The Power of Conventional Wisdom

Thursday, December 31st, 2009

This arti­cle is a guest con­tri­bu­tion by James Kwak, from Base­line Sce­nario.

The week between Christ­mas and New Year’s is prob­a­bly a good time to throw out half-baked ideas on top­ics I don’t know much about.

First, there’s been a lot of talk about the “lost decade” for stocks. The S&P 500 is below where it was a decade ago. Div­i­dend yields bring you back up to break-even (the Van­guard Total Stock Mar­ket Index Fund had aver­age annual returns of 0.18% for the ten years through the end of Novem­ber, and that’s after about 0.1% in expenses), but infla­tion sets you back a cou­ple of per­cent­age points per year. (Vanguard’s S&P 500 index fund, how­ever, was neg­a­tive over those ten years.) James Hamil­ton, draw­ing on data from Robert Shiller, has some thoughts on why the stock mar­ket did badly; the fun­da­men­tals were so-so, but the big fac­tor was that val­u­a­tions were at their his­tor­i­cal peak at the begin­ning of the decade.

For me, the wor­ry­ing thing about invest­ing in stocks is not specif­i­cally the high price-earnings ratio. It’s the fact that in the 1990s, every­one started say­ing that stocks were the best long-term invest­ment, because “over any thirty-year period ever stocks do bet­ter than any other asset class.” That’s not a direct quote, but I’m sure you can find hun­dreds that are vir­tu­ally the same. There are two prob­lems with this state­ment. The first is that it’s assum­ing the future will be like the past. But the big­ger prob­lem is this: if every­one thinks that X is the best long-term invest­ment, then it prob­a­bly isn’t, in part because enthu­si­asm about X will drive the price of it up. I believe peo­ple were say­ing roughly the oppo­site in the late 1970s, and look what hap­pened in the next twenty years.

That said, I’m no invest­ment genius, and I have a fair pro­por­tion of my money in equity index or near-index funds. But the gen­eral point is that when every­one agrees on an invest­ment strat­egy, they are prob­a­bly wrong.*

Sec­ond, there’s been a lot of China boos­t­er­ism in the past year or so, as the Chi­nese econ­omy has returned to growth and its stock mar­ket has soared. The Times had an arti­cle today on the topic. I’m far from an expert here, but wasn’t the gov­ern­ment basi­cally order­ing state-owned banks to  lend money cheaply and with­out ask­ing too many ques­tions? Aren’t Chi­nese eco­nomic sta­tis­tics so bad that econ­o­mists use elec­tric­ity con­sump­tion as a proxy for GDP? Haven’t we seen this movie before all over emerg­ing mar­kets around the world?

I think some of the U.S. press cov­er­age of China reflects our pes­simism about our­selves; in that sense, it reminds me of the idol­iza­tion of Japan that took place in the 1980s. Of course, there are huge dif­fer­ences. The Chi­nese econ­omy has nowhere to go but up, and with over 1.3 bil­lion peo­ple its econ­omy will sur­pass ours in gross out­put in my life­time. (On a per capita basis, though, I don’t think that will hap­pen in my daughter’s life­time, even if there is a Chi­nese immer­sion char­ter school down the road here in West­ern Mass­a­chu­setts.) But just as the United States is not on the brink of world-historical dis­as­ter, so every­thing is not per­fect in China.

* What’s the right gram­mar here? I know “every­one” is sin­gu­lar, but are you really sup­posed to say “when every­body agrees on an invest­ment strat­egy, he is prob­a­bly wrong”?

James Kwak is a for­mer McK­in­sey con­sul­tant, a co-founder of suc­cess­ful soft­ware com­pany, and cur­rently a stu­dent at the Yale Law School.  He is not, never has been, and never will be a mem­ber of the Yale Law Jour­nal. How­ever, on Decem­ber 11, 2009, he was named Grand Here­siarch of the Ancient, Her­metic, and Occult Order of the Shrill by Brad DeLong. He is a co-founder of The Base­line Scenario.

Tags: asset class, Baseline Scenario, Bill Gross, China, Conventional Wisdom, Dividend Yields, Emerging Markets, Equity Index, Half Baked, Index Fund, Index Funds, Investing In Stocks, Investment Strategy, James Hamilton, Kwak, Long Term Investment, Next Twenty Years, Percentage Points, Price Earnings Ratio, Robert Shiller, Stock Market Index, Valuations, Worrying Thing
Posted in Canadian Market, China, Markets, US Stocks | Comments Off

Sprott: Is it all just a Ponzi Scheme?

Thursday, December 31st, 2009

Eric Sprott, CEO, and David Franklin, Man­ag­ing Direc­tor, Sprott Asset Man­age­ment dis­cuss the U.S. Gov­ern­ment debt pro­gram in their lat­est instal­ment of Mar­ket Com­men­tary, "Is it just a Ponzi Scheme?."

Sprott believes the mar­ket will over­whelm the Fed's money print­ing pro­gram, strik­ing at the cred­i­bil­ity of the dol­lar, and this will send the S&P500 below its March 9, 2009 low.

Via Bloomberg:

• The Stan­dard & Poor’s 500 Index will col­lapse below its March lows as an expected rebound in eco­nomic growth fails to mate­ri­al­ize, accord­ing to hedge fund man­ager Eric Sprott.
• The Toronto-based money man­ager, whose Sprott Hedge Fund returned about 496 per­cent in the past nine years as the S&P 500 lost 32 per­cent in Cana­dian dol­lar terms, said the index’s 66 per­cent rally since March 9 reflects investors mis­in­ter­pret­ing eco­nomic data. He’s pre­dict­ing the gauge will fall 40 per­cent to below 676.53, the 12-year low reached on March 9.
• “We’re in a bear mar­ket that will last 15 or 20 years, and we’ve had nine of them,” Sprott, chief exec­u­tive offi­cer of Sprott Asset Man­age­ment LP, which over­sees C$4.3 bil­lion ($4.09 bil­lion), said in an inter­view Dec. 18.
• Sprott said the Fed­eral Reserve has kept bond yields and inter­est rates arti­fi­cially low through its pro­gram to buy agency debt and mortgage-backed secu­ri­ties. The cen­tral bank expects the secu­ri­ties pur­chase pro­gram to fin­ish by the end of March. Expi­ra­tion of the pro­gram would reduce demand for fixed– income secu­ri­ties, forc­ing up bond yields and inter­est rates and hurt­ing eco­nomic growth, Sprott said. (see­ing how that plays out in 2010 will def­i­nitely be one of the most inter­est­ing development's of the year)

You can dowload the whole let­ter, "Is it just a Ponzi Scheme?," here.

Tags: Bear Market, Bond Yields, Canadian Market, Chief Executive Officer, David Franklin, Debt Program, Dollar Terms, Economic Data, Eric Sprott, Government Debt, Income Securities, Instalment, Lows, Market Commentary, Money Manager, Money Printing, Mortgage Backed Securities, Ponzi Scheme, Printing Program, Sprott Asset Management, Sprott Hedge
Posted in Markets | 4 Comments »

In 2009, I learned that ...

Thursday, December 31st, 2009

“If it’s true that we learn new things with every pass­ing year then the year 2009 was like a crash course in fringe eco­nom­ics, lunatic civics and para­nor­mal mar­ket activ­ity all rolled up in one,” said Joshua Brown of The Reformed Bro­ker.

Josh got a lit­tle help from his friends (includ­ing Invest­ment Post­cards) on this one, result­ing in the wit and wis­dom below.

In 2009 I learned that …

Phil Pearl­man (Stock­Twits): some­times folks clutch gloom the way tod­dlers clutch blanky.

Vince Veneziani (The Busi­ness Insider): Broad­com founder Henry T. Nicholas had a sex dun­geon in his house. What I did not learn is the directions.

TPC (The Prag­matic Cap­i­tal­ist): Wall Streeters are like gold fish — they have very short mem­o­ries, are prac­ti­cally use­less and require a great deal of help from out­side resources to survive.

Barry Ritholtz (The Big Pic­ture): that human nature never changes.

The Fly (iBankCoin): the NY Mets were invented to pun­ish me.

Lawrence McDon­ald (Author, A Colos­sal Fail­ure of Com­mon Sense): $10 tril­lion will always buy you 4000 DOW points.

Howard Lind­zon (Ele­va­tor Inspec­tor): the FED is run­ning the best Ponzi scheme EVER.

Cody Willard (Fox Busi­ness Network’s Happy Hour): when the Republican/Democrat Régime in power redis­trib­utes tril­lions of dol­lars from the renters and savers to the bankers, most bank stocks will go up.  A lot.

Stacy-Marie Ish­mael (Finan­cial Times): no one is bet­ter at navel gaz­ing than the media.

Noah Rosen­blatt (UrbanDigs): the fed can really buy their way out of a depression.

Down­town Josh Brown (The Reformed Bro­ker): the ink was all red, most Amer­i­cans were blue, but stocks went bananas, bonds and com­modi­ties too!

