Month: April 2012

By MoneyMorning.com.au

Would you risk a lethal electric shock – so you could make a few hundred bucks?

It sounds like some sadistic Japanese game show. But thieves worldwide are doing exactly this.

You’d have to have rocks in your head, but ‘copper thieves’ are stealing copper wiring from electrical substations, transmission lines, and anywhere copper wiring is visible and unsecured.

There are plenty out there willing to risk certain death for some copper wire. This is very common now. But it doesn’t always go to plan. Just last week, a man in East Kelowna, Canada, took 50,000 volts instead of a carload of copper. Click here for the news report.

The problem is so big, enterprising folk are building businesses to help prevent copper theft. How you protect millions of kilometres of electrical infrastructure is beyond me.

The theory goes that the price of copper is so high that copper thieves can make a good wicket stealing it.

But this doesn’t add up. Let’s look at the numbers.

Copper has tripled in price over 3 years, but is still $8,546 / tonne. This means it is just $8.55 a kilo. Not that you’d get anything like that for second-hand copper – let’s say they’ll get $5 a kilo.

So if a couple of blokes wanted to rustle up $1000, they will have to cut down 200 kilos of copper cable…risking death by electrocution…and then have to load the stuff on to a truck…and then sell it.

It sounds like a lot of work. But we guess some people are desperate. Fortunately, there’s a much easier, legal and less dangerous way to make a buck from copper. I’ll explain how in a moment…

Copper Price Rebounds

After the copper price fell 6% in two months, it just turned up again sharply, gaining 5.1% in the last week.

What’s behind this?

The copper price got a dose of nitrous last week when the head of the US Federal Reserve, Ben Bernanke, gave his strongest hint yet that the next round of money printing (QE3) was on its way. He said:

‘We believe that the current monetary policy is appropriate, but that does not mean we will not take further measures’.

To seal the deal, the American economic growth figure for the first 3 months of 2012 came out on Friday night, and it was a shocker. Growth was the annual equivalent of just 2.2%, down from 2.8% for the 3 months before that.

This big drop will have Bernanke’s itchy trigger-finger heading for the digital version of the printing presses. Even just the prospect of this has already seen the value of the US dollar index fall 1.1% in a week. As commodities are priced in US dollars, commodity prices are rising.

Previous doses of Doctor Bernanke’s ‘monetary medicine’ have been bonanza times for speculators. Metal prices in particular have soared as punters played the metals markets.

Copper is a favourite market for punters because of its size. With annual copper production around 18 million tonnes a year, the copper market is worth about $170 billion annually. So it’s big and liquid. Enough for even the biggest hedge funds to have a crack.

So with Bernanke hinting that the game is back on, punters are already buying copper now.

Adding to this demand for copper is some genuine tightness in the market.

By this I mean that in the last few years, copper miners have struggled to keep up with the increase in demand, particularly the demand coming out of China.

Part of the problem is some of the world’s biggest copper mines are also some of the oldest. This means their glory years are fading, and maintaining production is getting harder.

Take Codelco (unlisted) for example. It is the world’s biggest copper miner, and supplies about 10% of the world’s copper.

It may be the biggest producer, but it recently had to buy copper from traders and other producers – just so it could meet its obligations to buyers.

When the giants are struggling, this is a clear warning bell that we are not likely to see any slack in the copper market any time soon. And where there are shortages – there are price rises.

China Set to Buy Copper Again?

One way of seeing the amount of slack in a metal market is to look at the amount of ‘inventory’, or metal stored in warehouses reported by the metals exchanges.

Sure enough, the copper inventory on the London Metals Exchange (LME) fell by 4.1% last week. But that’s just the latest in many weekly drops. Overall, copper inventories in London have in fact halved since last September.

This is in part due to the shortage of copper.

But it’s also down to China buying up all the copper they can get their hands on.

Chinese copper inventories have grown. You never really know exactly what they are sitting on, but commodity analysts, CRU, estimate they now have about 58% of the world’s inventory. This would translate to 3 million tonnes of copper.

Some fear that that China will use this huge stash to push the price down. But I doubt that. Copper is too important to their economy. It’s used at every level of industry and construction: in wiring of new buildings, wiring of public infrastructure like new train lines and roads, plumbing in home construction, manufacturing of electronics, white goods, electric vehicles, and the list goes on.

Everything China wants to achieve will depend on copper. Building a big stash is part of a long-term strategy. They can see the coming shortage and are making provisions. And think about it – who else do you know has a five-year plan?

And sure enough, despite quietly buying 58% of the world’s copper metal, the Chinese copper inventory has now begun to fall. Shanghai copper inventory fell by 3% last week.

It will be worth keeping an eye on copper in coming weeks as Chinese inventory levels are a good set up for further price rises.

