Month: March 2013

By MoneyMorning.com.au

Today we’re at the end of another major era.

Let’s call it the ‘Columbian’ era – as in the Christopher Columbus era, where white European people can sail across the world and go places, do things and impose their will, whether they’re Spanish, Dutch, French, British, Danish, or whatever.

Of course, for the last 65 years of this period, America has been at the top. And what has kept America on top is the simple fact that the US dollar is the world’s reserve currency.

How did we get here? Let’s take a step back to World War I…

A Quick Tour of History

The British pound was pretty much the accepted currency all through the 19th century, you know since probably the Napoleonic Wars at least.

Then, World War I knocked the British on their tail in terms of spending lots of money and national prestige and kind of a European civil war, just a civil war in the sense that white Christian nations were fighting each other, even though they spoke different languages, had different culture, etc.

So in the historical sense you had the British pound linger on, but after World War I the US dollar was suddenly looking good, too.

Now fast forward to 1945. We were the victorious power after WWII, we had the monopoly on atom bombs, we had B-29 bombers to deliver them, we had a navy that crossed the whole world, our industrial base was uniquely intact, we had lots of money, and lots of gold in Fort Knox.

The rest of the world was blown up, destroyed or completely undeveloped. For instance, back then if you looked at the Middle East, it was just desert. If you looked at Latin America, it was predominantly an area of trees, jungles and mountains.

The US was on top and everyone accepted it.

Today, we’re nearing the end of that era. Where now there is real competition between, as Niall Ferguson puts it, ‘the West and the rest’. The rest of the world has decided that they like Western science, Western medicine, and certain aspects of Western business and accounting methods.

They don’t necessarily like Western culture. They’re not enamoured with democracy, with Hollywood; with the drug culture and the TV violence and Madonna and Lady Gaga kind of stuff. They don’t need that part of us, but they do like the science and the medicine and the technology and as they adopt these things the gap between the West and the rest is getting narrower and narrower.

Enter China

Okay, now if you are China, you are 1.3 billion people strong, you are highly nationalistic, and you have a very, very, very long historical memory of everything, every slight, every insult that China and the Chinese people have ever suffered going back 1,000 years. Naturally, you think strategically because all of your smart kids grow up reading Sun-tzu and talk about this stuff.

So if you are the Chinese and you’re looking at this world and you see yourself as a rising power, a power in ascendancy: now what?

Okay, we had the pound, we have the dollar, now what do we have? Is the world going to be run by Russian rubles? Not really. Russia can be run by Russian rubles, perhaps, but the system behind it is too weak to support the world’s reserve currency. How about the euro? Well, Europe speaks for itself. It’s a disaster.

Every day we wake up ready to read the EU’s obituary. It won’t be a Latin American currency that dominates the world. What, the Brazilian real? I doubt it. No African currencies, no Middle Eastern currencies.

So what’s left? The Chinese renminbi? Do you want the yuan to be the world’s reserve currency?

Well, think like a Chinese. If you’re China do you want to have your currency be the world’s reserve currency? It’s tempting, very tempting, but the Chinese are cautious people. So in terms of what system is out there, what would the Chinese like to use? All of this is prefatory to the point I want to make.

The New Global Currency Market

What the Chinese seem to like are these things called special drawing rights, or SDRs, created by the International Monetary Fund in 1969. Special drawing rights are basically a basket of monies, plural: the dollar, the euro, the yen, and the pound sterling.

One thing that hasn’t been part of an SDR in 40 years is gold, but international regulators are set to upgrade gold to what’s called a Tier 1 banking asset; gold will back bonds and loans and depending on the rules, be a basis for fractional banking.

Now in a sense it’s back to the future, because the world relied on the gold standard until the 20th century when they went off it to finance modern wars and stuff.

So anyhow, the IMF’s next major revision of the SDRs is scheduled for 2015, so if you are China – indeed, think like a Chinese – what are you doing for the next two years? You are accumulating as much gold as you possibly can in the Middle Kingdom, as many tons as you can import and mine.