Joe Don­ahue (Upside Trader): pun­dits and ana­lysts con­tinue to val­i­date the the­ory that a bro­ken clock is right twice a day and you don’t need a weath­er­man to know which way the wind blows.

Eric Jack­son (Iron­fire Cap­i­tal): it’s always dark­est before the Fed jumps in with back­stops for any large insti­tu­tion that moves.

Michael Daw­son (Trend Rida): HOT doesn’t just apply to the sights on the beaches in Brazil — every­thing there from broad­band to beer is smoking.

Arthur Cut­ten (Jesse’s Café Amer­i­cain): on cer­tain occa­sions peo­ple, who ordi­nar­ily would barely lift a fin­ger in an unselfish or ide­al­is­tic act, will engage in the great­est effort to cast them­selves and their chil­dren off a precipice for a pro­fane delu­sion, in an act of petty will­ful­ness, for a destruc­tive com­pul­sion which they are too proud to relin­quish, even to the point of death. This is the mad­ness of the mob, and in our day, the sui­cide of the west.

Justin Paterno (Zero Beta): celebrity death is great for the economy.

Francine McKenna (Re: The Audi­tors): there is no need for me to be afraid but every rea­son to be wary.

Trader Mark (Fund My Mutual Fund): Ben Bernanke can remain irra­tional far longer than I can remain solvent.

Steve Sears (Barron’s): nau­sea is the very best buy signal.

Joe Weisen­thal (The Busi­ness Insider): I end up suc­cumb­ing to con­ven­tional wis­dom just like every­one else, see my gloomy thoughts in March.

Jason & Alyx (LOLFed): if you owe ten thou­sand, the gov­ern­ment owns you, but if you owe ten bil­lion, you own the government.

Charles Kirk (The Kirk Report): Liv­er­more is right — it is never your think­ing that makes the most amount of money but by sit­ting tight espe­cially when you are right.

Tom Brakke (Research Puz­zle): there’s a right size to every­thing (trade, project, busi­ness, econ­omy, etc.) and that try­ing to stretch beyond that usu­ally trig­gers mistakes.

Karen Glass­man (Tirschwell & Loewy): Gor­don Gekko has the same ini­tials as Greed is Good, Gov­ern­ment and Gold­man … how ironic.

Trader Alamo (TraderAlamo.tv): any sign of a bear­ish tech­ni­cal pat­tern was actu­ally über-bullish, result­ing in new-fangled pat­terns such as the now pop­u­lar, “I shot my ear off”, pay­ing homage to Van Gogh while simul­ta­ne­ously mock­ing per­pet­ual buy­ers of FAZ.

Stock­Jockey (1440 Wall Street): trend fol­low­ers even­tu­ally take it in the rear.

Leigh Dro­gen (Sur­fview Cap­i­tal): there is a real mean­ing to “don’t fight the fed”.

Prieur du Plessis (Invest­ment Post­cards): there is a lot of truth to the fol­low­ing quote from The Econ­o­mist (1986): “The best investors are like socialites. They always know where the next party is going to be held. They arrive early and make sure that they depart well before the end, leav­ing the mob to swill the last taste­less dregs.”

Ben Shoval (Hedge Fund Come­dian): doing God’s work pays bet­ter than I thought…also, too much credit is the prob­lem… and the solution.

Stu­art Var­ney (Fox Busi­ness Net­work): it is pos­si­ble to bor­row a tril­lion dol­lars, print a tril­lion dol­lars and nation­al­ize a big chunk of the Amer­i­can econ­omy, and still see the biggest nine month stock mar­ket rally in three generations!

OneTwo (1–2 Knock­out): no one ever went broke under­es­ti­mat­ing the stu­pid­ity of government.

Adam Warner (Daily Options Report): I shouldn’t leave my cell phone and my golf clubs lying around near my car.

Damien Hoff­man (Wall St Cheat Sheet): “Yes We Can” was truly a slo­gan to reignite the charge for Wall Street banks who needed tax­pay­ers as a sil­ver lin­ing for a global scam-gone-wild.

Patty Edwards (CNBC Fast Money): money cov­ers a mul­ti­tude of sins, usu­ally those of politi­cians and bureaucrats.

Tadas Viskanta (Abnor­mal Returns): Too big to fail = Too big to exist…also, it’s Goldman’s world, we are just liv­ing in it.

Jerry Harper (My Emerg­ing Voice): that shorts in a bull mar­ket when suc­ces­ful can be very prof­itable, also that my emerg­ing mar­kets tele­coms stance has been a real winner.

Adri­enne Gon­za­lez (Jr Deputy Accoun­tant): if you put MS Paint hearts on pic­tures of Fed­heads you can get them to pass your posts around the Bank … but shhhhh

Michael Panzner (Finan­cial Armaged­don): only three words mat­ter when it comes to invest­ing in today’s mar­kets: igno­rance is bliss.

CC (Charts and Cof­fee): the fear (or hope) of a one day mar­ket col­lapse is an erro­neous psy­cho­log­i­cal bias that many traders har­ness to their detriment.

The Anal_yst (The Atlantic): despite 10% (or 18%) unem­ploy­ment, it totally makes sense that retail and con­sumer dis­cre­tionary stocks are back up to 2007 levels.

Scott Bell (GDP Wealth): I am so happy to not be a Car­ni­val Barker on a finance network.

Wade Slome (Sidoxia Cap­i­tal): $14 tril­lion in debt, 10% unem­ploy­ment, and approval of social­ized health­care can lead to an +80% move in the NASDAQ Com­pos­ite over a 10 month period….also Tiger Woods prefers eat­ing out at the buf­fet rather than at home, even though it’s cheaper to eat at home and hav­ing Swedish meat­balls every night ain’t so bad.

Greg Bat­tle (Left­over Take­out): dumb per­sis­tence trumps lazy genius more often than not…also, Danny Duber­stein is good at two things.

Source: The Reformed Bro­ker, Decem­ber 30, 2009.

Tags: Bank stocks, Barry Ritholtz The Big Picture, Blanky, Brazil, Broken Clock, Business Insider, Colossal Failure, Commodities, Crash Course, Dow Points, Emerging Markets, Eric Jackson, Gold, Ironfire, Joe Donahue, Josh Brown, Joshua Brown, Ny Mets, Phil Pearlman, Ponzi Scheme, Sex Dungeon, Short Memories, Wall Streeters, Wit And Wisdom
Posted in Brazil, Markets, Silver | Comments Off

Marc Faber: Gloom, Doom & Chances of a Boom

Thursday, December 31st, 2009

Marc Faber, edi­tor and pub­lisher of the Gloom, Boom & Doom Report, shares his mar­ket out­look for 2010 with CNBC.

Click here for the article.

Source: CNBC, Decem­ber 30, 2009.

Tags: Article Source, Boom, Cnbc, Editor And Publisher, Editor Publisher, Gloom Doom, Marc Faber Gloom, Market Outlook, Shares
Posted in Markets, Outlook | Comments Off

Todd Harrison talks about currencies and gold

Thursday, December 31st, 2009

Last week Jor­dan Roy-Byrne, owner of Trends­man Invest­ment Research and edi­tor of The Daily Gold, inter­viewed Todd Har­ri­son, founder and CEO of Minyanville, on cur­ren­cies (and specif­i­cally the US dol­lar) and gold bul­lion. They dis­cussed the chances of a US$ rally and also of gold strength­en­ing to $4,000/oz. The inter­view comes cour­tesy of Wall St Cheat Sheet.

Source: Wall St Cheat Sheet, Decem­ber 28, 2009.

Tags: Ceo, Cheat Sheet, Currencies, December 28, Dollar, Gold, Gold Bullion, Investment Research, Jordan, Minyanville, Oz, Rally, Roy Byrne, Todd Harrison
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The World's Biggest Bond Fund Is Moving Aggressively Into Corporate Holdings, Away From Government-Insured Risk

Tuesday, December 29th, 2009

This arti­cle is a guest con­tri­bu­tion by by Tyler Dur­den of ZeroHedge.com.

As we pointed out two weeks ago, PIMCO has been prepar­ing for 2010 by sell­ing out its legacy "safe" MBS and Trea­sury hold­ings, and shift­ing largely to cash. Fur­ther­more, the recent hir­ings of cor­po­rate and dis­tressed asset man­agers indi­cates that the tra­di­tion­ally Trea­sury heavy asset man­ager is set to become the world's biggest fixed income hedge fund, focus­ing on IG, high yield and dis­tressed invest­ments. As PIMCO is a crit­i­cal man­ager in numer­ous gov­ern­ment bailout pro­grams, we can only hope that the firms' New­port Beach Chi­nese Walls are bet­ter at keep­ing secrets than the char­ac­ters in assorted O.C. legacy "real­ity" shows. The below pre­sen­ta­tion by PIMCO's Mark Kiesel indi­cates why PIMCO will soon be one of the pri­mary actors in future offi­cial cred­i­tor com­mit­tees in the upcom­ing wave of cor­po­rate bank­rupt­cies (yes, shock­ingly assets do have to cre­ate cash­flows for com­pa­nies to avoid bankruptcy).

