts’ expectations and a subscriber uptick that surpassed its own outlook.

The company posted total revenue of $875.6 million, up 47 percent from the quarter last year. As the company invested in content rights and spent more to gain new subscribers, its profit, $40.7 million, or 73 cents a share, was down nearly 14 percent from the quarter last year, when its profit was $47.1 million, or 87 cents a share.

* A new federal task force looking into fraud related to the housing crisis will begin by looking at big banks and investment firms on Wall Street.

* Ron Johnson, J.C. Penney’s chief executive, said the company would adopt a three-tiered pricing structure and cut down on promotions.

* European banks have been busy. Financial institutions on the Continent have raised at least 40.7 billion euros, or $52.8 billion, in new capital as of the fourth quarter of last year, according to estimates by Citigroup.

The effort is part of policy makers’ push to increase banks’ core Tier 1 ratios, a measure of a firm’s ability to weather financial shocks, to 9 percent by June.

* Hedge funds that loaded up on Greek bonds in the last month – betting on a quick gain – are now scrambling to sell those holdings, fearful that European policy makers will force them to take a deep and binding haircut on the debt.

But walking away from the trade may not be that easy. While the money managers had little problem snapping up the bonds from European banks eager to sell, the pool of potential buyers is drying up.

European Economic Highlights:

• UK CBI Reported Sales -22 – lower than expected. Consensus -6. Previous 9.
• Sweden Consumer Confidence -1.3 – higher than expected. Consensus -7.0. Previous -7.4.
• Sweden Manufacturing Confidence s.a. -14 – lower than expected. Consensus -11. Previous -11.
• Sweden Economic Tendency Survey 91.4 – lower than expected. Consensus 93.0. Previous 92.8. Revised 92.9.
• Sweden PPI -0.2% m/m -2.1% y/y – higher than expected. Consensus -0.4% m/m -2.3% y/y. Previous 0.8% m/m 0.3% y/y.
• Sweden Trade Balance 2.8B – lower than expected. Consensus 6.5B. Previous 3.5B. Revised 3.8B.
• Sweden Unemployment Rate 7.1% – higher than expected. Consensus 7.0%. Previous 6.7%.
• Italy Consumer Confidence Ind. Sa  91.6 – lower than expected. Consensus 92.0. Previous 91.6.
• Italy Hourly Wages 0.0%  m/m 1.4% y/y. Previous 0.0% m/m 1.5% y/y.
• Ireland PPI 0.5% m/m 2.4% y/y. Previous 0.9% m/m 1.9% y/y.
• Germany GFK Consumer Confidence Survey 5.9 – higher than expected. Consensus 5.6. Previous 5.6. Revised 5.7.
• France Consumer Confidence Indicator 81 – higher than expected. Consensus 80. Previous 80.
• France Business Survey Overall Demand -12 – lower than expected. Previous 2. Revised 1.
• Denmark Unemployment Rate s.a. 4.0% – lower than expected. Consensus 4.3%.  Previous 4.2%. Revised 4.1%.
• Denmark Unemployment Rate Gross Rate 6.1% – lower than expected. Consensus 6.3%. Previous 6.2%. Revised 6.1%.
• Russia Gold & Forex Reserve USD 499.7B. Previous 497.1B.

Tags: Alabama Judge, Bank Of America, Bank Of America Corp, Chairman Richard, David Einhorn, Drug Giant, Federal Reserve Officials, French Police, Genetic Mapping, George Soros, Halfway House, Healthsouth Corp, Illumina Inc, Insider Trading, Punch Taverns, Retirement Age, Richard Scrushy, Roche Holding Ag, Software Giant, Tax Overhaul
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January 26th, 2012

As mentioned quite a few times, despite the broad index movement, this rally has truly been concentrated on cyclical groups since the turn of the year.  Perhaps no company represents cyclical more than Caterpillar (CAT), certainly within the industrial space.  As you can see from the chart below the stock took off at the turn of the year and simply has not looked back despite a bevy of secondary indicators indicating extreme levels of overbought.  There is a relentless asset allocation trade going on here, which seemingly is ignoring traditional levels of excess in this group of stocks.

