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April 3, 2015

Dionne Warwick sings the Good Friday Payroll Blues

Filed under: Forex Strategies — Tags: , , , , , , — admin @ 4:43 pm

November 7, 2014

It’s good news that good news is bad news

Filed under: Forex Strategies — Tags: , , — admin @ 4:44 pm

“Together with the series of targeted longer-term refinancing operations to be conducted until June 2016, these asset purchases will have a sizeable impact on our balance sheet, which is expected to move towards the dimensions it had at the beginning of 2012.”

At the end of March 2012, the ECB’s balance sheet was EUR 2.98 trillion.   It currently sits at EUR 2.03 trillion.   The difference between those two figures is 950 billion euros.  The first TLTRO managed to attract a demand for just 82 billion of loans, for reasons mentioned in this space yesterday.  Even if we assume that the take-up for TLTRO #2 doubles, that would still be a shortfall of nearly EUR 800 billion.  There aren’t enough ABS and covered bonds to buy to fill that shortfall.   What’s next- corporate debt (thereby exposing the ECB to more overt credit risk)?   Sovereigns (thereby offending German sensibilities vis-a-vis monetary financing)?  Neither of these will solve the primary issue of getting credit to SMEs.

Although the market has anchored upon this statement thanks to Draghi’s emphasis, the statement isn’t actually anything new.  The “dimensions….2012” phraseology appeared verbatim in the September statement, for example.  Moreover, it is classic central bank speak, allowing plenty of wiggle room.   How close to that previous level of 2.98 trillion constitutes the same dimension?  2.9 trillion?   2.5 trillion?  One has to posit that if Draghi had his druthers, the dimension best describing the size of the ECB balance sheet would be the Fifth one.

In the meantime, Macro Man isn’t sure that we learned as much as the market seems to think we did.  Yes, the mention of relative balance sheet sizes would appear to sanction a lower currency, but if you didn’t know that that’s what the ECB wants then you haven’t been paying attention.

Still, that’s not to say that Draghi won’t get his wish.   US jobless claims printed the lowest 4 week average since the height of the dot-com bubble yesterday; at the rate this is going, Janet Yellen might have to use your author as her next example of a poor soul who’s not working.  US fixed income has slid lower ever-so-gradually, taking EDZ5 a full 25 ticks off of its October 15 highs and right into the sweet spot of the 99.25/12/00 put fly mentioned last week.  Can we press “stick”?

Sadly not, with payrolls set to be released today.   Macro Man’s model is quite bullish, forecasting a robust 272k out-turn.  Should that result eventuate, one would have to think that both the dollar and yields will be marked higher.  As for stocks….the day ends in “y” but doesn’t begin with “s”, so the default setting is that they rally.  Then again, that pesky 4th gap is still unclosed, and great employment data makes it that little bit harder for Yellen to keep moaning.  Eventually, markets will capitulate and start pricing tightening again.

She should relax.  After all, it’s good news that good news is bad news.

April 25, 2014

Do Markets Top on Good News?

Filed under: Forex Strategies — Tags: , , — admin @ 4:42 pm

It’s a good thing that Macro Man still has a full head of hair, because with the amount he’s been scratching it recently he’d have some awful marks without it.  Equities have once again nudged close to the highs of the year, the level where they’ve failed time and time again in 2014.     For most of the last few months, Macro Man’s taken it almost as an article of faith that stocks would roll over come May, both because of the poor historical performance and the persistently weak seasonality in recent years.

In that vein, he’s taken some length off the table, because there’s no point having a well-thought out plan if you aren’t going to stick to it.   By the same token, however, it behooves him to stress-test the view periodically; it’s still a bit cold and windy to be a lazy sunbather.

How bad is the seasonality in May, actually?   Does it depend on the prior four months of the year?  First, to get a sense of perspective, Macro Man checked the performance of the SPX in every month since 1980.  He was surprised to see that the average return is actually pretty solid: +0.93%.   What’s also interesting is that pockets of weakness in May tend to cluster, as can be seen in ’81-’84, ’98-’02, and of course 2010-12.   Frankly, he is a little embarrassed to admit that he forgot that the SPX actually rallied in May of last year, so swept up was he in Tapergeddon and its impact upon the Japan trade.  Anyhow, last year’s 2% rally in May was atypically large to be in a middle of one of these clusters.