US_Credit_Kiesel_Picking_Winners_January —

Tags: Asset Manager, Asset Managers, Bailout, Bond Fund, Cashflows, Chinese Walls, Committees, Corporate Bankruptcies, Creditor, Fixed Income, Hedge Fund, high yield, Ig, Keeping Secrets, Kiesel, Mbs, Newport Beach, PIMCO, Treasury, Tyler Durden
Posted in Markets | Comments Off

The Most Shorted Stocks: Past, Present and the Market Implications

Tuesday, December 29th, 2009

This is an inter­est­ing seg­ment from Fox Busi­ness aired on Dec. 28, 2009 where John Tabacco from locatestock.com talked about the top five most shorted stocks.  The fol­low­ing is a sum­mary of the inter­view along with some of my thoughts.

The Biggest Shorts — Past & Present

Accord­ing to locatestock.com, the top short of the decade, and you guessed it, is Lehman Broth­ers.
But did you know...

• Other biggest shorts for the decade include TARP and bailout recip­i­ents: Fan­nie Mae (FNM), Fred­die Mac (FRE) and Cit­i­Group Inc. ©.
• Overstock.com (OSTK), at num­ber five, had 140% of its entire out­stand­ing shares shorted at one point of time; giv­ing rise to one very impas­sioned advo­cate against naked shorts - Patrick M. Byrne.
• Some big play­ers base their short strat­egy on fun­da­men­tals, and some­times will increase posi­tions over time, or hold their short posi­tions long (more than a year).

The new cham­pion, accord­ing to Tabacco, is MSCI Emerg­ing Mar­kets Index Fund (EEM) - the most pop­u­lar short by vol­ume requested.

Dollar's Gain Is Commodities Loss

The ris­ing short inter­est in MSCI Emerg­ing Mar­kets Index Fund (EEM) suggests a con­tin­ued flight into the per­ceived safer U.S. market. This trend could fur­ther prop up the Dol­lar, and will likely have a neg­a­tive impact on com­modi­ties, with nat­ural gas prob­a­bly being the only excep­tion, as the flam­ing fuel is gen­er­ally non-dollar reactive.

Dol­lar & Stocks May Rally Together

How­ever, equi­ties might stand a bet­ter chance since the inverse cor­re­la­tion seen between the Dol­lar and stocks remains bro­ken, as dis­cussed in my arti­cle just before Christ­mas.  In fact, this view is rein­forced by Dr. Marc Faber, who told Bloomberg yesterday:

Faber also said that Dol­lar may appre­ci­ate 5–10% against the euro in the "near term" as bear­ish bet­ting on the green­back becomes too crowded while equi­ties advance.

The Three Amigos?

Shares of Fan­nie Mae (FNM) and Fred­die Mac (FRE) soared to their high­est since Octo­ber on Mon­day after the Trea­sury Dept. signed over the check­book by remov­ing caps on fed­eral sup­port.  Meanwhile, some ana­lysts see Cit­i­group Inc. ©, with both explicit and implied gov­ern­ment support, as "The Can’t Lose Trade Of 2010."

So, here is Ques­tion of the Day:

Video Source: YouTube

Tags: Bailout, Better Chance, Betti, Citigroup Inc, Commodities, Dr Marc Faber, Eem, Emerging Markets, Fannie Mae, Fnm, Freddie Mac, Gold, Index Fund, Inverse Correlation, Lehman Brothers, Market Implications, Msci Emerging Markets, Msci Emerging Markets Index, Natural Gas, Negative Impact, Outstanding Shares, Overstock Com Ostk, S Market, Short Interest
Posted in Markets | Comments Off

Gold Is The Decade’s Best

Sunday, December 27th, 2009

By Frank Holmes
CEO and Chief Invest­ment Officer

Happy hol­i­days wishes to all, with a spe­cial season’s greet­ings to the per­ma­nent gold skeptics.

The decade that ends next Thurs­day is on track to be the worst in recorded his­tory for the U.S. stock market—worse than all of the many boom-and-bust cycles of the 19th cen­tury, worse than the Great Depression-era 1930s, worse than the recession-plagued 1970s.

The S&P 500 opened the decade at 1,469.25 on Jan­u­ary 3, 2000. When the mar­ket closed on Christ­mas Eve, the S&P 500 stood at 1,125.46—with four trad­ing days left in the decade, the index’s annual per­for­mance over that span is neg­a­tive 2.6 per­cent. The Dow Jones Indus­tri­als has lost about 1 per­cent per year over the same period, and the Nas­daq Com­pos­ite is down a whop­ping 5.9 per­cent annu­ally. When adjusted for infla­tion, the 10-year returns for these indices are even lower.

Mean­while, what about gold?

The chart above from Bloomberg tells the story—a $100 invest­ment in gold when the mar­ket opened on Jan­u­ary 3, 2000, was worth about $380 as of this week (data through Decem­ber 21)—that’s a total return of 280 per­cent and an annu­al­ized return of 14.3 per­cent. Gold stocks (as mea­sured by the XAU Index) have also had a good decade, climb­ing 9.4 per­cent annually.

Com­modi­ties (as mea­sured by the S&P GSCI Enhanced Total Return Index) posted aver­age gains of 13.6 per­cent per year over the period, dri­ven mostly by rapid eco­nomic growth in Asia and else­where in the devel­op­ing world.

There are many com­men­ta­tors out there who see no value in gold and who denounce it as an invest­ment at every oppor­tu­nity. They are cer­tainly enti­tled to their opin­ions, but it’s hard to argue with the num­bers over the past 10 years—investors on aver­age would have been bet­ter off with a gold allo­ca­tion than hav­ing no exposure.

We con­sider gold a legit­i­mate asset class, and for that rea­son, we con­sis­tently sug­gest that investors con­sider a max­i­mum 10 per­cent allo­ca­tion to gold-related assets—half in bul­lion or bul­lion ETFs and the other half in gold equities—and that they rebal­ance each year to cap­ture the swings.

What the next decade will bring for gold? Who knows. But we do know one thing—those who held gold for the past 10 years will have a hap­pier New Year than those who lis­tened to the perma-skeptics.

Tags: Annualized Return, asset class, Boom And Bust, Bust Cycles, Chief Investment Officer, Christmas Eve, Commentators, Commodities, Developing World, Dow Jones, Dow Jones Industrials, ETF, ETFs, Frank Holmes, Gold, Gold Bullion, gold stocks, Great Depression, Gsci, Happy Holidays, Nasdaq Composite, Rapid Economic Growth, Skeptics, U S Stock Market, Xau Index
Posted in ETFs, Markets | Comments Off

Roundup: Index Summary and U.S. Equity Markets (12/24/2009)

Sunday, December 27th, 2009

Index Sum­mary

• The major mar­ket indices were higher this week. The Dow Jones Indus­trial Index (1) rose 2.06 per­cent. The S&P 500 Stock Index (2) advanced 2.77 per­cent, while the Nas­daq Com­pos­ite (3) fin­ished 4.85 per­cent higher.
• Barra Growth (4) out­per­formed Barra Value (5) as Barra Value fin­ished 2.22 per­cent higher while Barra Growth rose 3.31 per­cent. The Rus­sell 2000 (6) closed the week with a gain of 4.94 percent.
• The Hang Seng Com­pos­ite (7) fin­ished higher by 0.54 per­cent; Tai­wan (8) gained 2.86 per­cent, and the Kospi (9) advanced 2.09 percent.
• The 10-year Trea­sury bond yield closed at 3.80 per­cent, up 31 basis points for the week.

Domes­tic Equity Market

The fig­ure above shows the per­for­mance of each sec­tor in the S&P500 Index, for the four trad­ing days through Thurs­day at 11:00 AM CT. All ten of the sec­tors had a pos­i­tive return. The best-performing sec­tor was mate­ri­als, up 4.2 per­cent. Other top-performing sec­tors include tech­nol­ogy and energy. Util­i­ties, health­care and indus­tri­als were the underperformers.

U.S. Steel Corp. was the best-performing stock within the mate­ri­als sec­tor, up 15 per­cent. Other out­per­form­ers in the sec­tor were Tita­nium Met­als Corp, Alcoa Inc, AK Steel, and Allegheny Tech­nolo­gies Inc.

Strength

• As of 11:00 AM CT Thurs­day the best per­form­ing group for the holiday-shortened week was the health­care facil­i­ties group, up 12.6 per­cent, led by its sin­gle mem­ber, Tenet Health­care Corp. The hos­pi­tal indus­try is expected to ben­e­fit if health­care reform passes and expands insur­ance cov­er­age. Also, a bro­ker­age firm upgraded Tenet stock, say­ing that the com­pany should con­tinue to improve its mar­gins and increase its inpa­tient admissions.
• Five of the top-ten per­form­ing groups were in the mate­ri­als sec­tor (alu­minum, steel, coal & con­sum­able fuel, con­struc­tion mate­ri­als and diver­si­fied met­als & min­ing). This strength appears to be due to increas­ing investor con­fi­dence that materials-related groups will ben­e­fit from the strength­en­ing global econ­omy. These four groups were up in a range of 7.3–11.9 percent.
• The elec­tric man­u­fac­tur­ing ser­vices group out­per­formed, ris­ing 11 per­cent, led by Jabil Cir­cuit Inc. The con­tract man­u­fac­turer of elec­tronic prod­ucts reported first fis­cal quar­ter earn­ings above the con­sen­sus fore­cast and pro­vided a solid fore­cast for its sec­ond fis­cal quarter.