On a fundamental basis the company continues to stand as one of the best purveyors of the ultimate global multinational with all the benefits of tax rate arbitrage, global labor arbitrage, emerging growth spending (government and private sector), etc.  The company yet again smashed estimates ($2.32 v $1.73) on very impressive 35% sales growth (inclusive of the Bucyrus acquisition).  Guidance for 2012 was also raised.  CAT continues to hit on all cylinders.

• U.S.-based Caterpillar reported net income of $1.55 billion, or $2.32 per share, up from $968 million, or $1.47 per share, in the same quarter last year.  Revenue increased 35% to $17.24 billion.  Analysts polled by FactSet expected a profit of $1.76 per share on $15.95 billion.
• Caterpillar expects a 2012 profit of $9.25 per share and $68 billion to $72 billion in revenue. Analysts expect a profit of $9.07 per share on $66.99 billion in revenue.

Disclosure Notice

Any securities mentioned on this page are not held by the author in his personal portfolio. Securities mentioned may or may not be held by the author in the mutual fund he manages, the Paladin Long Short Fund (PALFX). For a list of the aforementioned fund’s holdings at the end of the prior quarter, visit the Paladin Funds website at http://www.paladinfunds.com/holdings/blog

Tags: Acquisition Guidance, Arbitrage, Asset Allocation, Bevy, Caterpillar Cat, Disclosure Notice, Emerging Growth, Extreme Levels, Fundamental Basis, Index Movement, Industrial Space, Mutual Fund, Net Income, Personal Portfolio, Portfolio Securities, Private Sector, Purveyors, Smashes, Stand As One, Tax Rate
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January 26th, 2012

By Scott Ronald, Steadyhand Investment Funds

I’ve read a few interesting books lately on some of the top technology visionaries of our time. They include Paul Allen (Microsoft), Larry Page & Sergey Brin (Google) and Steve Jobs (Apple). The books were all good reads (Idea Man, In the Plex, and Steve Jobs), although the Microsoft and Google tomes are a little too technical at times for those like me who know little about programming.

One thing jumped out at me about all of these trailblazers – they are/were extremely passionate about what they do. They’re geeks. They have an eccentric devotion to programming/creating/designing and are so engaged in their trade that nothing else matters to them. They don’t let traditional barriers get in their way, aren’t afraid of failure, and don’t compromise on what they believe in. Along the way, they’ve built some exceptionally cool stuff and changed the way we work and play. And there’s only more to come.

Google and Apple have been successful at developing software and products that are hugely complex at the back-end, yet simple and intuitive for the end user. This is a tremendous accomplishment. It’s something the wealth management industry should try to emulate every day.

Investing has its complexities at the back-end. Financial analysis is akin to the engineering that goes behind search algorithms or touch screen interfaces. Unlike Google and Apple, however, the industry does a poor job of making the user experience simple and efficient. There is no shortage of resources at the back-end (equity analysts, portfolio managers, etc.), but few firms put much thought or effort into making the customer experience simple and understandable.

Investing remains a complex activity to many people because the industry wants it to be perceived that way. It shouldn’t be. Investors don’t need hundreds of choices, undecipherable reporting and non-stop economic forecasts. They need a few sensible fund options, a clear investment approach, and plain-English reporting.

Allen, Page, Brin and Jobs threw out the old blueprint. They brought innovative thinking, fearlessness, simplicity, and a focus on the user experience to the table, with a touch of craziness. We could all use a little more geek in us.

Copyright © Steadyhand Investment Funds

Tags: Developing Software, Economic Forecasts, Equity Analysts, Fund Options, Google, Interesting Books, Larry Page, Paul Allen, Poor Job, Portfolio Managers, Screen Interfaces, Search Algorithms, Sergey Brin, Steadyhand, Steve Jobs, Steve Jobs Apple, Technology Visionaries, Top Technology, Traditional Barriers, Wealth Management Industry
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January 25th, 2012

January 25, 2012

Congress’ Next Bad Idea Would Destroy the Shale Boom

by James Baldwin

Last week, six Members of Congress, led by Rep. Dennis Kucinich (D-Ohio), introduced the “Gas Price Spike Act.”