What if we go further back?  Macro Man parsed data going back to 1929.  Unsurprisingly, the well-known historical pattern emerges, with the average return for the month coming in at -0.06%.   How much of this was down to bear-market performance, however?   Macro Man created a simple study to test.

Using both the full dataset since 1929, as well as the “modern” dataset since 1980, Macro Man tested to see what May’s performance was like depending on the first four months’ returns.  Specifically, he checked the average return in May when the index ended April down on the year, the average return when it was up more than 5%, and the average return for everything in between.  The results are summarized in the table below.


As you can see, when the index is modestly up on the year through April, May has historically been a very strong month.  Indeed, the 1.88% return since 1980 is higher than the average full-sample return for any individual month, even December.   As of Thursday’s close, the SPX is up 1.64% year to date.   Hmmmmm…….

All of thiscertainly merits a pause for thought.  However, Macro Man cannot get the favourite saying of one of his mates out of his head: “markets top on good news.”  To be honest, he hasn’t studied this in any great depth, so he doesn’t actually know if it’s true.   It certainly sounds like one of those aphorisms that ought to be true, even if it isn’t.

Regardless, the news has certainly been fairly decent recently, on both the macro side (a solid durables report) and the micro side (some of those earnings look great, and golly, Apple’s gonna split!)  Moreover, the ECB looks like it has pushed all of its chips to the centre of the table (using another tired poker anaolgy),  as the recent rhetoric on both rates and the currency have been deafening.  Next Wednesday’s CPI is not to be missed, and with excess liquidity breaking below the magic 100 bio barrier, if the ECB is going to act, it should come next month.


Of course, a cynic might suggest that absent a QE program for which there is currently insufficient infrastructure, a refi/depo rate cut will be the last throw of the dice, the bluff that the market will call.  (Yet another card analogy!)  Moreover, it is not altogether clear to Macro Man that charging banks for holding cash, thereby cutting into their NIM, is an unalloyed positive.   He could therefore have some sympathy that that “good news” could be sold.

At the same time, next week’s US payroll figure also looms large.   If we ever do get a bang-up employment print, Janet Yellen will no doubt throw a party (to which she’d wear a polka-dot dress?)  to celebrate the good news.  Fixed income markets, on the other hand, might throw a public execution of the front end and belly.   5s-30s already looks like flattening inexorably…how long before 2s-10s follow?   And how will equities react?   “Not well” would appear to be a sensible guess.


As such, Macro Man finds himself in sympathy with his friend’s aphorism, whether it be spurious or no.  His gut tells him that a top is close and that good news will in fact be bad news…potentially very much so.   His head, on the other hand, tells him that the boogie man in the seasonality closet may not actually exist.

In the end, he is left with higher conviction….that he doesn’t currently possess an edge.  As such, he will stick to the process, follow the plan, and retreat further to the sidelines, awaiting further clarity one way or another.  When it comes, in whichever direction…..well, that really will be good news.

June 26, 2013

We don’t believe real estate is a good hiding place either? Here’s why…

Filed under: Currency — Tags: , , , , , , , , , — admin @ 2:24 am

Quotable

Through tattered clothes great vices do appear;
Robes and furred gowns hide all. Plate sin with gold,
And the strong lance of justice hurtless breaks.
Arm it in rags, a pigmy’s straw does pierce it.
None does offend–none, I say, none. I’ll able ’em.
Take that of me, my friend, who have the power
To seal th’ accuser’s lips. Get thee glass eyes,
And like a scurvy politician seem
To see the things thou dost not. Now, now, now, now,
Pull off my boots. Harder, harder.

William Shakespear, King Lear

Commentary & Analysis
We don’t believe real estate is a good hiding place either? Here’s why…

Recently, a newsletter guru (who shall remain nameless)listed several reasons why he believed real estate would be a great place to put cash. We were surprised because we don’t believe real estate will be a haven after another major washout in global markets if global demand doesn’t materialize soon.

It justso happens a good friend of ours, his name is Clive, agrees. We have printed below Clive’s wellreasoned and articulate responses to said newsletter guru’s consensus rationales for buying real estate. We couldn’t have said it better…thanks Clive.