Weak­ness

• The diver­si­fied sup­ply ser­vices group was the worst-performing group, down 4.7 per­cent. The group was led by Cin­tas Corp., a sup­plier of uni­forms and other sup­plies to cor­po­ra­tions reported sec­ond fis­cal quar­ter earn­ings below the ana­lyst con­sen­sus esti­mate. The company’s results have been impacted neg­a­tively by the job losses in the U.S. econ­omy. The com­pany also said its third quar­ter is tra­di­tion­ally its most chal­leng­ing and it expects cus­tomer hol­i­day clo­sures will be longer and more wide­spread than they have been in recent years. For those rea­sons, the com­pany believes cur­rent ana­lyst expec­ta­tions for Cin­tas rev­enue and earn­ings are too optimistic.
• The casino & gam­ing group was the second-worst per­form­ing group, los­ing 1.6 per­cent. The group was led by Inter­na­tional Game Tech­nol­ogy. A recent arti­cle on Barrons.com pointed out that the company’s chair­man and chief exec­u­tive offi­cer had recently sold some of his stock in the company.

Oppor­tu­nity

• There may be an oppor­tu­nity for gain in merg­ers & acqui­si­tion (M&A) trans­ac­tions in 2009 and 2010.
• The strength in the mar­ket since March could be an oppor­tu­nity to elim­i­nate weaker com­pa­nies in the port­fo­lio and upgrade to com­pa­nies with bet­ter fun­da­men­tal outlooks.

Threat

• Should investors’ expec­ta­tions for an improv­ing econ­omy not come to fruition on a rea­son­able time frame, it could be a threat to stock prices.

Tags: 10 Year Treasury, 10 Year Treasury Bond, Ak Steel, Alcoa Inc, Allegheny Technologies, Allegheny Technologies Inc, Aluminum Steel, Brokerage Firm, Dow Jones Industrial, Dow Jones Industrial Index, Facilities Group, Index Summary, Inpatient Admissions, Investor Confidence, Major Market Indices, Materials Sector, Nasdaq Composite, Tenet Healthcare Corp, Titanium Metals Corp, Treasury Bond Yield
Posted in Markets, Outlook, US Stocks | Comments Off

Roundup: Economy and Bond Market (12/24/2009)

Sunday, December 27th, 2009

The Econ­omy and Bond Market

The yield on the 10-year Trea­sury note increased by 26 basis points dur­ing the holiday-shortened week, leav­ing the yield at 3.80 per­cent. The spread between the two-year note and the 10-year note reached a record 285 basis points dur­ing the week, likely reflect­ing investor con­cern about future infla­tion levels.

Cur­rent infla­tion, as mea­sured by the Per­sonal Con­sump­tion Expen­di­ture Core Price Index (PCE Defla­tor) shown below on a year-over-year basis, remains rel­a­tively con­tained. The Novem­ber data released this week showed a 1.4 per­cent year-over-year increase and was flat on a month-to-month basis.

Strength

• Sales of exist­ing U.S. homes in Novem­ber rose 7.4 per­cent to an annual rate of 6.54 mil­lion homes, greater than the fore­casted rate of 6.25 million.
• Price infla­tion data this week slightly beat expec­ta­tions. The Per­sonal Con­sump­tion Expen­di­ture (PCE) Price Index for Novem­ber was up 1.5 per­cent year-over-year ver­sus a 1.6 per­cent consensus.
• Per­sonal income in Novem­ber increased 0.4 per­cent from Octo­ber, the fifth con­sec­u­tive month-over-month increase and the biggest monthly increase since May, while per­sonal spend­ing increased 0.5 per­cent. The increases left the sav­ings rate unchanged at 4.7 per­cent for November.
• Ini­tial job­less claims last week declined to 452,000, down from 480,000 the pre­vi­ous week. This was the low­est level since Sep­tem­ber, 2008. The four-week aver­age for claims, which smooths out fluc­tu­a­tions, fell to 465,250, its sixteenth-straight weekly decline.
• Orders for durable goods increased 0.2 per­cent in Novem­ber. How­ever, durable goods orders exclud­ing trans­porta­tion increased by 2.0 per­cent, almost twice the 1.1 per­cent forecast.

Adver­tise­ment

<a href="http://d1.openx.org/ck.php?n=a062ef31&amp;cb=INSERT_RANDOM_NUMBER_HERE" mce_href="http://d1.openx.org/ck.php?n=a062ef31&amp;cb=INSERT_RANDOM_NUMBER_HERE" target='_blank'><img src="http://d1.openx.org/avw.php?zoneid=78807&amp;cb=INSERT_RANDOM_NUMBER_HERE&amp;n=a062ef31" mce_src="http://d1.openx.org/avw.php?zoneid=78807&amp;cb=INSERT_RANDOM_NUMBER_HERE&amp;n=a062ef31" border='0' alt='' /></a>

Weak­ness

• Sales of new U.S. homes in Novem­ber fell 11.3 per­cent to a sea­son­ally adjusted annual rate of 355,000, below the expected rate of 438,000.
• Real U.S. gross domes­tic prod­uct (GDP) for the third quar­ter was revised down­ward to 2.2 per­cent from the pre­vi­ously reported 2.8 percent.
• The Rich­mond Fed­eral Reserve Bank’s Man­u­fac­tur­ing Sec­tor Activ­ity Index fell to minus four in Decem­ber from a pos­i­tive one in Novem­ber and a pos­i­tive seven in Octo­ber. The con­sen­sus expected it to rebound to five.

Oppor­tu­nity

• Expec­ta­tions con­tinue to build for growth in the U.S. in the cur­rent quar­ter, pos­si­bly as much as 4–5 per­cent. The global eco­nomic recov­ery appears to be tak­ing hold.

Threat

• The Fed reit­er­ated their mon­e­tary pol­icy stance in the prior week and on the sur­face noth­ing really changed but they are incre­men­tally mov­ing to reduce the pol­icy accom­mo­da­tion and often these things move quicker than many expect.

Tags: Admin Post, Avw, Basis Points, Bond Market, Cb, Ck, Consensus, D1, Decline, Deflator, Durable Goods Orders, Economy, Fluctuations, GDP, Gross Dom, Gross Domestic Product, Img Src, Inflation Data, Initial Jobless Claims, Investor Concern, Market Economy, Openx, Personal Consumption Expenditure, Personal Income, Price Index, Price Inflation, Random Number, Roundup, S Gross, Year Treasury Note
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Roundup: Gold Market (12/24/2009)

Sunday, December 27th, 2009

Gold Mar­ket

For the week, spot gold closed at $1,105.40 per ounce down $7.80 or .70 per­cent. Gold equi­ties, as mea­sured by the Philadel­phia Gold & Sil­ver Index (XAU) bounced back with a 4.55 per­cent rise for the week. The U.S. Trade-Weighted Dol­lar Index (DXY) stalled with just a 0.19 per­cent gain.

Strengths

• Invest­ing in gold in the past decade, 1999–2009, would have resulted in tripling the ini­tial invest­ment whereas equi­ties lost about 10 per­cent, includ­ing rein­vested div­i­dends. (See Com­men­tary Above)
• The dif­fer­ence in yields between the 2– and 10-year Trea­sury note widened to a record of 286 basis points as investors bet the U.S recov­ery will fuel infla­tion and reduce demand for gov­ern­ment debt sales. Also note­wor­thy is the dif­fer­ence between yields on Trea­sury Infla­tion Pro­tected Secu­ri­ties (TIPS) due in 10 years and nom­i­nal notes, a gauge for con­sumer prices, climbed to 2.36 per­cent, the most since July 2008.
• Canada’s Finance Min­is­ter Jim Fla­herty has said China, with the world’s largest cur­rency reserves of $2.3 tril­lion, may increase hold­ings in Cana­dian dol­lars because of the country’s low debt lev­els rel­a­tive to other G7 nations. China is seek­ing a hedge against a declin­ing U.S. dollar.

Weak­nesses

• More than 200 insti­tu­tions sold 25 tonnes of gold from the largest bullion-backed exchange-traded fund for the month of Novem­ber. How­ever, the insti­tu­tional sales have been off­set by 51 tonnes of non-institutional pur­chases, which mit­i­gate down­ward pres­sure on the gold price. Some of the money leav­ing gold bul­lion has been rein­vested into equi­ties of com­pa­nies that pro­duce gold.
• The Wash­ing­ton Post reported there are cur­rently 25 states that have run out of unem­ploy­ment funds and have bor­rowed $24 bil­lion from the fed­eral gov­ern­ment to cover the gaps. The Depart­ment of Labor esti­mates that by 2011, 40 state funds will have been depleted by the surge in job­less claims.
• Equifax said small-business bank­rupt­cies in Cal­i­for­nia rose 81 per­cent com­pared with the pre­vi­ous year for the 12-month period end­ing Sep­tem­ber 30. Nation­wide, fil­ings were up 44 percent.

