Month: December 2012

By MoneyMorning.com.au

If you want to send a roomful of 100 wealth managers into an icy chill, have Russell Napier address them. This is exactly what happened at Citywire’s Smart Beta retreat at the Four Seasons Hotel in Hampshire recently.

Napier’s presentation, ‘Deflation in an Age of Fiat Currency’, is thought-provoking, and the precise polar opposite of investing as usual. A wry and picaresque speaker, he starts with some conclusions. Among them:

– To reach record lows [akin to those on offer in 1921, 1932, 1949 and 1982], US equities will have to fall by more than 60%.

– Central banks are straining to produce inflation, and developments in emerging markets (i.e. China) suggest a deflation shock is now likely.

– The capital exodus from China is disrupting the creation of inflation.

– In the search for yield, cash is trash ‘so now is the time to own cash’. (This is an example of his dry contrarianism.)

– US Treasuries could repeat their 83% price decline of 1946-1981.

US Stocks Aren’t Cheap

US stock markets aren’t cheap, not by a long chalk. Napier, like us, favors the 10-year cyclically adjusted price / earnings ratio, or CAPE, as the best metric to assess the affordability of the market. Unlike the traditional P/E ratio, CAPE smooths the near-term volatility by taking a 10-year average.

At around 21, the US market’s CAPE is near the top end of its historic range. The S&P 500 stock index currently trades at a level of around 1400. Napier believes it will reach its bear market nadir at around 450, driven by a loss of faith in US Treasury bonds, and in the dollar, by foreigners.

The growth of the Treasury bond market coincided with Baby-Boomers, Medicare and Social Security. Its death will be triggered by falling demand for Treasuries from emerging economies.

And it seems this rollover in the US Treasury market is already under way. Foreign central bank purchases of US Treasuries have been in decline since 2009:

As Napier points out, this coincides with a disturbing decline in the growth rate of China’s foreign reserves.

The Western Debt Crisis

In our view, investors’ fortunes will depend on how they survive the bear markets to come. I use the term ‘bear markets’ in the plural because it strikes us as almost a certainty that a grotesque bear market in western government debt is approaching. (If we knew the precise timing we’d already be on the beach.)

And if western government debt craters (pick your poison: US, UK, euro zone, Japan…they all look appalling), stock markets will not be far behind. It is inconceivable to us that equity markets could simply ignore a savage sell-off in the risk-free markets of the world.

Remember, though, bear markets are not necessarily to be feared. Provided one can survive them, they bring opportunities to create significant wealth. But this is not automatically a rapid process.

As Marc Faber writes in his introduction to Napier’s excellent book, Anatomy of the Bear: Lessons from Wall Street’s Four Great Bottoms:

‘Conventional wisdom has it that great market bottoms, which offer lifetime buying opportunities, occur quite soon after devastating market crashes. But . . . great bear markets have long life-spans. . . At its 1921 low, the Dow Jones Industrial Average was no higher than it had been in 1899, 22 years earlier…’

Sobering stuff indeed.

Tim Price
Contributing Writer, Money Morning

Publisher’s Note: This article first appeared in Sovereign Man: Notes From the Field

From the Archives…

Now it’s the Turn of These Small-Cap Stocks to Rally…
31-11-2012 – Callum Newman

Why It’s Possible to Buy AND Sell This Market
30-11-2012 – Kris Sayce

William Knox D’Arcy: The Greatest Australian You’ve Never Heard Of
30-11-2012 – Callum Newman

Why I’m Bullish on These Beaten-Down Stocks
28-11-2012 – Kris Sayce

Natural Gas to Rule the World
27-11-2012 – Dr. Alex Cowie

Beware the Bear in the US Market

By Central Bank News
    Peru’s central bank held its monetary policy reference interest rate unchanged at 4.25 percent, as widely expected, as inflation has continued to decline and is now within the bank’s target range.
    The Central Reserve Bank of Peru (BCRP), which has held its rates steady since April last year, said it expects “this trend to be maintained in 2013, with inflation gradually converging to 2 percent.”
    The central bank targets inflation of 1-3 percent and its president, Julio Velarde, recently said inflation should remain mild in December, with the rate ending this year around 2.8 percent and the declining further to around 2 percent in 2013.
    Velarde also forecast that the economy is expected to grow around 6 percent in 2013, similar to 2012. In 2011 Peru’s Gross Domestic Product rose 6.9 percent.