Guru: We have to be prepared for when it does happen. How? Probably the best way is to buy real estate with long term, ultra-low, fixed-rate mortgages. Non-recourse, if possible. In September 2011, we recommended you increase your family’s allocation to real estate to take advantage of this unique situation. It was a better investment then. Still, now is not a bad time to invest in bricks and mortar.

Clive: This idea of [said guru] is so appealing that I thought I would try it, a few months ago. I couldn’t make it work. I bought my house in New Hampshire, in 2010 because I like the house and it is part of a 100 acre farm which provides good food for six months of the year. It has been a great place to live, but a bad investment. The market price has declined by 40%. I hoped it would decline only 20% because the housing market had already taken a hit. Next year I may be able to get my property tax reduced… maybe. If so, I’ll lose less over time.

Guru: US real estate is an ideal investment for this non-recovery world. Here’s why: It is relatively safe. In the case of a financial Armageddon, real estate is still valuable. It doesn’t go away.

Clive: Land may be safe, but real estate (buildings) burn, with their contents, in revolutions. Both are almost impossible to liquidate when there is the slightest whiff of trouble. Moving them is even more difficult. Over the last century, there were lots of Russians, East Germans, Chinese, Africans, South Americans… who found out the hard way about “real estate”. All they have left is worthless title deeds. The US may be a little more stable… until it is not. It wasn’t so long ago that fine Southern families moved from their land with nothing more than their good manners and empty stomachs. Factories in the North needed cheap labor.

… and the parasites? OMG. Real estate taxes, insurance companies with their “requirements”, lawyers, accountants, contractors, all those regulations… and that is before dealing with the realities of physical maintenance. Houses and property are sitting ducks for extraction purposes.

Guru: Average US home prices have risen about 12% year-over-year. But they are still reasonably cheap – depending on where you buy. If central banks succeed in tapering, real estate and rents will probably both rise.

Clive: It seems to me that real estate is being bought with funny money. The "investors" take their bonuses, short term profits and steal the money in the form of "salaries" and handling fees, but when the Taper sharpens it teeth, surely the buying will stop and prices will drop? An increase in interest rates will also dampen enthusiasm, especially if there is no real growth. Perhaps inflation will eventually increase nominal prices, but I don’t anticipate much demand from a declining population.

Guru:…If they don’t, your mortgage gives you a free "option." If yields rise after 32 years of trending in the other direction you will get a windfall. If they don’t, you will still have your rental income (or personal use). If you have financed on a non-recourse basis, you are in an even better position. You have made a one-way bet. You can only win.

Clive: Unless the property price declines! I could not find a bank that would give me more than a five year fixed mortgage. After that, it "floated". No thanks. I paid cash for my house rather than have to deal with all the parasites that climb aboard as soon as a bank is involved.

I am stuck in my house unless I want to take a loss now, but property prices could decline more, just like the stock market, gold or anything else that has not yet had its day of reckoning. Only in the fantasy world of T.L. Friedman are house prices destined to increase with more government subsidies and mortgage interest tax breaks.

It’s over. Populations in advanced economy countries are declining with the decline of cheap energy (oil). The Fed doesn’t really care about house prices and they can do nothing about it short of sending everyone a check for $100,000 a year. They could! They have our addresses from our tax returns. Krugman would be thrilled, but even the smug bearded Ben is not likely to do that. The Fed cares only about the Government and keeping interest rates low to reduce the cost of their obligations. That manipulation will work only as long as other nations accept our debt but a bit of trade "re-balancing" could make some people really unhappy. Interest rates will probably rise… slowly, not like the 1970s because baby booming is out of fashion.

Guru:– Can you lose? Of course! If property prices fall and continue to fall… and rental rates fall too… you will lose money. Maybe serious money. (Unless you have a non-recourse mortgage.) This is a possibility. But it suggests a level of deflation I believe would be intolerable to the authorities.

Clive: Of course the authorities don’t want a decline. They have all their economic models based on GROWTH. It worked as long as there was cheap energy. Populations increased and everyone had two houses, cheap food, a car or two, a lawn and it was onward and upward. Things are different now. Energy is becoming more expensive and complicated. There are no more gushers. The intolerable deflation is beyond the control of the authorities. They are going to get it whether they like it or not, probably in a place they won’t like.