Oppor­tu­ni­ties

• In the chart above, Egon von Grey­erz, shows just how small the pre­cious met­als mar­ket is in rela­tion to large com­pa­nies like Microsoft and Exxon. Global pri­vately held bul­lion is only about three times the size of Microsoft’s value, a minis­cule num­ber for global own­er­ship. In total, pri­vately held phys­i­cal invest­ment in gold makes up only 0.7 per­cent of total investable finan­cial assets. Mr. Grey­erz argues that cur­rently the aver­age fund man­ager and investor rel­a­tively has no expo­sure to gold, but says that a dou­bling in the allo­ca­tion to gold would be sup­port­ive for the gold price in the future.
• China’s sov­er­eign wealth fund has report­edly received a cap­i­tal injec­tion of up to $200 bil­lion from the country’s foreign-exchange reserves, which many spec­u­late will be used for con­tin­ued invest­ment in com­mod­ity– related assets. About $50 bil­lion of the infu­sion will be used to fund China’s largest banks to meet tighter reg­u­la­tory requirements.
• The deputy gov­er­nor of the People’s Bank of China has said that it is get­ting more dif­fi­cult for gov­ern­ments to buy U.S. Trea­suries because the country's shrink­ing current-account gap is reduc­ing sup­ply of dol­lars over­seas. Gov­er­nor Zhu said the United States can­not force for­eign gov­ern­ments to increase their hold­ings of U.S. Trea­suries and then addressed where demand for that debt would come from. It has been esti­mated that for­eign gov­ern­ments would need to increase their hold­ings of U.S. debt by as much as 40 per­cent over the short-term; a big leap of faith at the moment.

Threats

• Cal­i­forn­ian Gov­er­nor Arnold Schwarzeneg­ger is expected to appeal to Wash­ing­ton for bil­lions of dol­lars in fed­eral help. Cal­i­for­nia, with an econ­omy that is more than three-times the size of Greece, is rapidly run­ning out of money and faces a $6.3 bil­lion bud­get gap this year and a $14.4 bil­lion short­fall next. California’s unem­ploy­ment rate hit 12.5 per­cent in Octo­ber, they have the sec­ond high­est rate of home fore­clo­sures in the nation and have the low­est credit rat­ing of any state.
• We've talked about the dire choices many state and local gov­ern­ments face because of falling income and retail sales taxes sev­eral times over the past year. This is still an issue that has not been addressed as much of the stim­u­lus money to the states has gone towards sus­tain­ing social safety nets and not new job creation.
• A Bar­clays sur­vey shows that a “double-dip reces­sion” is the most under­priced risk in finan­cial markets.

Tags: Business Bankruptcies, Canadian Market, China, Commodities, Currency Reserves, Debt Sales, Dollar Index, Emerging Markets, Exchange Traded Fund, Finance Minister Jim Flaherty, G7 Nations, Gold, Gold Bullion, Gold Equities, Gold Market, Gold Price, Inflation Protected Securities, Institutional Purchases, Investing In Gold, Labor Estimates, Philadelphia Gold, Silver Index Xau, Spot Gold, Treasury Inflation Protected Securities, Unemployment Funds
Posted in Canadian Market, China, Markets, Silver | Comments Off

Roundup: Energy and Natural Resources (12/24/2009)

Sunday, December 27th, 2009

Energy and Nat­ural Resources Market

Strengths

• Crude oil futures gained 4.8 per­cent this week on bull­ish weekly inven­tory data reported by the U.S. Dept. of Energy.
• Ger­dau Ameris­teel has announced that it will increase prices for mer­chant bar, rebar and wide flange beams by $40-$65 per short ton effec­tive Jan­u­ary 11. The com­pany indi­cated that the move was in-line with recent price increases insti­tuted by its com­peti­tors and was nec­es­sary because of increas­ing scrap prices.
• Global auto­mo­tive pro­duc­tion by Japan's seven major automak­ers rose for the eighth-consecutive month in Novem­ber (on a three-month mov­ing aver­age basis). Momen­tum remains strong, with global pro­duc­tion now up 58 per­cent from the March trough. Global pro­duc­tion from these automak­ers is now only 12 per­cent below peak lev­els, around where they were dur­ing pre-peak times 2–3 years ago.

Weak­nesses

• Freight rates con­tin­ued to fall this week, with the Baltic Dry Freight Index falling 7 per­cent this short week.
• Global steel pro­duc­tion fell slightly in Novem­ber to 1,308 mil­lion tonnes annu­al­ized. How­ever, at 24.4 per­cent above Novem­ber 2008 lev­els, the fig­ures high­light the con­tin­ued recov­ery out­side of China, which is now start­ing to pres­sure the raw mate­r­ial sup­ply chain.

Oppor­tu­ni­ties

• Accord­ing to the Lon­don Tele­graph, China may begin stock­pil­ing strate­gic met­als soon. Alu­minum, cop­per, zinc and nickel appear to be the base met­als that have been tar­geted, with the coun­try pos­si­bly look­ing to increase stock­piles in 2010. Accord­ing to the arti­cle, the coun­try would like to build a stock­pile of 1 mil­lion tons of alu­minum, 400,000 tons of cop­per, 400,000 tons of zinc and 20,000 tons of nickel. They'd also like the equiv­a­lent of a 90-day of sup­ply of crude oil.

Threats

• Belaruss­ian Potash Com­pany con­firmed it had struck a potash sup­ply deal to China at a rate well below mar­ket expec­ta­tions. The joint Belarusian-Russian trade con­sor­tium said it had agreed to sup­ply China's Sinochem and China National Agri­cul­tural Means of Pro­duc­tion Group with 1.2 mil­lion tonnes of potash at $350 a tonne includ­ing freight costs. The deal equates to a Van­cou­ver free-on-board price, the bench­mark met­ric which excludes freight charges, of $305 a tonne. Ana­lysts say this is more than $50 a tonne below cur­rent mar­ket prices. It is also a lit­tle over half the $575 per tonne that China paid in July 2008 as the mar­ket was peaking.

Tags: Advertisement Opportunities, Baltic Dry Freight Index, Base Metals, China, Commodities, Copper Nickel, Crude Oil Futures, Dept Of Energy, Dry Freight, Emerging Markets, energy, Gerdau Ameristeel, Global Production, Global Steel, London Telegraph, Market Expectations, Market Strengths, Merchant Bar, Natural Resources, oil, Peak Levels, Potash Company, Raw Material Supply, Russia, Russian Trade, Sinochem, Trade Consortium, Wide Flange Beams
Posted in Canadian Market, China, Energy & Natural Resources, Markets | Comments Off

Roundup: Emerging Markets (12/24/2009)

Sunday, December 27th, 2009

Emerg­ing Markets

Strength

• Thailand’s exports rose 17.2 per­cent from a year ear­lier in November—the first year-over-year increase in 13 months—as global recov­ery gained momen­tum and drove expan­sion in both agri­cul­tural and indus­trial exports. The gov­ern­ment fore­cast exports would con­tinue to grow 10–15 per­cent next year.
• Con­sen­sus earnings-per-share (EPS) fore­casts have risen the most from their lows in the two most-cyclical economies—Russia (Up 39.3 per­cent with help from a recov­ery in crude oil prices) and Turkey (Up 36 per­cent ben­e­fit­ing from a sharp fall in inter­est rates). Poland made the best improve­ment (7.7 per­cent) in the month of Decem­ber, while Turkey made the best recov­ery towards its earn­ings peak, with Decem­ber EPS only 4.7 per­cent below the highs seen last year.

Weakness

• Indone­sia delayed a planned raise in power prices, which may increase elec­tric­ity sub­sidy spend­ing from the gov­ern­ment by 1.2 tril­lion rupiah a month.
• Latvia’s unem­ploy­ment rate rose to 18.4 per­cent in the third quar­ter, the high­est rate in seven years. Vedo­mosti reports, with a bit of schaden­freude, that for­mer Soviet satel­lite state has become a net car exporter in 2009 as more than 10 thou­sand repos­sessed cars left Latvia for Ger­many and other Baltic countries.

Oppor­tu­nity

• China will raise pen­sion pay­ments for retirees of state-owned enter­prises by 10 per­cent next year and allow trans­fer of pen­sion accounts across provinces. This should increase labor mobil­ity in China and pro­vide addi­tional sup­port for domes­tic con­sump­tion going forward.
• In the first 22 days of Decem­ber, Turkey’s exports posted a 32 per­cent (year-over-year) on the back of a pick up in global eco­nomic activ­ity. Turkey’s suc­cess­ful export diver­si­fi­ca­tion and favor­able base were also fac­tors. Ana­lysts expect Turk­ish exports to grow by more than 10 per­cent in 2010.