    Peru’s inflation rate slowed to 2.66 percent in November from 3.25 percent in October due to a decline in the cost of perishable foods, reversing earlier price rises.
    Peru’s GDP expanded by 2.2 percent in the second quarter from the first for an annual growth rate of 6.1 percent, the same as in the first quarter and one of the highest growth worldwide on the back of investments in infrastructure and mining projects.
     The central bank said economic growth had stabilized around its long-run sustainable level but activity linked to export markets were weak.

    www.CentralBankNews.info

At the 5pm New York close of business, the USD/CHF Currency Pair’s current and high low prices for the trading day are:

USD/CHF Current Forex Prices:

Bid (Buy) Price = 0.93226

Ask (Sell) Price = 0.93256

Today’s USD/CHF High Low Levels:

Today’s High = 0.93392

Today’s Low = 0.92559

Foreign Exchange Currency trading and trading on margin carries a high level of risk.

By The Sizemore Letter

Victory for Big Tobacco investors

I like the occasional cigar after a hard week at the office, though I can hardly call myself a connoisseur.  And I’ve always been impressed by experienced smokers who can smoke their cigars down to a perfect ash without it crumbling off and landing in their laps.  I’ve seen ash still perfectly intact at 2-3 inches.

That’s impressive.  Though you’d never think for a moment that it was sustainable.  Eventually, the ash will break and fall to the floor.

This is how I feel when I look at tobacco stocks today.  And I say this as a long-time bull in sin stocks in general and tobacco stocks in particular.  Some of the best investments I have ever made have been in tobacco stocks.  But at current prices, I prefer to sit in the no-smoking section.

Over the past month, dividend-focused sectors such as utilities, MLPs and REITs have all trended down as investors worry about higher dividend taxes coming in 2013.  Yet Big Tobacco continues to drift higher like a smoke ring (another party trick I was never able to do).

Something is amiss here.  Tobacco is a zero-growth business.  Your only realistic source of return is from the dividend.  I would go so far as to say that tobacco stocks are the most-dividend-focused stocks of any sector or subsector.

I understand the appeal of tobacco stocks.  They are a defensive consumer staple and they represent stability in a volatile market.  And in a world where bonds yield less than 2% and savings accounts yield nothing, a 3-5% dividend can seem pretty attractive.

Yet the same arguments can be (and are) made of REITs and MLPs, and these also have far better potential for capital gains.  If investors are concerned about the fiscal cliff and dividend taxes, then they should be selling tobacco stocks along with their utilities and other income-oriented stocks.

Tobacco stocks are also shockingly expensive. Altria (NYSE:$MO), the maker of Marlboro among other brands, currently trades at 17 times earnings—significantly higher than the broader S&P 500.  Philip Morris International (NYSE:$PM) has a significantly lower dividend yield than chip juggernaut Intel (Nasdaq: $INTC).

Remember, we’re talking about tobacco here.  The substance that requires warning labels and gruesome graphics on the side of package…and a substance that fewer people use every passing year.  Tobacco stocks should trade at a discount to the broader market, and they generally do.  In fact, this chronic underpricing has been a major driver of returns over the past several decades.  But without the underpricing, I cannot consider tobacco stocks worthy of purchase.

Investors hunting for yield would be better off buying a basket of quality MLPs and REITs or even a dividend-focused ETF like the Vanguard Dividend Appreciation ETF (NYSE: $VIG).

Are tobacco stocks about to go up in smoke?

Maybe, maybe not.  As long as yields stay low, tobacco stock prices could stay high.  Still, the divergence from other dividend-focused sectors is a major red flag for me.