Guru:– That is when Bernanke or his successor would be likely to resort to Overt Monetary Financing, aka "helicopter money." This has already been widely discussed in the press. Central bankers are already considering it. In an emergency, it wouldn’t be long before they would use it. Then, like my parents in the 1970s, your mortgage will seem like a gift from heaven.

Clive: I think it will be very difficult to "induce" inflation with helicopter money. Food stamps, welfare (social and corporate) and "defense" spending cannot last forever at China’s expense. Middle class people are sick of credit. During the last fifty years, credit allowed leveraged investments to grow very nicely. The bigger the credit, the safer the loan. Ask Donald Trump. Now people think they may have to pay back their loans and that makes them upset. Nobody wants more credit. They want less. The mentality has changed. Having "free time" (to talk on a cell phone for example) is much more valuable than having a pile of stuff bought on credit because it will be "more valuable" in the future.

This is a devil of a problem for us long term investors. I don’t see real estate being a good investment other than as a place to live. Owning gives some liberties that renters to not have, but it does not give the important liberty of "leaving" at a moment’s notice.

A big pile of cash appeals to me more than a pile of bricks and mortar… at least until the market has sorted itself out. That may still take a few more years. Then I will buy a pile of gold and who knows what… maybe real estate, or more [xxx]stock. If I have cash, I’ll be king! I hope my house does not make me a poor king.

….

I provide two charts and some commentsfrom our recent Global Investor macro view to support Clive’s arguments and make it quite clear the Fed is losing the battle no matter how much “helicopter” money it spends(rising bank reserves and a tumbling monetary velocity tell us Fed stimulus isn’t getting where it was supposed to go).

…If the primary rationale for holding stocks is based on faith in central bankers, then what follows is an implicitly belief stocks as an investment class are primarily liquidity-driven speculative vehicles. A more nuanced view accounts for the power of liquidity and the discounting value of futures earnings in a zero interest rate environment. But implicit in this view is a belief said future earnings, presently supporting these discounted cash values, are tethered to the underlying growth opportunities where these businesses operate.

Secondarily, those who have placed their full faith in central banks see little chance of a negative feed-back loop stemming from the wholesale manipulation of money and credit. A couple of possibilities for negative feedback include: 1) a huge jump in price levels (inflation) should the weight of banking reserves circulate back into the real economy. Banking reserves have increased stunning 2004% since they began ramping up in August of 2008 as a result of the credit crunch; if real economy lending opportunities were abundant and consistent with US growth optimism, we wouldn’t be seeing a surge in banking reserves:

We believe deflation isthe problem facing the global economy; not inflation. How else could one explain the relative calm in global headline inflaiton indicators(with mandated and regulatory costs as exceptions) given the massive amount of money and credit created globally? So, although there is logic to the inflaiton argument, we believe the real economcy is signaling global inflaiton is a problem for another day, that day could be years away.

2) A deflationary spiral, or long period of extremely low growth (the Japanese quagmire for Europe and the US) is the more likely scenario given what the Austrians refer to as malinvestment. We could witness a complete loss of credibility in the Fed as key players abandon their belief in Keynesian-style stimulus.Monetary and fiscal policy failure in attempt to avoid the so-called “Keynesian liquidity trap” (a false premise) is already evident by the performance of the real economy. The excerpt below, taken form “Liquidty Trap or Malinvested Resources” provides a clear and logical rationale why monetary and fiscal policy is now likely doing more harm than good to the structure of the economy:

Economists of the Austrian school give another explanation, which resorts to neither Keynesian policy prescription and in which there is no such thing as a “liquidity trap.” Last week I wrote of malinvestments, which are investments made during the a boom that cannot be sustained because consumer spending patterns, which ultimately determine production structures within the economy, will not permit investments at their previous levels. (The collapse of the housing boom created the present situation.) Austrians note that government actually retards economic recovery by holding down interest rates. First, government tends to target new money created by the banking system toward those industries that have become depressed, ignoring the malinvestments that originally put them into that situation. Thus malinvestment persists, pulling capital and resources from economic sectors that originally were not as badly damaged during the boom and subsequent recession.Second, economist Robert Higgs notes that government activism to end the downturn creates what he calls “regime uncertainty.” In its efforts to “do something,” Higgs notes that governments often are hostile to private property rights and discourage long-term investments by healthy firms. Furthermore government is even more hostile to profitable firms and successful individuals, claiming they are not “paying their fair share” of taxes, making future investment less certain.