Threats

• Hous­ing afford­abil­ity in China’s top tier cities con­tin­ued to dete­ri­o­rate, as aver­age new home prices in Shang­hai soared to a record 22,270 yuan per square meter in the sec­ond week of Decem­ber from around 14,000 yuan in Jan­u­ary. Spend­ing on mort­gages, though off the 2007 highs, still account for more than 50 per­cent of income in China’s major cities. With food and util­ity prices on the rise, dis­cre­tionary con­sump­tion may be affected among the richer urban residents.
• Money sup­ply in Rus­sia is expected to increase 12 per­cent in 2009, accord­ing to the country’s Finance Min­is­ter Alek­sey Kudrin. The November-December accel­er­a­tion is dri­ven by the remain­der of stim­u­lus funds being spent before the end of fis­cal year. VTB Cap­i­tal is con­cerned that the pick up in money sup­ply growth might push infla­tion­ary pres­sures upward in 2010.

Tags: Baltic Countries, Car Exporter, China, Consensus Earnings, Crude Oil Prices, Domestic Consumption, Earnings Per Share, Emerging Markets, Export Diversification, Global Economic Activity, Global Recovery, Housing Affordability, Industrial Exports, Labor Mobility, oil, Pension Accounts, Pension Payments, Repossessed Cars, Russia, Schadenfreude, Soviet Satellite State, State Owned Enterprises, Turkish Exports, Unemployment Rate
Posted in Canadian Market, China, Energy & Natural Resources, Markets | Comments Off

A Golden Decade for the "Barbarous Relic"

Sunday, December 27th, 2009

While gold bul­lion is cor­rect­ing from all-time record lev­els in early Decem­ber, US Global Investors shows the yel­low metal is on track to close the decade that ends next Thurs­day as the top per­former among the prin­ci­pal asset classes, thanks to an annu­al­ized return of 14.3%. Com­modi­ties (as mea­sured by the S&P GSCI Enhanced Total Return Index) gained 13.6% per year over the period that started on Jan­u­ary 3, 2000.

Accord­ing to US Global Investors, the decade looks set to be the worst in recorded his­tory for the US stock mar­ket — “worse than all of the many boom-and-bust cycles of the 19th cen­tury, worse than the Great Depression-era 1930s, worse than the recession-plagued 1970s. The S&P 500 Index opened the decade at 1,469.25 begin­ning of 2000. When the mar­ket closed on Christ­mas Eve, the S&P 500 stood at 1,125.46 — with four trad­ing days left in the decade, the index’s annual per­for­mance over that span is neg­a­tive at 2.6%. The Dow Jones Indus­trial Index has lost about 1% per year over the same period, and the Nas­daq Com­pos­ite Index is down a whop­ping 5.9% annu­ally. When adjusted for infla­tion, the ten-year returns for these indices are even lower.” How­ever, gold stocks (as mea­sured by the XAU Index) have had an excel­lent decade, climb­ing 9.4% annually.

A pic­ture paints a thou­sand words …

Mean­while, in the chart below, Egon von Grey­erz of Mat­tern­horn shows (via US Global Investors) just how small the pre­cious met­als mar­ket is in rela­tion to large com­pa­nies like Microsoft and Exxon. Global pri­vately held bul­lion is only about three times the size of Microsoft’s value, a minis­cule fig­ure for global own­er­ship. In total, pri­vately held phys­i­cal invest­ment in gold makes up only 0.7% of total investable finan­cial assets. Mr. Grey­erz argues that cur­rently the aver­age fund man­ager and investor has no expo­sure to gold on a rel­a­tive basis, but says that an increase in the allo­ca­tion to gold would be sup­port­ive of the gold price in the future.

Source: US Global Investors — Weekly Investor Alert, Decem­ber 24, 2009.

Time will tell what the next decade will bring for gold, but my money remains on the “bar­barous relic” scal­ing fresh peaks in due course.

Tags: Barbarous Relic, Boom And Bust, Bust Cycles, Christmas Eve, Commodities, Dow Jones Industrial, Dow Jones Industrial Index, Financial Assets, Gold, Gold Bullion, Gold Price, gold stocks, Golden Decade, Gsci, Matternhorn, Nasdaq Composite Index, Precious Metals Market, Principal Asset, Relative Basis, Us Global Investors, Us Stock Market, Xau Index
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WealthTrack: David Winters — searching the world for deep discounts

Saturday, December 26th, 2009

This week Con­suelo Mack is joined on Wealth­Track by David Win­ters, a noted value investor who Smart Money mag­a­zine iden­ti­fied as one of the “world’s great­est investors”. He searches the world for high qual­ity com­pa­nies sell­ing at deep dis­counts to their intrin­sic val­ues through the Win­ter­green Fund, which brings a hedge fund’s “go any­where and invest in any­thing” flex­i­bil­ity to mutual fund cus­tomers. In this inter­view, Win­ters shares where he is find­ing value in the mar­ket now.

Note: The tran­script of this inter­view is not avail­able yet, but will be posted here as soon as it arrives.

Source: Wealth­track, Decem­ber 24, 2009.

Tags: David Winters, Flexibility, Hedge Fund, High Quality, Intrinsic Values, Investors, Mack, Mutual Fund, Quality Companies, Shares, Smart Money Magazine, Value Investor, Wealthtrack, Wintergreen Fund
Posted in Markets | Comments Off

Gold, Dollar and Euro: A Love Triangle into 2010

Saturday, December 26th, 2009

by Dian L. Chu, Eco­nomic Fore­casts & Opinions

Gold hit a 7-week low on Dec. 22 from recent opti­mistic data of the U.S. econ­omy.  For exam­ple, U.S. exist­ing hous­ing sales jumped more than expected, and GDP grew at a 2.2% rate in the third quar­ter, the fastest pace in two years, amid a larger-than-expected down­ward revi­sion.  The upbeat news lifted the dol­lar and pushed yel­low metal prices to below the $1,100 bench­mark. (Fig. 1)

Bul­lion has gained 23% this year on a strong inverse rela­tion­ship to the Dol­lar as the longest reces­sion since World War II eroded the con­fi­dence in dol­lar and boosted gold’s sta­tus as a safe haven.

Tide’s Turn­ing

But the tide seems to be turn­ing. Gold prices have steadily tum­bled with high volatil­ity since peak­ing on Dec. 3 at $1,218.30 per troy ounce with the dol­lar gain­ing 4.4% against a bas­ket of six currencies.

The frenzy to cover dol­lar shorts seen over the last three weeks sent the green­back onto its first monthly increase since June; meanwhile, gold has fallen about 8.1% (a much needed tech­ni­cal cor­rec­tion, by the way, as indi­cated in my ear­lier arti­cle.)

The Same Old Dollar

The trade has also been sup­ported by a steep­en­ing of the spread between the yield on the U.S. 10-yr note and the 2-yr note. The mar­kets take this steep­en­ing as an indi­ca­tion that the econ­omy will con­tinue to recover.

How­ever, it's dif­fi­cult to make the case that the out­look has changed in such a way that war­rants dol­lar strength.

The United States is still $12 tril­lion in debt with a double-digit unem­ploy­ment rate, more spending, higher taxes, while the mon­e­tary pol­icy will likely remain loose in 2010.

The Obama admin­is­tra­tion has warned that if the debt ceil­ing is not raised, the gov­ern­ment risks default as early as New Year’s Day.  Democ­rats have esti­mated that to get through the 2010 elec­tions, Trea­sury needs to have the debt ceil­ing raised by as much as $1.8 tril­lion above today’s $12.1 tril­lion cap.

No, it is illog­i­cal to con­clude that the buck's rise from near rub­ble is due to mate­r­ial improve­ment in the fis­cal or mon­e­tary con­di­tions in the U.S. Rather, it is the decline in the euro and some other key cur­ren­cies has accel­er­ated due to sub­stan­tial weak­ness as com­pared to the Dollar.

New EU Sov­er­eign Risk

The green­back has been the pri­mary ben­e­fi­ciary of Fitch and Stan­dard & Poor’s credit rat­ing down­grades of E.U. mem­ber Greece and sim­i­lar wor­ries about Por­tu­gal, Spain and Ireland.

Cap­i­tal is flee­ing out of the euro due to pos­si­ble sov­er­eign risk in the E.U. states, which sent the euro plung­ing, and dol­lar (quite iron­i­cally) reclaim­ing its sta­tus as "the cur­rency of choice” on the risk aver­sion side.

Gold’s Euro Affair

For this rea­son, gold's price move­ment this month has been largely dic­tated by the euro instead of the Dol­lar due to the cap­i­tal shift trig­gered mostly by the E.U sov­er­eign risk.  This has prompted an almost record high short-term cor­re­la­tion between the EUR/USD cur­rency pair and gold prices. At the same time, the inverse cor­re­la­tion seen between Dol­lar and alter­na­tive asset classes remains bro­ken as both stocks and Dol­lar have advanced in pre­vi­ous trad­ing ses­sions. (Fig. 2)

This fairly sig­nif­i­cant shift under­lines impor­tant mar­ket themes and the likely direc­tion of gold in the short to medium term.