With concerns over the likelihood of higher gas prices this summer, the bill and its sponsors propose the creation of a “Reasonable Profits Board” that would control the profits of oil and gas companies.

Under the bill, this board – made up of unelected bureaucrats – could apply a “windfall profit tax” on the sale of oil and gas at rates of 50% to 100%. These taxes would take aim at corporate profits that the board feels are “unreasonable” or “unfair.”

Congress would then appropriate the money raised to subsidize electric vehicles and mass transit.

Now you may want to take a second and breathe, because this is no satire.

Oh, and the proposed bill offers no specific guidance on how the board would determine what represents a “reasonable profit.” How do we even begin to define this term? Are some profits more unre asonable than others? And who decides what is “reasonable?”

Yesterday, Apple Inc. (Nasdaq: AAPL) shattered earnings expectations. The electronics company has a profit margin north of 20%; meanwhile, the oil and gas industry has a sector-wide margin a little less than 10%.

And though the price of oil and gas will rise in the future – and despite the name of the bill – a reasonable profits board would do nothing to improve consumers’ plights at the pump.

In fact, it would only make things worse for people like you and me.

This Board Would (Knee) Cap Energy Investment

Every day, Kent and I focus on investment opportunities that offer the strongest share appreciation potential and dividend upside.

That’s how we’ve delivered big profits to Energy Advantage subscribers. Last month, the portfolio posted an average gain of 11.6%. Kent has named the best investments in the shale oil and gas boom and has explained how to profit in the “sweet spot in energy investing.”

But this profits board would essentially get to decide how much of a return it’s going to let you, as an investor, make year-over-year. After all, your returns come from the profits of the company in which you invested.

There’s an image in Washington that public companies are big, faceless giants that are unaccountable to no one.

In fact, they are accountable… They are accountable to shareholders, whether they’re institutional portfolio managers or retail investors like you and me.

Here, in the U.S., things may be shaky, but there is one thing that’s unequivocally good.

We are in a new age of energy production, due to a revolution in technology and our ability to unlock unconventional energy sources. As we’ve seen, a number of new energy companies have come on line, and we are entering a new gold rush.

But this all requires investment.

And a reasonable profits board is little more than a death panel for energy investment.

Let’s say that Congress decides that a reasonable profit margin for companies like Exxon Mobil(NYSE: XOM) or ConocoPhillips (NYSE:COP) is 4% or 5%.

This is all the money that could be paid to shareholders in the form of dividends. Everything else goes to Washington.

Investors will be far less likely to pick up shares of a company whose upside is limited by windfall profit taxes.

When we categorize investment opportunities, we do so by measuring the potential risks of each investment against its potential returns.

The likelihood of returns for risk-taking is traditionally represented by a bell curve, with extreme losses and gains far out into the tails, and thus unlikely. The profits board would essentially remove certain levels of upside possibility from investors’ reach.

If the government caps expected rate of returns, it would deter domestic investment in the energy sector. Why would anyone finance a higher-risk energy project, when government could simply step in and confiscate a greater portion of the expected level of return?

Economies operate on the risks companies take and the reward of their profits. Apple didn’t maintain its investors over 25 years because the company capped returns.

But a profits board will not just deter investors in the U.S. It will do something far worse to the entire economy.

Tags: Aapl, Corporate Profits, Dennis Kucinich, Electric Vehicles, Electronics Company, Energy Advantage, Energy Investment, Gas Boom, Gas Price, James Baldwin, Knee Cap, Members Of Congress, Oil And Gas Companies, Oil And Gas Industry, Price Of Oil, Shale Oil, Share Appreciation, Unelected Bureaucrats, Wide Margin, Windfall Profit Tax
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