The U.S. economy recovered nicely from a severe recession in the 1980s, even with double-digit interest rates and low rates of inflation, which Keynesians would claim to be impossible. True, government spending rose during that time, but not nearly at the rate it has risen the past few years.

There was no “Keynesian situation” then, and there is none today. There only are malinvestments.

If monetary and fiscal policy were at best neutral, why have we seen a complete collapse in monetary velocity? The monetary velocity ratio has collapsed to its lower levels in recorded history going back to 1959.

Though there are many valid criticisms of the velocity of money concept, we do think it does point to one important reality–there is a strong and growing demand to hold greater levels of cash which in itself it a reflection of both fear and uncertainty in the economy. It is also helps explain why monetary stimulation has not sparked the real economy, but has been funneled increasingl into financial assets via bank reserve leakage.

Unless we see a rebound in US demand, coupled with a rise in real income, it seems unlikely to me that real estate will sustain recent gains given what Clive calls “funny money” going into real estate. A break in financial assets means a fall in collateral as many leveraged funds have to sell collateral to cover stock margin. There is big “fund” money now invested in real estate, and much of that investment has been subsidized by our government–you and me, in other words.

Stay tuned.

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January 30, 2012

Japan’s 31-year winning streak breaks. (That’s likely not good for global liquidity.)

Filed under: Currency — Tags: , , , , , , , , , — admin @ 2:24 am

“One important memory of 1990 in Japan is that dramatic things were happening in the equity markets, with share prices falling day after day. But the economy seemed to be unaffected. It went on growing quite strongly, in fact, for almost two years. A lot of economists and other observers concluded that the financial drama was therefore meaningless. It would prove quite temporary. An economist at one of the big securities houses told me that the Japanese economy was in a golden age, and this financial crisis would make no difference to it.” – Bill Emmott

Interestingly, the news that Japan has finally recorded its first year-on-year trade deficit since 1980–ending an incredible streak of 31 years of surplus (the Miami Marlins, formerly known as the Florida Marlins, could use some of that magic)–fits into the theme of falling global liquidity. 

Japan is increasingly becoming a capital importer instead of exporter.  If we add this idea to our view:

1. China’s reserve surplus may have peaked (hot money moving out)

2. Deleveraging by the Eurozone banking system should continue (badly hurt emerging market trade financing and credit to Central and Eastern Europe)

3. Possible fiscal restraint in the US (surprising for an election year and coupled with the lagged ending of earlier stimulus and corporate investment loaded into the fourth quarter) 

… it doesn’t add up to a rosy scenario of growth, that’s for sure.  

But there are alternatives.  McDonalds is hiring and we can always just buy Apple stock (wish I did); they are becoming a new world order all by themselves it seems.

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December 6, 2011

A Bear Market in Trust: Good for Gold Stocks

Filed under: Forex News — Tags: , , , , , — admin @ 3:09 am

A Bear Market in Trust: Good for Gold Stocks

by David Fessler, Investment U Senior Analyst
Monday, December 5, 2011

The world markets held their collective breaths over the political spectacle regarding raising the U.S. debt ceiling. Ultimately, a half-baked plan that essentially kicks most of the cans down the road emerged.

Our trust that politicians would come up with something productive went out the window. As a result, the credit rating of the U.S. Government was lowered. In response, central banks around the world stepped up their purchases of gold.

Trust is still the issue. Now it’s the European financial crisis that’s in the cross-hairs. That will keep a floor under gold prices through 2012, and we could even see the metal breach the $2,000 an ounce mark. Once that happens, the bull-run in gold will likely take off like a rocket.

You could play this rise in gold by buying physical bullion, but not everyone’s comfortable with having tens of thousands of dollars of gold coins or bars at home or even in a safety deposit box.

A better bet is a proxy for the metal itself. The easiest way to do that is via the popular SPDR Gold Trust ETF (NYSE: GLD). It holds the physical metal in a large underground vault in London. Shares are issued and are priced at roughly 10 percent of the current price of the metal.