This Copper Stock Had a 33% Gain in Four Months

It will also be good news for investors in copper stocks. I tipped a copper junior to Diggers and Drillers readers 20 months ago, and this is up 141% now. The beauty of investing in good small-cap copper stocks is they amplify the move in the copper price. Even just since the start of this year, copper has increased 11%, while the stock I tipped has gained 33%.

There’s more good news. All small-cap mining stocks tend to follow the copper price to a degree.

The Emerging Companies index (XEC) is mostly made of Aussie small-cap mining stocks, and it tends to follow the copper price around. This is because copper is used at all levels of industry, so it tends to predict the direction of global economic growth. And small-cap mining stocks track economic growth.

What’s interesting here is that copper has started moving up already, but the small-cap miners are yet to respond. You can see we had a similar situation in mid-December when copper got a head-start, and the small-cap miners took a few weeks to get the message.

If we see a repeat of this, then we may be on the cusp of the next leg up in the high-risk, but high-return, small-cap mining stock space. These are the kind of stocks I tip for Diggers and Drillers readers, so I’ll be keeping a close eye on this.

Dr. Alex Cowie
Editor, Diggers & Drillers

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By MoneyMorning.com.au

Humans have two common failings.

One is the belief that the time you’re living through is the most important period in the entire history of mankind.

The second is the failure to grasp and predict change. Or, put another way, your tendency to believe that things have always been “this” way, and always will be this way.

It’s only when you look back at history that you can see just how much things change. And when you do look back, it all seems so obvious. How could anyone not see what was going to happen?

Yet, at the time, it’s not so obvious.

For instance, if we look far back into history, in 239BC the Carthaginian Empire controlled much of the Mediterranean coast…

But just 139 years later, things had changed. The Romans controlled the Mediterranean…

And by the time the Roman Empire reached its peak, another 200 years later, it controlled 90% of Western Europe, and the entire Mediterranean basin.

Yet at any point between 239 BC and AD 116, most people would have had little understanding of the potential changes ahead and the impact on their lives.

But imagine if individuals at the time could have predicted the change. They could have used it to their advantage.

For instance, if a Roman businessman had predicted that Rome would need a fleet of ships to drive the Carthaginians from Sicily starting in 265 BC, he could have made a killing. It seems an obvious need – ships. After all, a stretch of water separates Sicily and the Italian mainland.

But until the First Punic Wars, the Roman Empire had only ever expanded over land. So there hadn’t been a need for a substantial navy. And so, it’s not surprising that boat-building entrepreneurs didn’t foresee the future need for ships.

But eventually the Roman war machine realised it needed ships. So it hijacked a Carthaginian ship and used it as the basis to design its own ships. A kind of ancient-world reverse engineering, if you like.

Small-Cap Investing is About Picking the Next Trend

There’s a reason we bring this up. The ability to predict and identify change is crucial to being a successful small-cap investor. Of course, it doesn’t mean you’ll predict everything. Only a God can do that.

And however good we may be at picking stocks, we’re certainly not a God.

But if you can anticipate some changes, odds are you’ll do very well from it. The questions are, what change and where?

Well, change happens in many places. It’s a mistake just to look in one place. That’s why we recommend you buy more than one small-cap stock for your portfolio. You can get exposure to a handful of opportunities, each of which is an agent of potential change.

If you do that, odds are you’ll eventually back a winner. And because winning small-cap stocks tend to rise by many multiples, you often only need one winner out of every three or four small-cap stocks you back.

Bottom line, looking for change before it happens is the backbone to small-cap investing. You can see that in the stocks on my recommended buy list.

In their own way, five of the six Australian Small-Cap Investigator punts are bets on change:

• Punt #1 and Punt #2 – Developed nations looking to diversify their energy needs away from the Middle East to new and underexplored regions
• Punt #3 – Exploiting a new form of natural gas using new technology
• Punt #4 – Looking to gain advantage as energy demand switches from polluting fossil fuels to greener fossil fuels… such as natural gas
• Punt #5 – The opportunity to profit as consumer entertainment needs change. As viewers move towards “pull” entertainment, and away from “push” entertainment.

Right now, we believe the African coast presents one of the best chances for speculative energy investors to make a big return… the coastline is huge, and much of it is almost completely unexplored.

But it’s not the only energy opportunity.

We’re also looking at others. We reveal more details on this in the next monthly issue of Australian Small-Cap Investigator.

Kris Sayce
Editor, Australian Small-Cap Investigator

From the Archives…

Why Graphite is the High Tech Commodity of the Future
2012-04-27 – Dr. Alex Cowie

Why Gold is Hands-Down the Best “Money” You Can Buy
2012-04-26 – Kris Sayce

12% Compulsory Super – Get Ready for the Government’s Next Tax Grab
2012-04-25 – Kris Sayce

Westfield – The Aussie Retail Stock That Could Make You Money
2012-04-24 – Shae Smith

Why Natural Gas Is Still My Favourite Resource Opportunity
2012-04-23 – Kris Sayce

Predicting Change – The Secret to Small-Cap Investing

By MoneyMorning.com.au

Apple Inc. (Nasdaq: AAPL) loves to think of lucrative new uses for other people’s bright ideas.