My recommendation: If you do not already own tobacco stocks, stay away.  If you do own highly-appreciated tobacco stocks, consider selling.  Or at least tighten your stop losses.  Sizemore Capital has sold most of its tobacco positions, but we have two long-term positions in Altria and Philip Morris International that we have held for multiple years.  But even on these positions, we are tightening our stop losses and preparing to sell at the first sign of weakness.

SUBSCRIBE to Sizemore Insights via e-mail today.

The post Tobacco Stocks: Watch Your Ash! appeared first on Sizemore Insights.

By Central Bank News
    The Central Bank of Egypt (CBE) held its benchmark overnight deposit rate steady at 9.25 percent, as expected, saying the current rates were appropriate as there were both upside risks to inflation and downside risks to economic growth.
    The CBE, which has held its rate steady since November 2011, said the rise in October inflation was largely driven by a sharp rise in the prices of butane gas cylinders on the back of bottlenecks in distribution channels and such bottlenecks and distortions in distribution channels posed an upside risk to inflation at a time that international food prices were less likely to rebound.
    Headline inflation rose to an annual rate of 6.7 percent in October from 6.22 percent in September while core inflation rose by a monthly 1.18 percent due to sporadic rises in food prices.
    Egypt’s economy, measured by the Gross Domestic Product, rose by an annual rate of 3.3 percent in the second quarter, down from 5.2 percent in the first quarter, on the back of a recovery in the construction sector but continues to be suppressed by the weak manufacturing and tourism sectors.
    “Looking ahead, the current political transformation may continue to have ramifications on both consumption as well as investment decisions, adversely weighing on key sectors within the economy,” the CBE said, adding the global recovery faced downside risks which affect the domestic economy.

    www.CentralBankNews.info

By Central Bank News
    The Bank of England (BOE) held its Bank Rate steady at 0.5 percent, as expected, and maintained its current target for purchasing assets at 375 billion pounds.
    The BOE, which has held its rate unchanged since March 2009, did not comment on its decision but minutes from today’s meeting of its Monetary Policy Committee will be published on Dec. 19.
    The asset purchase program, also known as Quantitative Easing, was last expanded in July but was completed at the end of last month and members of the MPC voted against expanding it at their November meeting as it was seen having little effect on economic growth.
    The bank is currently purchasing high-quality private sector assets under the Funding-For-Lending-Scheme with the U.K. Treasury in order to help stimulate growth.
   The U.K.’s economy expanded by 1.0 percent in the third quarter from the second, helped by spending from the Olympics, but is expected to remain weak this quarter. On an annual basis, the economy contracted by 0.1 percent in the third quarter after 0.5 percent contraction in the second.
    Headline inflation jumped to 2.7 percent in October from 2.2 percent, above the BOE’s 2.0 percent target.
    www.CentralBankNews.info  

By Central Bank News
    The European Central Bank (ECB) held its benchmark refinancing rate steady at 0.75 percent, as widely expected, and said it would continue to provide commercial banks with a full allotment of funds for as long as necessary and at least until July 2013 as this year’s weak economic activity is expected to extend into next year.
    The ECB, which cut its refinancing rate in July, also again revised downwards its economic forecasts for the 17 nations that share the euro currency and first expects a gradual recovery later in 2013.
    For 2012 the ECB expects the area’s Gross Domestic Product to shrink between 0.4 and 0.6 percent, down from 2011’s expansion of 1.4 percent and slightly below its previous forecast for a contraction of 0.4 percent.  In 2013 the economy could shrink by 0.9 percent or expand by 0.3 percent, a downwards revision from September when it forecast growth of 0.5 percent.
    In 2014 the euro zone’s GDP is forecast to expand between 0.2 and 2.2 percent.
    “The Governing Council continues to see downside risks to the economic outlook for the euro area,” ECB President Mario Draghi said in a statement, adding these risks were related to the resolution of the debt and governance issues, fiscal decisions in the U.S. and geopolitical issues that could dampen sentiment longer than assumed and further delay investment, employment and consumption.
    Inflation in the euro zone, which fell to 2.2 percent in November from 2.5 percent in October, remains above the ECB’s target of below but close to 2.0 percent, and Draghi said he expects the rate to fall below 2.0 percent next year. Expectations are firmly anchored and in line with the ECB target.
    The euro zone’s economy has been hard hit by the sovereign debt crises in Southern Europe, and in the third quarter the GDP contracted by 0.1 percent from the second quarter, for an annual contraction of 0.6 percent, deeper than the 0.4 percent contraction in the second quarter.
    “Later in 2013 economic activity should gradually recover, as global demand strengthens and our accommodative monetary policy stance and significantly improved financial confidence work their way through to the economy,” Draghi said, adding it was essential for governments to further reduce fiscal and structural imbalances and continue to restructure the financial sector to sustain confidence.