The investment objective of GLD is to mirror the price of the physical metal. The custodian of the trust and the holder of the gold is HSBC Bank USA, N.A.

The Best Way to Play the Gold Boom: Gold Mining Stocks

While GLD rose 23 percent in the last year, many gold mining stocks underperformed the metal.

Take Yamana Gold Inc. (NYSE: AUY), for instance. Its shares rose a respectable 29 percent over the last year. Its total proven and probable reserves of 14.9 million ounces of reserves are located in Brazil, Argentina, and Chile.

With a current share price of just $16.14 though, Yamana’s reserves are priced at $807.75 an ounce or just under half of what gold bullion is currently selling for. Not bad. But you can do even better.

Let’s look at another big producer, Newmont Mining Corporation (NYSE: NEM) for example. With estimated gold reserves of 93.5 million ounces, its shares were up a paltry 7.5 percent in the last 12 months.

With a current price of $67.03 per share, investors are pricing its gold at roughly $355 an ounce, or roughly 20 percent of the price of the barbarous relic. If that sounds like a bargain, it is. And you’re essentially getting all the other metals they mine for free.

Let’s take a look at one more gold mining stock: Barrick Gold Corporation (NYSE: ABX). With 140 million ounces of proven and probable reserves, Barrick holds the largest reserves in the industry.

Last year, Barrick shares dropped 5.5 percent. How are investors pricing its gold reserves? With a current share price of $51.02 and 999.8 million shares outstanding, you can buy Barrick’s gold for $364 an ounce, or about the same as Newmont Mining. It’s also a bargain.

Junior Miners A Riskier Proposition

Here’s an important point to keep in mind when investing in gold mining stocks: the three mentioned above (there are others I haven’t mentioned) are large, producing miners.

They’re not junior mining wannabees, who might someday open a mine. Investing in shares of junior miners carry a lot more risk, and some will never amount to anything.

With governments in Europe and the U.S. running their money printing presses round the clock, investor trust is out the window. Central banks feel the same way, and are buying gold at record paces.

The upside for shares of all three companies in a gold bull market is huge. Plus, they all keep adding to their proven and probable reserves.

Whether you decide to hedge your portfolio with the physical metal, the SPDR Gold Trust ETF, or gold miners, you should have at least 5-10 percent of your assets in gold. In the coming gold bull market of 2012, the upside for the miners is far greater than the metal itself.

Good investing,

David Fessler

Article by Investment U

A Bear Market in Trust: Good for Gold Stocks

Filed under: Forex News — Tags: , , , , , — admin @ 3:09 am

A Bear Market in Trust: Good for Gold Stocks

by David Fessler, Investment U Senior Analyst
Monday, December 5, 2011

The world markets held their collective breaths over the political spectacle regarding raising the U.S. debt ceiling. Ultimately, a half-baked plan that essentially kicks most of the cans down the road emerged.

Our trust that politicians would come up with something productive went out the window. As a result, the credit rating of the U.S. Government was lowered. In response, central banks around the world stepped up their purchases of gold.

Trust is still the issue. Now it’s the European financial crisis that’s in the cross-hairs. That will keep a floor under gold prices through 2012, and we could even see the metal breach the $2,000 an ounce mark. Once that happens, the bull-run in gold will likely take off like a rocket.

You could play this rise in gold by buying physical bullion, but not everyone’s comfortable with having tens of thousands of dollars of gold coins or bars at home or even in a safety deposit box.

A better bet is a proxy for the metal itself. The easiest way to do that is via the popular SPDR Gold Trust ETF (NYSE: GLD). It holds the physical metal in a large underground vault in London. Shares are issued and are priced at roughly 10 percent of the current price of the metal.

The investment objective of GLD is to mirror the price of the physical metal. The custodian of the trust and the holder of the gold is HSBC Bank USA, N.A.

The Best Way to Play the Gold Boom: Gold Mining Stocks

While GLD rose 23 percent in the last year, many gold mining stocks underperformed the metal.

Take Yamana Gold Inc. (NYSE: AUY), for instance. Its shares rose a respectable 29 percent over the last year. Its total proven and probable reserves of 14.9 million ounces of reserves are located in Brazil, Argentina, and Chile.