For instance, the original iPod wouldn’t have been possible without Toshiba’s innovative 1.8-inch hard drive.

And when Steve Jobs learned about Gorilla Glass in 2006, he convinced Corning to revive the largely unused technology so Apple could put it in the iPhone.

So it’s no surprise that Apple has been toying with yet another breakthrough technology.

It’s called Liquidmetal.

Liquidmetal is a family of metal alloys that combines a variety of metallic elements. It’s a technique that rapidly cools the mixture into a “metallic glass” with a distinctly different molecular structure than conventional metals. It becomes amorphous, as opposed to crystalline.

That amorphous structure is the secret behind Liquidmetal’s many remarkable properties.

Now imagine what Apple could do with a material that:

• Is five times as strong as aluminum and twice as strong as titanium;
• Is three times as elastic as ordinary metals;
• Is highly resistant to corrosion;
• Is highly resistant to scratching and wear;
• Has a fingerprint-resistant, glossy finish that needs no polishing;
• And can be blow-molded like glass or injection-molded like plastic.

And while most of the basic ingredients of Liquidmetal — zirconium, titanium, nickel, copper, and beryllium — remain the same, adjustments to the ratios and manufacturing process can customize the alloy for many different purposes.

Invented in 1992 as part of a joint project between NASA, the California Institute of Technology and the U.S. Department of Energy, Liquidmetal creates vast new possibilities – particularly in the hands of a company as innovative and resource-rich as Apple.

As NASA’s web page for spinoff technologies puts it:

“In the same way that the inventions of steel in the 1800s and plastic in the 1900s sparked revolutions for industry, [this] new class of amorphous alloys is poised to redefine materials science as we know it in the 21st century.”

The Story of Liquidmetal Technologies

The technology belongs to the aptly named Liquidmetal Technologies Inc. (OTC: LQMT), a company formed more than two decades ago to commercialize the new material.

In contrast to the promise of its technology, Liquidmetal is tiny. With no factory of its own, Liquidmetal enlists partners to manufacture customized parts for customers. It has fewer than 20 employees and its market cap recently slipped below $50 million. The stock has been trading below $0.50 lately and tends to be volatile.

And yet as the owner of the intellectual property, Liquidmetal appears to be sitting on a gold mine. Still, Liquidmetal’s attempts to commercialize its product met with mixed success until Apple came along.

Intrigued by Liquidmetal’s unusual properties, Apple made a deal with the company in 2010 to secure exclusive worldwide rights to use the alloy in consumer electronics products. Liquidmetal retains the right to license its technology to other industries, such as defense or medical.

“They have been working with Apple for a long time,” Drew Merkel, one of Liquidmetal’s biggest investors, told the Cult of Mac website back in 2010. “They were making prototypes, trying to land a big fish.”

Apple Senior Vice President for Industrial Design Jonathan Ive, whose enthusiasm for alternative materials and manufacturing processes is well known, is said to be particularly fascinated by Liquidmetal.

So far, not much has come of the relationship – Apple’s only confirmed use of Liquidmetal is the SIM card removal tool included with some versions of the iPhone.

But that’s likely to change soon.

What Apple Could Do With Liquidmetal

Apple would not have invested more than $20 million – that was just the upfront fee it paid Liquidmetal in 2010 – simply to build a better SIM card removal tool.

Recent rumours out of Korea have suggested Apple will use Liquidmetal to make the outer case of the iPhone 5, which is expected to launch in October.

But such possibilities were being discussed as far back as 2010.

“I think they’re going to make the iPhone out of it,” Dr. Jan Schroers, a former director of research at Liquidmetal who is now an Associate Professor of Mechanical Engineering & Materials Science at the Yale School of Engineering and Applied Science, told Cult of Mac. “It’s quite obvious from what Liquidmetal has done in the past and what the technology is capable of.”

Obviously a metal with exceptional strength and durability, not to mention a silky-smooth, smudge-resistant finish, would suit the iPhone 5 perfectly.

“The next iPhone needs to truly stand out from the crowd,” Canalys analyst Chris Jones told Wired. “A change in materials is a likely way to differentiate its form factor.”

Schroers said Liquidmetal could also be used to build remarkably thin, strong seamless frames for other Apple products, such as MacBooks, iPads or big screen displays. For that matter, it would make an ideal frame for the much-anticipated Apple iTV.

Apple could even etch its logo as a holographic image into the alloy. How cool is that?

Liquidmetal’s unusual properties also make it a good candidate for a wide assortment of other components, such as an iPhone antenna, parts of rechargeable batteries and laptop hinges.