    www.CentralBankNews.info

Chris Vermeulen – www.TheGoldAndOilGuy.com

Oil and gas along with their equities have been underperforming for the most part of 2012 and they are still under heavy selling pressure.

I watch the oil futures chart very closely for price and volume action. And the one thing that is clear for oil is that big sellers are still unloading copious amounts of contracts which is keeping the price from moving higher. Oil is trading in a very large range and is trending its way back down the lower reversal zone currently. Once price reverses back up and starts heading towards the $100 and $105 levels it will trigger strong buying across the entire energy sector.

Crude Oil, Energy & Utility Sector Chart – Weekly Time Frame

The chart below shows the light crude oil price along with the energy and utilities sectors. The patterns on the chart are clearly pointing to higher prices but the price of oil must shows signs of strength before that will happen. Once XLE & XLU prices break above their upper resistance levels (blue dotted line) they should takeoff and provide double digit returns.

Looking at the XLU utilities sector above I am sure you noticed the steady rise in the price the last couple of years. This was a result in the low interest rates in bond price and a shift from investors looking for higher yields for their money. Utility stocks carry below average risk in the world of equities and pay out a steady and healthy dividend year after year. So this is where long term investment capital has/is being parked for the time being.

Utility Stock Sector – Deeper Look – 2 Hour Candle Chart Time Frame

Last week I covered utility stocks in detail showing you the Stage 1 – Accumulation base which they had formed. The chart below shows the recent price action on the 2 hour candle chart and recent run up. You can learn more about how to take advantage of this sector here: http://www.thegoldandoilguy.com/articles/its-the-season-to-own-utility-stocks/

Oil and Gas Services – Daily Time Frame

This chart shows a very bullish picture for the services along with its relative strength to oil (USO) at the bottom. While the sector looks a little overbought here on the short term chart, overall it’s pointing to much higher prices.

Energy Sector Conclusion:

In short, crude oil looks to be trading in a VERY large range without any sign a breakout above or below its channel lines for several months at the minimum. But if the lower channel line is reached and oil starts to trend up then these energy related sector ETFs should post some very large gains and should not be ignored.

Get These Weekly Trade/Investment Ideas In Your Inbox FREE: www.TheGoldAndOilGuy.com

Chris Vermeulen

London Gold Market Report
from Adrian Ash
BullionVault
Thursday 6 Dec, 08:00 EST

The GOLD PRICE traded in a narrow range around $1691 per ounce Thursday morning in London, rising slightly from yesterday’s 1-month low.

Asian and European stock markets also ticked higher, as did US Treasury bonds.

Silver rallied to $32.78 per ounce after losing nearly 3% this week so far, but commodities more broadly slipped again.

“Risks to our [economic] growth outlook remain elevated,” said a widely-reported gold price forecast from investment-bank Goldman Sachs on Wednesday, “especially given the uncertainty around the fiscal cliff.

“[That] makes calling the peak in gold prices a difficult exercise. [But] the gold cycle is likely to turn in 2013,” says Goldman analyst Damien Courvalin, lowering his 12-month forecast to $1800 per ounce.

Looking at the commodities sector more broadly, “Supply-side fundamentals, demand elasticity and idiosyncratic risks will prove increasingly important in driving price action,” counters Hussein Allidina in his 2013 Commodities Outlook for Morgan Stanley.