Long-term Under­pinned

Regard­less of the new devel­op­ment with EUR/USD, gold’s long-term prospect remains under­pinned mainly by the fol­low­ing factors: 

• Strong con­tin­u­ing cen­tral bank demand — Cen­tral banks have now become net buy­ers of gold in the last half of 2009. A Chi­nese offi­cial recently was quoted say­ing China should increase gold reserve to 6,000 tons in 3~5 years, and 10,000 tons in 8~10 years from the cur­rent 1,054 tons (as of April this year.) Rus­sia also has bulked up on its gold reserve by 20.1% since the begin­ning of this year to 612.74 met­ric tons, val­ued at almost $23 billion.
• Ris­ing infla­tion fear – Infla­tion is a by-product of refla­tion­ary mon­e­tary poli­cies, low inter­est rates, and expand­ing gov­ern­ment debt in vir­tu­ally all of the major indus­trial nations.
• Dol­lar in the midst of a multi-year decline — The Fed­eral Reserve's announce­ment that it would keep inter­est rates low and money cheap for an extended period makes it almost inevitable that the Dol­lar will con­tinue to weaken.
• Grow­ing invest­ment demand – Gold invest­ment demand has gone up by 25% to 220 tons this year.  Diversified stock funds have been buy­ing gold bullion, piling into gold ETFs and stock of gold-mining com­pa­nies as insur­ance against a wor­ri­some mon­e­tary situation, possible infla­tion sit­u­a­tion, and partly to enhance their returns.  (Fig. 3)
• Sup­ply con­straint — World gold mine pro­duc­tion will likely con­tinue to decline for at least another five years.

Bulls: ICE com­mer­cials report­edly nearly dou­bled their net short posi­tion­ing in the green­back. That could be sug­gest­ing that the dol­lar rally is at risk of a near-term top or rever­sal, which could give gold a boost.

Con­tin­u­ing pos­i­tive money flow into gold ETFs also sug­gests that investors are buy­ing gold on the dip at below $1,100 lev­els lend­ing sup­port to gold.

Bears: On the other hand, the global finan­cial cri­sis from over a year ago has now mor­phed into a sov­er­eign debt cri­sis. The fresh down­grade of Greece’s sov­er­eign debt rat­ing by Moody’s on Dec. 22 could trig­ger a renewed bout of flight to dol­lar, which could fur­ther hit gold prices as it did ear­lier in the month on sim­i­lar fears.

Bloomberg reported that futures traders are now bet­ting on a 48% chance that the U.S. Fed­eral Reserve will increase the tar­get rate for overnight lend­ing between banks by June. This could sug­gest the dol­lar may extend this month’s biggest gain since Feb­ru­ary as the per­cep­tion of a recov­ery in the U.S. econ­omy pushes up yields, damp­ing the dol­lar carry trades.

In addi­tion, the hedge funds are now on the sell side of gold and until they switch to buy mode, the carry trade unwind is likely to continue.

Tech­ni­cally Speaking

Based on the lat­est CFTC com­mit­ment of trader report (as of Decem­ber 15), the num­ber of long spec­u­la­tors for gold was begin­ning to fall back to around 363,000 as some them may be begin­ning to sell with the recent weakness.

After the large drop of the past week, there are likely to be lots of mar­gin calls which could force liq­ui­date more long posi­tions, poten­tially putting down­ward pres­sure in the com­ing days.

Almost all the short term gold tech­ni­cal indi­ca­tors, such as MACD and StochRSI, are bear­ish.  Gold also has bro­ken below its 50-day mov­ing aver­age, so fur­ther down­ward move could be in the cards.  (Fig. 1)

2010 - A Love Triangle

Although euro has strength­ened in the last cou­ple sessions, it is more of a retrace­ment rather than an ongo­ing trend.  If euro con­tin­ues to weaken against the dol­lar, we may see even more short-term pres­sure on the gold.  But gold should find sup­port around $1,075. A fur­ther pull-back to around $1,000 — $1,025 could be a buy­ing oppor­tu­nity depend­ing on indi­vid­ual port­fo­lio makeup and invest­ment horizon.

Index-wise, if EUR/USD drops below 1.40 or the Dol­lar index (DXY) breaks above 80, we could see gold dip below the $1, 000 mark.

Optional Plays

Gold is cur­rently under­go­ing an impor­tant tech­ni­cal cor­rec­tion cycle. Year-end profit taking, new year port­fo­lio re-balancing, and var­i­ous macro­eco­nomic fac­tors will likely make it a very test­ing few months for all mar­kets, includ­ing gold, at least through mid 2010. Dur­ing that time frame, it would not be a sur­prise to see gold sink below the 200-day mov­ing aver­age, cur­rently around $988.

Investors inter­ested in hitch­ing on the gold train could con­sider buy­ing options as an alter­na­tive way to play the gold mar­ket in addi­tion to bul­lion, ETFs or futures con­tracts. For now, option expi­ra­tion dates at least six months in the future (June 2010 onwards) seem to be the best bets at this time.

Bling Bling Gold Glitter

Gold is set to con­tinue to glit­ter as an invest­ment choice in 2010 due to its bet­ter long-term per­for­mance expec­ta­tion rel­a­tive to other invest­ment vehi­cles, in the con­text of the prof­li­gate gov­ern­ment spend­ing, moun­tain­ous national debt, and the multi-nations calls to remove Dol­lar from the reserve cur­rency status.

In that sense, the seem­ingly lofty $2,000 gold price could very well be reached, or even higher, albeit con­tin­ued high volatil­ity and sharp rever­sals along the way. On that note, gold is best suited for long-term investors with a well diver­si­fied portfolio.

"To have gold is to be in fear, and to want it to be sor­row."  ~ Johnson

Tags: Bullion, China, Debt Ceiling, Dian, Dollar Strength, Double Digit Unemployment, Downward Revision, Economic Forecasts, Emerging Markets, ETF, ETFs, Gold, Gold Bullion, Gold Dollar, Gold Prices, Greenback, Housing Sales, Inverse Relationship, Love Triangle, Monetary Policy, Obama, Russia, Safe Haven, Troy Ounce, Unemployment Rate, Volatility, World War Ii
Posted in Canadian Market, China, ETFs, Markets, Outlook | Comments Off

Christmas Trees from Around the World

Friday, December 25th, 2009

The Capi­tol Christ­mas tree in Wash­ing­ton , D.C. , is dec­o­rated with 3,000 orna­ments that are the hand­i­work of US chool­child­ren. Encir­cling ever­greens in the “Path­way of Peace” rep­re­sent the 50 US states.

The world’s largest Christ­mas tree dis­play rises up the slopes of Monte Ingino out­side of Gub­bio, in Italy ’s Umbria region.

Com­posed of about 500 lights con­nected by 40,000 feet of wire, the “tree” is a mod­ern mar­vel for an ancient city.

A Christ­mas tree befit­ting Tokyo’s night­time neon dis­play is pro­jected onto the exte­rior of the Grand Prince Hotel Akasaka.

Illu­mi­nat­ing the Gothic facades of Prague’s Old Town Square, and cast­ing its glow over the manger dis­play of the famous Christ­mas mar­ket, is a grand tree cut in the Sumava moun­tains in the south­ern Czech Republic.

Venice’s Murano Island renowned through­out the world for its qual­ity glass­work is home to the tallest glass tree in the world. Sculpted by mas­ter glass blower Simone Cenedese, the artis­tic Christ­mas tree is a mod­ern reflec­tion of the hol­i­day season.

Moscow cel­e­brates Christ­mas accord­ing to the Russ­ian Ortho­dox cal­en­dar on Jan­u­ary 7.  For weeks before­hand, the city is alive with fes­tiv­i­ties in antic­i­pa­tion of Father Frost’s arrival on his mag­i­cal troika with the Snow Maiden. He and his helper deliver gifts under the New Year tree, or yolka, which is tra­di­tion­ally a fir.

The largest Christ­mas tree in Europe (more than 230 feet tall) can be found in the Praça do Comér­cio in Lis­bon, Por­tu­gal. Thou­sands of lights adorn the tree, adding to the spe­cial enchant­ment of the city dur­ing the hol­i­day season.

“Oh Christ­mas tree, oh Christ­mas tree”: Even in its hum­blest attire, aglow beside a tiny chapel in Germany’s Kar­wen­del moun­tains, a Christ­mas tree is a won­drous sight.

Ooh la la Galeries Lafayette! In Paris, even the Christ­mas trees are chic. With its mon­u­men­tal, baroque dome, plus 10 sto­ries of lights and high fash­ion, it’s no sur­prise this show-stopping depart­ment store draws more vis­i­tors than the Lou­vre and the Eif­fel Tower.