A Waterproof iPhone 5?

But perhaps the most significant possible use of Liquidmetal in an Apple product is for waterproofing mobile devices such as the iPhone.

Last year Crucible Intellectual Property, the Liquidmetal subsidiary formed in the 2010 deal to work with Apple, filed a patent covering the use of the alloy as a waterproof sealant.

According to the Patently Apple Website, the patent says the process could be used in “a telephone, such as a cellphone, and a land-line phone, or any communication devices, such as a smartphone, including, for example, an iPhone. Other listed devices include an electronic email sending/receiving device or be a part of a display, such as a digital display, a TV monitor, an electronic-book reader, an iPad and a computer monitor.”

Apple itself had earlier filed for a patent on a different method for waterproofing mobile devices, so it’s clearly determined to add it as a feature one way or another.

To anyone who’s ever dropped their iPhone into a swimming pool, bathtub or toilet, such news will be welcome indeed.

And with Liquidmetal in Apple’s arsenal, a waterproof iPhone may be only the beginning.

“It is hard to predict what will come, when you leave such a technology to the imagination and creativity of Apple product development and innovation,” Dr. Atakan Peker, a former vice president of research at Liquidmetal, told Cult of Mac. “I won’t be surprised with some very interesting [Liquidmetal-using] products in the future.”

David Zeiler
Associate Editor, Money Morning (USA)

Publisher’s Note: This article originally appeared in Money Morning (USA)

From the Archives…

Why Graphite is the High Tech Commodity of the Future
2012-04-27 – Dr. Alex Cowie

Why Gold is Hands-Down the Best “Money” You Can Buy
2012-04-26 – Kris Sayce

12% Compulsory Super – Get Ready for the Government’s Next Tax Grab
2012-04-25 – Kris Sayce

Westfield – The Aussie Retail Stock That Could Make You Money
2012-04-24 – Shae Smith

Why Natural Gas Is Still My Favourite Resource Opportunity
2012-04-23 – Kris Sayce

Is Apple’s Bet on Liquidmetal About to Pay Off?

AUDUSD is facing the support of the upward trend line on 4-hour chart. As long as the trend line support holds, we’d expect uptrend to resume, and another rise to 1.0550 is still possible. However, a clear break below the trend line will indicate that a cycle top has been formed at 1.0474, and the uptrend from 1.0246 has completed, then the following downward movement could bring price back to re-test 1.0225 previous low support.

Daily Forex Analysis

Article by Investment U

In focus this week: A natural gas stock that’s going up, your granny’s growth stocks, bond ladders and the SITFA.

One way to play this turn around is liquefied natural gas (LNG) and the companies that service it. Barron’s mentioned KBR (NYSE: KBR).

There may seem to be no bottom to natural gas (NG), but there is. In fact, there are several gas stocks that can do quite well despite the industry suffering through near historic low prices.

But, according to Barron’s the bottom is already here for NG and several analysts are calling for higher prices by the end of the summer.

One way to play this turn around is liquefied natural gas (LNG) and the companies that service it. Barron’s mentioned KBR (NYSE: KBR).

KBR is an engineering and construction company whose projects are necessary for LNG infrastructure. They already have a pile of signed contracts for liquefaction facilities for LNG producers and Aaron Visse, of the Forward Global Infrastructure Fund, said in the Barron’s article that KBR is a stand out in what could be the reindustrialization of America.

LNG will be one of this country’s leading exports for many years to come. Producers are literally standing in line to get their liquefaction and export facilities up and running.

Citi Group says this stock should be trading at a multiple of 15, much higher than its current 10, and although the gas business is in price limbo now, it will change and KBR will be one of the big winners.

Definitely have this on your bogey board.

Granny Stocks

Some of the stocks your grandparents would have owned have been on a tear this year: Colgate Palmolive (NYSE: CL), Disney (NYSE: DIS), McDonald’s (NYSE: MCD), Kimberly Clark (NYSE: KMB). Most blue-chip and large-cap growth indices are up 10% and 15% this year.

The strange part of this scenario is that when our economy shows signs of struggling to grow, growth stocks do very well. This year is no exception.

Ned Davis Research was quoted in the Journal as believing that as this economy wallows in slow to no growth, the blue chip and quality dividend stocks should continue to do well. It’s like a split between the security of cash and the riskier returns of a better market.

This sector could continue to grow even if the market hits another slump. So if you’re planning on riding this one out in some granny-like investments, you’re on the right track.

One other name Barron’s mentioned was Nike (NYSE: NKE). Take a look at this one.

Bond Ladders

Finally, someone other than yours truly is talking about preparing income portfolios for when rates move up.

When rates hit zero it was painfully obvious that the rush to income of all kinds was the first step to a disaster of biblical proportions. The buying pressure on anything with any income has driven prices on bonds and packaged income products through the stratosphere.