With a current share price of just $16.14 though, Yamana’s reserves are priced at $807.75 an ounce or just under half of what gold bullion is currently selling for. Not bad. But you can do even better.

Let’s look at another big producer, Newmont Mining Corporation (NYSE: NEM) for example. With estimated gold reserves of 93.5 million ounces, its shares were up a paltry 7.5 percent in the last 12 months.

With a current price of $67.03 per share, investors are pricing its gold at roughly $355 an ounce, or roughly 20 percent of the price of the barbarous relic. If that sounds like a bargain, it is. And you’re essentially getting all the other metals they mine for free.

Let’s take a look at one more gold mining stock: Barrick Gold Corporation (NYSE: ABX). With 140 million ounces of proven and probable reserves, Barrick holds the largest reserves in the industry.

Last year, Barrick shares dropped 5.5 percent. How are investors pricing its gold reserves? With a current share price of $51.02 and 999.8 million shares outstanding, you can buy Barrick’s gold for $364 an ounce, or about the same as Newmont Mining. It’s also a bargain.

Junior Miners A Riskier Proposition

Here’s an important point to keep in mind when investing in gold mining stocks: the three mentioned above (there are others I haven’t mentioned) are large, producing miners.

They’re not junior mining wannabees, who might someday open a mine. Investing in shares of junior miners carry a lot more risk, and some will never amount to anything.

With governments in Europe and the U.S. running their money printing presses round the clock, investor trust is out the window. Central banks feel the same way, and are buying gold at record paces.

The upside for shares of all three companies in a gold bull market is huge. Plus, they all keep adding to their proven and probable reserves.

Whether you decide to hedge your portfolio with the physical metal, the SPDR Gold Trust ETF, or gold miners, you should have at least 5-10 percent of your assets in gold. In the coming gold bull market of 2012, the upside for the miners is far greater than the metal itself.

Good investing,

David Fessler

Article by Investment U

December 3, 2011

Letting a good crisis go to waste: will they do it again?

Filed under: Currency — Tags: , , , , , — admin @ 2:25 am

Quotable

“And we ask one question that they dare not firmly answer, whether they are not now making a tolerable attempt to pull the wool over the eyes of the people.”
                                    Milwaukee Daily Sentinel and Gazette, October 1839

Commentary & Analysis
Letting a good crisis go to waste: will they do it again?

Back in 2007 some no-name GOP political candidate with two first names emphasized the need to restructure our monetary system. But he had a hunch government would not even consider tackling the problem until a major crisis descended upon the US financial system.

About a year later, that crisis arrived. And while it centered on the US, it became a global financial crisis. It began with a bursting and subsequent deflation of the US real estate bubble; it continued with the insolvency of major banks and institutions; it was underpinned by a swollen and swelling budget deficit; and it was topped off with debt-strapped US households. There is more, but one would think that’s enough of a crisis to spur action.

Actually, it was.

Only the action was that of perpetuating the culture and policy which led to the crisis in the first place. So here we sit, somewhat in wonder and amazement of what Jack described so well in Currency Currents this week — here and here.

I say somewhat, because I am less and less surprised at the gall of the elites who dictate policy not for the sake of the US but for the sake of perpetuating their legacies of influence and wealth accumulation. And I am more and more disappointed that voters seem incapable of doing their part to rid the establishment of these types.

Although progress is being made on the latter point, a combination of establishment media and power men continue to succeed in pulling the wool over the people’s eyes. As to the people; they’ve grown dependent, to varying degrees, on the government doing something (e.g. cash for clunkers, stimulus, quantitative easing) to maintain an artificial prosperity (e.g. accumulation of stuff, rising asset markets).

A second crisis has descended upon the global financial system, this time centered in the Eurozone. And, not surprisingly, they’re going to let their crisis go to waste as well. In fact, as of this week, the world seems willing to help them fritter this opportunity away. Before long the IMF will get involved, more or less; and then the ECB will take it upon themselves (perhaps also with a direct plea to the Federal Reserve) to prop up the financial system.

I’m not sure I have much confidence in policymakers responding to crisis in a reasonable and responsible fashion; heck, they can barely even pretend to promote the type of responsibility and accountability necessary to sufficiently strengthen our economic system.

There is, though, one thing that can turn this around:

The market.