In addi­tion to the Vatican’s heav­enly ever­green, St. Peter’s Square in Rome hosts a larger-than-life nativ­ity scene in front of the obelisk.

The Christ­mas tree that greets rev­el­ers at the Puerta del Sol is dressed for a party. Madrid’s two-week cel­e­bra­tion makes mil­lion­aires along with mer­ry­mak­ers. On Decem­ber 22, a lucky cit­i­zen will win El Gordo (the fat one), the world’s biggest lottery.

A token of grat­i­tude for Britain’s aid dur­ing World War II, the Christ­mas tree in London’s Trafal­gar Square has been the annual gift of the peo­ple of Nor­way since 1947.

Drink a glass of gluh­wein from the hol­i­day mar­ket at the Romer, Frankfurt’s city hall since 1405, and enjoy a taste of Christ­mas past.

Against a back­drop of tall, shad­owy firs, a rain­bow trio of Christ­mas trees lights up the night (loca­tion unknown).

Source: Unknown (arrived from some­where in my inbox)

Tags: Baroque Dome, Christmas Market, Christmas Trees, Father Frost, Gothic Facades, Grand Prince Hotel Akasaka, Karwendel Mountains, Lisbon Portugal, Master Glass Blower, Murano Island, Oh Christmas Tree Oh Christmas Tree, Ooh La La, Prince Hotel, Russia, Russian Orthodox Calendar, Snow Maiden, Sumava Mountains, Tiny Chapel, Umbria Region, Wondrous Sight, Yolka
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Be mindful of Santa Claus Rally and other year-end/new-year indicators

Friday, December 25th, 2009

If Santa has not yet made his way to your invest­ment port­fo­lio, don’t despair. Accord­ing to Jef­frey Hirsch (Stock Trader’s Almanac), the “Santa Claus Rally” nor­mally occurs dur­ing the last five trad­ing days of a year and the ensu­ing first two trad­ing ses­sions of the new year. Dur­ing this seven-day period stocks his­tor­i­cally tend to advance (by 1.5% on aver­age since 1950), but when record­ing a loss, they fre­quently trade much lower in the new year. Well, yes­ter­day marked the offi­cial begin­ning of the Santa Claus Rally period, with the Dow Jones Indus­trial Index off to a 0.5% start.

Another old stock mar­ket saw tells us the first five trad­ing days of Jan­u­ary sets the course for Jan­u­ary (known as the “First Five Days Early Warn­ing Sys­tem”), and if the month of Jan­u­ary is higher, there is a good chance the year will end higher, i.e. the so-called “Jan­u­ary Barom­e­ter”. Every down Jan­u­ary since 1950 has been fol­lowed by a new or con­tin­u­ing bear mar­ket or a flat year. “As Jan­u­ary goes, so goes the year,” said Hirsch.

Lastly, accord­ing to Hirsch, the “Decem­ber Low Indi­ca­tor“ says that should the Dow Jones Indus­trial Index close below its Decem­ber low any­time dur­ing the first quar­ter, it is fre­quently an excel­lent warn­ing sign of lower lev­els ahead. The num­ber to watch is the low of 10,286 recorded by the Dow on Decem­ber 8.

Time will tell whether the year-end/new-year indi­ca­tors play out accord­ing to the his­tor­i­cal pat­tern. Mean­while, we’ll have some fun track­ing how it pans out.

Tags: Barometer, Bear Market, December 8, Despair, Dow Jones, Dow Jones Industrial, Dow Jones Industrial Index, Early Warning System, First Quarter, Good Chance, Investment Portfolio, Jeffrey Hirsch, Month Of January, New Year, Santa Claus, Stock Market, Stock Trader, Trading Sessions, Warning Sign, Year End
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How to Spot That Toxic Friend
and Other Stories for the Holiday Weekend

Thursday, December 24th, 2009

Here are this weekend's read­ing diver­sions. Happy Hol­i­day Week­end and a very Merry Christ­mas to you and yours!

Dr. Andrew Weil: Healthy Gift Ideas

Giv­ing gifts to oth­ers is a fun­da­men­tal activ­ity, as old as human­ity itself. Yet in the mod­ern, com­plex world, the par­tic­u­lars of gift-giving can be extra­or­di­nar­ily chal­leng­ing. In my view, the best gift is one that ben­e­fits both the receiver and the planet. So let me pro­pose three cat­e­gories of gifts for this hol­i­day sea­son that I believe meet this standard.

Skate your­self skinny this hol­i­day season

Tis the sea­son when the days grow short, the wind blows fierce, and sleet-covered streets dis­cour­age that early morn­ing jog.

Best Dog Breeds: Good with Children

All dogs can inter­act well with chil­dren, espe­cially if they're intro­duced as pup­pies to a home where chil­dren are already under­foot, says pet expert Marc Mor­rone. Still, many breeds have proven over the years to be par­tic­u­larly gen­tle and accept­ing of chil­dren in the house­hold. To cre­ate this list, we turned to the World Atlas of Dog Breeds, 6th Edi­tion, which rates breeds for their com­pat­i­bil­ity with chil­dren. Remem­ber, how­ever, that no mat­ter the breed, be sure to mon­i­tor the first inter­ac­tions between your chil­dren and any new pet.

Christ­mas Carol Sing-Along Quiz

Do you know every word to every verse of your favorite Christ­mas car­ols, or only the pop­u­lar cho­ruses? Take our quiz and find out how well you know your carols.

Andrew Shap­ter: The Tao Of Mis­ter Rogers

When I was just six years old, I came home from school alone while my par­ents were away work­ing long hours. Every after­noon, like so many chil­dren still do, I turned on the TV and got lost for three hours a day. It was my vir­tual babysit­ter. I watched re-runs of sit­com clas­sics like Good Times and Three's Com­pany, although hardly shows that a 6 year-old kid could relate to.

10 Ways To Deal With Dif­fi­cult People

Whether it's fam­ily, work, rela­tion­ships, or friends, we all deal with dif­fi­cult peo­ple in dif­fer­ent ways. Hol­i­days often extract the most try­ing char­ac­ter­is­tics out of every­one. I recently became "adopted" by my new "yoga/God par­ents" Ed and Deb Shapiro. (Don't worry pater­nal fam­ily, I still love you guys. . . there is room for it all in this life!) Any­way, Ed and Deb help me put things in per­spec­tive, and real­ize when I'm wast­ing my energy fix­at­ing on cer­tain things. Plus, they gush about how proud they are of me. It's adorable and sweet, and if I can be in the moment and absorb what is hap­pen­ing, it's pow­er­ful jet fuel for my life and soul.

Global Busi­ness Eti­quette: 11 Tips On Asian Culture

With India now hav­ing a strong global busi­ness pres­ence, which is expand­ing con­tin­u­ously, it is cru­cial that as UK busi­ness pro­fes­sion­als, we are aware of how to behave and inter­act appro­pri­ately with fel­low busi­ness pro­fes­sion­als from this continent.

Give The Gift Of Sleep, Part I

'Tis the sea­son for gift-giving and spread­ing hol­i­day cheer. But how many times have you -

1) received a gift you just don't need, or
2) given a gift that's des­tined to never be used or appreciated?

Brigitte Mars: Herbal Hol­i­day Traditions

Win­ter hol­i­days bring tra­di­tions from at least half a dozen world cul­tures, blended over the cen­turies. Here are a few rea­sons some herbal allies have a place in our homes this time of year.

How To Spot That Toxic Friend

The con­tra­dic­tory mes­sages and assump­tions for women, of every age, clearly affect female friend­ships, per­haps today more than ever before. In our slick, speedy soci­ety, women aren't always cer­tain of where these friend­ships fit into their lives, while at the same time, the desire for suc­cess­ful bonds and close con­nec­tions is at an all time high.

Tags: Andrew Shapter, Andrew Weil, Babysitter, Choruses, Christmas Carol, Christmas Carols, Diversions, Dog Breeds, Dr Andrew Weil, Emerging Markets, Family Work Relationships, Frie, Fundamental Activity, Giving Gifts, Happy Holiday, Holiday Weekend, India, Merry Christmas, Mister Rogers, New Pet, Pet Expert, Sleet, Work Relation, World Atlas
Posted in Emerging Markets, India, Markets | Comments Off

Does the Dollar Rally Threaten the Loonie and Commodities?

Thursday, December 24th, 2009

Since late Novem­ber the U.S. dol­lar has ral­lied strongly against the yen and euro, and also the loonie. What's unusual is that the Cana­dian dol­lar has not weak­ened pro­por­tion­ally against the dol­lar in the same fash­ion as the euro or yen. And, com­modi­ties, have, in fact, hard­ened against the dol­lar dur­ing the last three weeks.

What's in store for the loonie and commodities?

Read more:  Does the Dol­lar Rally Threaten the Loonie and Com­modi­ties?, GlobeAdvisor.com, Decem­ber 24, 2009

Tags: Advertisement, Canadian Dollar, Canadian Market, Commodities, Euro, Fashion, Late November, Loonie, Rally, Yen
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