But get ready, when rates go up it all must come down and it will be something to watch. One of the only ways to protect yourself against the inevitable drop in value in an income or bond portfolio is to ladder your bonds in one form or another.

MarketWatch ran an article last week about doing just that, laddering.

It’s quite simple, really. You buy one bond with about a two- to three-year maturity, one at about five to seven, one in the 10-to-12-year range, then a 15-year, maybe a 17, and a 20-year maturity.

The idea is to have some money coming due every so often to allow you to buy back into a rising interest rate market.

My idea is a little more conservative. Set up your ladder so you have several bonds a year coming due, not one every few years.

Why the multi-bond-a-year set up? When rates move up, and they will, it will not take a few years for the market value of bonds and income investments to drop; you do know that bonds and stocks drop in value when rates move up. Well, now you do!

So if you have three or four bonds coming to maturity each year, you will have lots of fresh money coming in to jump on the higher rates that will be available when rates move up.

A traditional ladder only returns principal every few years. You could very likely miss a buying opportunity.

Of course, if you’re buying more bonds to fill this ladder you want to buy fewer bonds in each position so you can spread your money around on a greater number of bonds. That’s a good thing. It forces you to diversify over many bonds and not hold too much in one place.

As safe as bonds are compared to stock you still don’t want to get too loaded up on one place. Always a good idea.

It isn’t a perfect solution, but it helps smooth out the rough spots that are certain to come.

The SITFA

This week it goes to China. The economic giant may have crossed the line this week in their quest to feed the huge consumer appetite in their country.

One of the most popular products now in China, Helen Keller glasses.

Yup, a blind person is the name sake of an eye glass company. That is a little strange. A spokesman for the company said it is unusual but Keller is a highly respected figure in China and people like the link.

Isn’t that’s kind of like naming a prosthesis company after a track star.

Oh well. See you all next week.

Article by Investment U

Article by Investment U

Todd Schoenberger recommends investing in just two stocks – Apple (Nasdaq: AAPL) and Exxon Mobil (NYSE: XOM). This is a very bad idea.

“Nobody ever got rich off of asset allocation.”

That’s what Todd Schoenberger, Managing Principal at The BlackBay Group, told Yahoo! Finance readers recently.

Instead, he advises, it’s much better to hold just two stock investments – specifically Apple Inc. (Nasdaq: AAPL) and Exxon Mobil Corporation (NYSE: XOM).

Exxon, after all, has $60 billion in cash at its disposal and Apple has $110 billion, more than enough to let both of them coast for some time. Similarly, they’re both stellar companies with impressive assets to offer investors… from Apple’s amazing stock price run-up over the years to Exxon’s steady dividend payouts.

But what he forgets is that there is no “sure thing” investment in life.

Sure, both companies have performed excessively well so far. But the past can only offer so much insight into the future – a tough lesson investors often have to learn the hard way.

I wonder if Todd was advising people back in 1999 that the only stocks they needed were Enron and RadioShack (NYSE: RSH)…

Even a well-educated, highly experienced professional can get it wrong now and again. I would suggest Todd pick up a copy of William Bernstein’s book The Intelligent Asset Allocator or Alexander Green’s bestseller The Gone Fishin’ Portfolio – based on Dr. Harold Markowitz’s Nobel Prize-winning Portfolio Theory.

Politics, Disasters, Errors and Lies

People have always wanted to believe in a sure thing, something to keep them safe and sound in every possible situation that might arise. It’s perfectly natural to crave that kind of security, but it’s also completely unrealistic in most areas of life, including – and possibly even especially – in the stock market.

History is filled with examples of people who desperately wanted to think otherwise, and ended up crashing and burning. Here are just some of the more recent instances:

• The dot-com bubble saw the Nasdaq swell to 5,048.62 on March 9, 2001, before crashing to 1,114.11 over a six-month span… all because everyone thought that technology stocks were going nowhere but up.

• Enron, an energy company that Fortune Magazine named the year’s most innovative company five years in a row, was attracting investors left and right before the turn of the century thanks to rapid growth and stellar financial results. But in 2001, it turned out the company had been severely cooking its books and, by the end of the year, Enron was declaring bankruptcy.

• The U.S. housing market was making people money hand over fist up through 2006 on bad government policies and equally poor public thinking. But by 2008, prices were sliding so severely that they took financial institutions and the rest of the economy down with them. Even today, six years after it peaked, the market hasn’t been able to recover, proving that prices can’t continue skyrocketing forever just because “they’re not making any more land.”

• For decades, Bernie Madoff offered people moderate but guaranteed positive returns through his investment firm, Bernard L. Madoff Securities LLC. Bull market, bear market: It didn’t matter. The gains were consistent, something that Hollywood stars, bigwig charities and even financial institutions ate up like candy. But in December 2008, the SEC charged the lauded businessman with running a Ponzi scheme, and everything unraveled, ending badly for just about everyone involved.