“Under this lens, we favor exposure to gold/silver,” he says, forecasting an average gold price in 2013 of $1853 per ounce.

The US Federal Reserve “is set” to launch a fourth round of quantitative easing Treasury-bond buying, says a story on Reuters today, claiming that the Fed “[will] replace Operation Twist with $45 bln in new bond buys.”

Greece meantime was declared to be in “selective default” today by the Standard & Poor’s ratings agency, because Athens’ buy-back of debt from private holders – scheduled for two weeks’ time – will give those investors “less value than the promise of the original securities.”

Spending €10 billion, Greece will give the bondholders a maximum of €0.40 per Euro, according to the Wall Street Journal.

Ahead of the latest European Central Bank policy statement and press conference, the Euro stemmed Wednesday’s 1-cent drop at $1.3050, while the gold price for Eurozone investors bounced €5 from its 6-month low of €1290 per ounce.

The British Pound meantime held near a 1-month high of $1.61 after the Bank of England kept its interest rate at a record low of 0.5% for the 44th month running, and reconfirmed its quantitative easing target of £375 billion in government debt purchases.

“Positive US data [on Wednesday] pointed to some improvement in economic growth,” says  Commerzbank, “which did not bode too well for the gold price.

“Silver followed gold’s trail lower.”

“Now that the key support level of $1700 an ounce has been breached,” says David Levenstein in his daily note for South Africa’s Rand Refinery, “there is a possibility that technical traders may attempt to push prices lower in the short-term.”

“We’re actually seeing a fairly mysterious seller in the Asian time zone over the last week,” says Jeffrey Rhodes, CEO of INTL Commodities in Dubai, quoted by Emirates 24/7.

“We’ve seen some fairly large sell orders hit the market in the thinly-traded twilight zone” between London and Asian business, Rhodes says.

“Maybe that [push to lower prices] is a prelude to buying gold…Either way, many players are closing their books for the year – they’ve either made what they’ve made for the year, or they’ve lost and don’t want to lose anymore.”

“Over the past 4 years December has traditionally been a poor performing month for gold,” writes Moudi Raad at Swiss refinery group MKS, “averaging a decline of around 8% over that period.”

Since 2008 the New Year has then seen what Raad calls “a solid turnaround, and with central bank buying still on the cards and ETF holdings increasing for a 13th straight session yesterday there is demand out there.”

“There is some heavy selling by fund investors and leveraged money,” agrees Miguel Perez-Santalla, vice president for the Americas here at BullionVault, speaking to Reuters.

“But physical gold demand should benefit in the long run from the fiscal cliff after these short-term fluctuations.”

Adrian Ash
BullionVault

Gold price chart, no delay   |   Buy gold online at live prices

Adrian Ash is head of research at BullionVault, the secure, low-cost gold and silver market for private investors online, where you can buy gold and silver vaulted in Zurich for just 0.5% in dealing fees.

(c) BullionVault 2012

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.

Source: ForexYard

At FOREXYARD, we believe in keeping our clients prepared for potentially significant news events. As such, traders will want to pay careful attention to the US Non-Farm Payrolls (NFP), set to be released tomorrow, December 7th, at 13:30 GMT. As can be seen in the chart below, following a better than expected Non-Farms report last month, a strengthened US dollar resulted in the price of gold tumbling by more than $20 an ounce.

Don’t miss out on another opportunity to capitalize on market volatility!

Analysts widely agree that the Non-Farms report is the most significant news event on the forex calendar. With tomorrow’s figure forecasted to come in at 91K, well below last month’s 171K, the US dollar may take significant losses before markets close for the weekend. Any bearish dollar movement could result in gains for commodities and precious metals, including gold and silver. This is an excellent opportunity for forex traders to take advantage of potentially significant news, so don’t miss out!

Read more forex news on our forex blog

Forex Market Analysis provided by ForexYard.

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Disclaimer: Trading Foreign Exchange carries a high level of risk and may not be suitable for all investors. There is a possibility that you could sustain a loss of all of your investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with Foreign Exchange trading.