The only problem is that the market doesn’t particularly care how painful the cleansing process feels; a cleansing will eventually happen, regardless of how hard and long policymakers work to prevent it.

But when will we know the market has won?

Tough to say. Perhaps an early indication will come from general sentiment, i.e. the population’s refusal to accept continued monetary fluff as a solution to our economic ills and realization that said fluff is the underlying cause of our most serious economic problems.

Many readers, at this point, would ask: how do we invest our money in said environment?

A couple things:

  1. If investors continue to accept the monetary band-aids, risk appetite should stay firm; and investments in risk assets like stocks and commodities and risk currencies are the place to be.
  2. If investors begin to shun the monetary fixes despite continued pressure from monetary authorities, perhaps gold is the best place to be invested as it a) can compete in a low/no-yield environment, b) possesses an anti-government/anti-fiat appeal, and c) has adopted a bit of risk appetite appeal lately. (In fact, Jack put on a new trade this Tuesday in his Options Predator newsletter which targets gold; it’s up 20% in just four days! And it’s no fluke – see for yourself how successful Jack’s trading has been …)
  3. If investors shun the monetary fixes and policymakers begin to abandon their status-quo, then we likely see a firmly deflationary environment take hold; in which case it makes sense to be out of risk assets; US dollars will likely be the best investment, at least to start.

Ultimately, we need to be responsive to the shifting sands. Policymakers are not going to easily let go of their current strategy because they so very much fear deflation. That means markets likely aren’t going to give in without new and major developments (disappointments) in the economic data and, consequently, market sentiment

In other words, we should be open to a potential market crash, but we probably shouldn’t expect one yet.

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April 23, 2011

Good Friday!

Filed under: Business — Tags: , — admin @ 12:35 am

But not good for forex trading!  Central banks are closed around the globe so liquidity is absent from the market.

I would avoid trading today even though the forex market is open, unless you want to line your broker’s pocket!

Happy Easter to those who celebrate it! 

none

April 22, 2011

Ugly Buck-ling Makes the Dodos Look Good.

Filed under: Currency — Tags: , , , , , — admin @ 2:24 am

Quotable

You’re sound-byte-mining quote of the day comes from Jimmy Rogers discussing agriculture …

“In America– one of the agricultural states the average age of farmers is 58 years old … in ten years, if they’re still alive, they’ll be 68.”
                                  Jimmy Rogers

Commentary & Analysis
Ugly Buck-ling Makes the Dodos Look Good.

Maybe the European Central Bank hikes interest rates again as soon as June.

Maybe the US Congress will continue to butt heads on deficit reduction plans.

Maybe the Federal Reserve will resort to some new form of economic stimulus, aka QE3.

Maybe investors expect affirmation of the Fed’s accommodation ad infinitum now that Ben Bernanke has agreed to do 4 post-FOMC “media briefings” each year.

Maybe all is right (or will be made right) in this world and there is no reason to be scared of any risk assets.

Whatever the reason, the US dollar is clearly the big loser right now. Besides potential risks to the global economy, there are no hints that anything driving the dollar lower will change substantively anytime soon. So why not place your bets while the odds are still in your favor, right?

The euro has made a strong move after a big down day to start the week; it’s now at new 15-month highs. The pound has done similarly.

GBPUSD Daily: after testing its 50-day moving average earlier in the week, the pound is breaking convincingly above resistance. (The fact that the Bollinger Bands have narrowed also indicates a potentially powerful breakout move.)

GBPUSD Weekly: there is about 500 PIPs upside potential before the next important resistance level comes into play. That level is about $1.70 which is the high mark for the pound since the financial crisis-induced collapse sent it reeling from $2 to $1.35 in a mere 6 months time.

The pound has been relatively suppressed versus other currencies for good reason. But with the way the US dollar is looking, there seems to be good reason to expect pounds at $1.70 soon.

Versus the euro, however, the pound has seen a slight advantage since 2009. The downward sloping trend shows that. But it also shows the euro is working to win back favor as EURGBP has broken above the upper bound of that range:

If you like the idea of ECB rate hikes, think the risk of Eurozone periphery default or bailout or restructuring is overplayed, then long EURGBP might be your horse.

If you’re worried about Greece et al, then perhaps GBPUSD is a more comfortable bet for you.

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