Sometimes a company can even inexplicably fail through no fault of its own at all. But regardless of why “sure-thing” investment opportunities have failed in the past, the bottom line is that they can – and you can be sure that some ultimately will.

The Solution to Uncertain Markets: Asset Allocation

Truly successful investors don’t just fill their portfolios with a bunch of random stocks that look and sound good. They instead carefully allocate their portfolios among a number of assets, or categories, including stocks, bonds, funds and cash.

That’s because smart investors know that no single investment or even investment class ever goes straight up. And they also understand that when one group goes down, another usually goes up and vice versa.

Here at Investment U, we explain asset allocation this way:

“Asset allocation means diversifying among different classes of financial assets. Sometimes investors think of this as just dividing their money between stocks, bonds and cash. But true asset allocation goes much further.

“Within the category of stocks, there are large-caps and small-caps, foreign and domestic, growth and value, etc. Then, within the bond category, there are governments and corporates, high-grade and high-yield, inflation-adjusted treasuries, mortgage bonds, etc. And the beauty of asset allocation is that it allows you to take these non-correlated assets (assets that don’t move in tandem) and combine them in such a way that you maximize your returns while minimizing risk.”

And that’s the most important thing to keep in mind here: minimizing risk. This is your retirement, your child’s education, your livelihood at stake. Don’t risk it on two “can’t miss” stocks.

As Alexander Green has written in the past:

“Asset Allocation is a Nobel Prize-winning strategy. No other strategy shares this seal of approval.

“Research demonstrates that Asset Allocation accounts for approximately 90% of investment returns, making it nearly 10 times as important as stock picking and market timing combined. There is no other investment strategy that can boast the same.

“The world’s most successful and respected investors swear by it. As Paul Sturm of Smart Money puts it, Asset Allocation is “a simple strategy that comes as close to guaranteeing long-term success as anything I’ve seen.”

“Its benefits are unparalleled: significantly reduced expenses, protection against inflation, maximized returns with minimal risk-the list goes on.”

No Todd, asset allocation isn’t a “get-rich-quick” scheme. But for people who can’t afford to lose their shirts on investments gone wrong, it’s the most time-tested, successful method out there.

Good Investing,

Jeannette Di Louie

Article by Investment U

Article by Investment U

There is concern that Spain will drag the rest of Europe into recession. But ultimately, the financial markets will force politicians to do the right thing.

The Eurozone is back in the news again and – needless to say – it isn’t good.

The problem is Spain. Unemployment is almost 24%. Among those under 25, it’s 50%. Last year, the budget deficit was 8.5% of GDP. Tax revenue is down sharply. And the IMF projects that this year’s deficit is going to be another stunner.

This is a much bigger problem than Greece… or Ireland… or Portugal. Why? Because Spain’s economy is more than twice as big as those three countries combined.

Germany and France want Spain to bite the bullet and follow austerity measures. But the Spanish government is acutely aware that its citizens don’t want austerity, they want growth. They want jobs.

There is concern that Spain will drag the rest of Europe into recession. Remember: Europe is about one-fifth of the world economy (roughly equal with the United States). The 27 members of the European Union are the world’s largest importer (excluding exports to each other).

So while politicians dither, the clock keeps ticking. And investors on both sides of the pond keep wringing their hands. They shouldn’t.

Yes, politicians throughout the West are famously spineless, afraid to act (and therefore offend some special interest group) and always ready to kick the can down the road, especially past the next election. But, ultimately, the financial markets will force them to do the right thing.

How can we be sure? Because it always happens, and it’s happening now.

Opinions and talk are worth about what you pay to hear them. But investment capital is precious. And it doesn’t stick around where it’s treated poorly.

Note that interest rates on Spanish government bonds have already pushed up to 6%. This is a warning shot across the bow. Spain well knows that it cannot afford to keep borrowing at 7% or higher. At that point, its deficit becomes immediately unsustainable.

The Lesson All Politicians Learn

Ultimately, markets force politicians to make the tough decisions. At last they can tell their constituents the truth: “We simply have no other choice.”

All politicians learn this in the end.

Bill Clinton’s most famous quote wasn’t “I smoked it, but I didn’t inhale” or “The era of big government is over” or “I did not have sexual relations with that woman, Miss Lewinsky” or even “It depends on what the meaning of the word ‘is’ is.”

As Bob Woodward reported in his book The Agenda, Clinton was astounded to learn that he couldn’t just take whatever executive action he wanted or pass populist legislation to stimulate the economy. The markets would tell him what he could and couldn’t do.

Or as Clinton put it, “You mean to tell that the success of the economic program and my re-election hinges on a bunch of ****ing bond traders?”

Ah, daylight at last.

I’m not saying Europe isn’t a mess right now. It is. I would certainly stay away from European banks or Spanish bonds or euro-denominated debt of any kind right now. But in the end, financial markets will force Europe’s politicians to act responsibly.

And that’s a good thing.

Good Investing,

Alexander Green

Article by Investment U

London Gold Market Report
from Ben Traynor
BullionVault
Monday 30 April 2012, 08.00 EDT

SPOT MARKET gold bullion prices held above $1660 an ounce during Monday’s morning trading London – holding on to gains from last week of 1.1% – while stock markets ticked lower, commodities were broadly flat and US and German government bonds gained as Spain continued to generate headlines.

“On the physical front [however] things were looking not as one might have hoped for [last week]”, says a note from Swiss bullion refiner MKS.

“There’s no support from the physical market,” one Hong Kong dealer told newswire Reuters this morning.

Prices for silver bullion fell this morning to $31.10 per ounce – 0.6% down on Friday’s close.

Gold bullion prices in Euros meantime hit their highest level in almost two weeks this morning, touching €40,474 per kilo (€1259 per ounce) as the Dollar made up some lost ground against the Euro.

Earlier on Monday, the US Dollar Index – which measures the Dollar’s strength against a basket of six other currencies – fell to its lowest level in almost a month, continuing last week’s slide.

The Dollar’s slide was compounded on Friday after preliminary gross domestic product data showed the US economy had slowed by more than expected in the first quarter of 2012, leading to speculation that the Federal Reserve might embark on a third round of quantitative easing.

“We don’t know whether there will be QE3,” the Hong Kong dealer said.

“If the economic performance continues to be good, then there will be a diminishing prospect for QE.”

“In the short run, you can have one or two weeks for the market to get excited about QE,” adds Dominic Schnider, Singapore-based head of commodity research at UBS Wealth management.

“If you look for QE, we are going to have a situation where prices will trend higher.”

The Spanish government is in talks to set up a “bad bank” scheme, which would see troublesome property loans taken of banks’ books and transferred to new asset management companies, the Financial Times reports.

Spanish GDP meantime fell by 0.3% in the first quarter of the year, according to official data published Monday. This is less than the 0.4% forecast by the Bank of Spain last week.

The government in Madrid forecasts that Spain’s economy will contract by 1.7% in 2012, before growing 0.2% next year. The government has set a deficit-to-GDP target of 5.3% for this year, and 3% for 2013.

By contrast, ratings agency Standard & Poor’s – which last week downgraded Spain’s sovereign rating from A to BBB+ – said last week it expects negative growth both this year and next, with the deficit-to-GDP ratio hitting 6.2% this year and 4.8% next.

“It’s likely [Spain’s government will] have to create more fiscal tightening,” says Citi economist Guillaume Menuet.

“That’s going to be counterproductive.”

S&P followed the sovereign downgrade on Monday by taking negative rating actions on 16 Spanish banks. Several banks had their debt ratings cut, among them Santander, while others were placed on CreditWatch negative, a move which often precedes a downgrade.

Despite the downgrades, Spanish 10-Year bond yields remained below 6% this morning, a level they breached for the first time in the Euro era last July, and above which they have traded at several points over the last month.

In France meantime, incumbent president Nicolas Sarkozy has closed the gap on his Socialist Party opponent Francois Hollande, according to a poll published Monday.

The Ipsos poll, for which voters were surveyed on Friday and Saturday, shows Sarkozy still lags Hollande, with only 47% of the vote ahead of this Sunday’s runoff.

“Sarkozy has moved further to the right,” says the Wall Street Journal, “repeatedly underlining his strong line on immigration and a pledge to strengthen France’s borders in an attempt to pick up the first round share of almost 18% achieved by Front National’s Marine Le Pen.”

“Austerity alone won’t help cut debt,” Hollande told his supporters at a rally yesterday.

“The head of the [European Central Bank] can also see [this]. They are starting to hear what we are saying.”

German chancellor Angela Merkel however said at the weekend “there will be no new negotiations on the fiscal pact”, referring to the Fiscal Stability Treaty agreed by 25 of the 27 European Union members, which states they will seek to bring their budgets into balance or surplus, with counter measures being triggered should they miss agreed targets.

Over in Greece, where voters are also due to go to the polls this Sunday, the Golden Dawn party – whose leader has been filmed making a fascist salute – may be set to enter parliament for the first time, Bloomberg reports.

In New York meantime, the difference between bullish and bearish contracts held by noncommercial gold futures and options traders on the Comex – the so-called speculative net long – fell 5% in the week ended last Tuesday, according to Commodity Futures Trading Commission data published late Friday.

Long positions fell by the equivalent of 9.4 tonnes of gold bullion, while at the same time short positions rose by the equivalent of 13.6 tonnes.

Ben Traynor
BullionVault

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Editor of Gold News, the analysis and investment research site from world-leading gold ownership service BullionVault, Ben Traynor was formerly editor of the Fleet Street Letter, the UK’s longest-running investment letter. A Cambridge economics graduate, he is a professional writer and editor with a specialist interest in monetary economics.

(c) BullionVault 2011

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

By The Sizemore Letter

Switzerland will always have a special place in the hearts of doom mongers.   For decades its franc has been the “go to” safe haven currency when the world got dicey.   The meticulous Swiss gnomes have always had a well-deserved reputation as prudent stewards of wealth—and a well-deserved reputation for discretion and privacy.  And importantly, their policymakers had little tolerance for inflation.

Investors with long memories will recall that the Swiss franc was the currency of choice in the 1970s for Americans looking to escape rampant inflation (and perhaps leisure suits and disco as well).  Outside of gold Krugerrands, few other asset classes offered much in the way of protection.

Like shag carpet and other novelties from the 1970s, Switzerland is popular again.  It’s easy enough to understand why.  With the world—and particularly Switzerland’s backyard of Europe—in a prolonged period of on-again / off-again crisis, the Alpine country is viewed as a refuge.

Consider the strength in recent years of the CurrencyShares Swiss Franc Trust (NYSE:$FXF).  As the European sovereign debt crisis really started to heat up last year, the franc almost went parabolic vs. the and euro.  Unfortunately, the strength of the currency was killing exports and destabilizing the Swiss financial system.  To the detriment of investors and traders who had been piling into the franc as a haven, the Swiss National Bank came down like a hammer to weaken the value of the franc.  Yet even after the move, many trust a devalued franc over a fragile euro or dollar.   I can’t say I that don’t understand.

There is a lot to like about Switzerland as an investment haven.  It is home to some of the world’s finest multinational companies, including Sizemore Investment Letter favorite Nestle (Pink:$NSRGY), pharmaceutical heavyweights Roche(Pink:$RHHBY) and Novartis (NYSE:$NVS) and engineering juggernaut ABB Ltd (NYSE:$ABB), which is the major competitor to Sizemore Investment Letter recommendation Siemens (NYSE:$SI).

Perhaps unfortunately, it is also home to two of the largest international banks in the world, UBS AG (NYSE:$UBS) and Credit Suisse (NYSE:$CS), two institutions that gave country quite a bit of heartburn during the 2008-2009 meltdown.

Investors looking for blanket exposure to Swiss stocks could consider the iShares MSCI Switzerland ETF (NYSE:$EWL).  It is a basket of Switzerland’s biggest and most influential companies.

A note of warning on this ETF, however.  If you buy EWL, you had better like Nestle, as the food and consumer products company makes up nearly a quarter of the portfolio.  Health care stocks collectively chip in 30 percent as well.  So, well over half of the ETF is investing in defensive (if not outright boring) sectors.    This is not necessarily bad, of course.  It’s just something to consider.

Nestle has been hit in recent years by rising commodity costs and the trend of consumers trading down to generic food products.  Even so, the company has a fantastic foothold in virtually every major emerging market country, and I consider Nestle about the closest thing to a “buy and forget” company available today.  It helps that the company pays a solid dividend of 3.5 percent.

Nestle recently made a splash by announcing that it would buy Pfizer’s (NYSE:$PFE) baby food business for $12 billion.  The purchase fits well with Nestle’s existing product lines, and it further strengthens its position in emerging markets.   Roughly 85 percent of the unit’s revenues come from emerging markets, and I would expect that number to only increase with rising incomes and livings standards.

On April 19, management announced that the company would be raising the dividend by CHF 1.95.  Expect to see more of this in the years ahead.  Nestle is not a “home run” stock, but it should be a steady producer for decades to come.

ABB also announced earnings in April, with mixed results.   Revenues grew by 8 percent  for the quarter , but new orders from China—one of ABB’s key markets—were down 35 percent.   ABB, like Siemens, is a fine company with great long-term prospects in building out the infrastructure that emerging markets need to rise to developed-world status.  But with budgets tight and markets jittery, the next year may prove to be challenging.

The Swiss banks, like their American and European counterparts, also face a rocky road ahead.  Regulators are squeezing risk out of the system and banks are shrinking their balance sheets and reducing leverage—all of which is good for long-term stability.  But it’s not good at all for bank profits.

Credit Suisse revealed late the month that earnings had improved over the last quarter but were down substantially from the first quarter of last year.  Profits were 44 million Swiss francs, down from 1.1 billion the first quarter of 2011.

Overall, I continue to like Swiss stocks in general and Nestle in particular.   But given the nonexistent yields and the SNB’s recent tendencies to aggressively lower its value, I’d stay away from currency positions in the franc.

Disclosures: Charles Sizemore is long Nestle.

This week – on the economic data front – is dominated by the realease of the US jobrapport and the industrial indicator, ISM.

Senior Strategist Ib Fredslund Madsen outlines this weeks most important events, tendencies and economic data.

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