You’re not bragging about it. You’ll publicly report the absolute minimum amount of information that you’re required to under international treaties and obligations. You’ll even go as far as to boldly deny any large accumulation. You’re not going to tell the world that you’re buying gold because then everybody will bid the price up and it’ll cost you more.

You’re going to buy as much gold as you can so that in 2015 when the IMF revises the SDR basket for accounting purposes, you can say, ‘We’ve got ‘XX’ thousand tons of gold, and by default or by de facto our Chinese currency is the strongest currency in the world.’

The yuan won’t be the reserve currency, but a major component of the SDR. And the SDR will now be the backing of the world’s reserve currency – along with a gold component that could come sooner than later.

By 2015 the global monetary system as we know it will be very different. The US, Europe, China will have the three dominant paper currencies in the SDR, and, more importantly everybody’s going be looking at everybody else’s gold holdings.

More tomorrow….

Byron King
Contributing Editor, Money Morning

Join Money Morning on Google+

From the Archives…

Can This Indicator Predict The Dow Jones Next Move?
16-03-2013 – Kris Sayce

Seven Situations to Watch in the Pacific Currency War
15-03-2013 – Dan Denning

Stock Market Warning: Next Week Could be a Blood Bath
14-03-2013 – Murray Dawes

REVEALED: One Opportunity to Escape Your Mortgage
13-03-2013 – Nick Hubble

UK Property: How You Can Buy a House For Less Than 250 Grand
12-03-2013 – Dr. Alex Cowie

By MoneyMorning.com.au

Yesterday was the first day of the Hong Kong Mines & Money conference.

After the reports of fairly morose atmospheres at the other two big global mining conferences held round this time of year – the Prospectors and Developers Association of Canada Conference (PDAC) and the South African Indaba conference – I’m happy to say the mood has been bullish.

The turnout has been strong, with about 4,000 here.

The venue is pretty impressive, with sweeping views of the bay. Hong Kong is in full flow too. Rather than get a cab, I walked an hour to dinner with friends earlier to get a view of the bustle on the streets. My limited impression of Hong Kong is one of plenty of economic activity. Property prices have certainly been good round here. One guy I heard about had paid $2 million for a small apartment.

The View from the Gold Miners

Eric Sprott was the big draw card as the keynote speaker today, though the CEO of Newcrest, Greg Robinson, opened up proceedings. His views on gold were bullish, as they would be, and he hit some of the points I made in my speech the day before.

He pulled out a few other cool facts. For instance, I didn’t know that half of the money spent in exploration globally last year was spent looking for gold. And with very little result. No one is finding big deposits any more, no matter what they spend. So future supply will be hamstrung. Much higher gold prices will be needed to stimulate future supply.

As for production costs, they have soared 256% in ten years:

According to Newcrest’s Greg Robinson, the industry is ‘acutely aware of it’. Hopefully they’ll pull their finger out and do something about it.

On that topic, I weighed in on this after a later talk given by ‘mining associates’ who reckoned the reason costs have soared so much for gold is the drastically falling ore grades the gold industry is chasing in the name of bigger production volumes.

Low grade is expensive to mine, to truck, and to treat. He reckoned that’s why the majors steer clear of gold – it’s so hard to control costs.

Eric Sprott drew a decent crowd for his talk, which focused on precious metals of course. He covered a ton of stuff, starting with a look at debt at the sovereign level, and kicked off with a quote from Mark Carney, the Bank of Canada chief:

‘The Global Minsky moment has arrived. Debt tolerance has decisively turned. The initially well-founded optimism that launched the decades-long credit boom has given way to a belated pessimism that seeks to reverse it.’

The shenanigans in the Cypriot banking system are the perfect backdrop to all this. Sprott reckoned the traders with a short position on gold will be in pain given gold has moved $30 against them in the last few weeks.

With bank runs in Europe possible, he emphasised, ‘having money in the banks – a highly leveraged counter-party – is a risk’. The troika (EU, IMF, and ECB) would do all they could as, ‘No one wants the first domino to fall,’ – but options are running out.

By the way, the ECB has pumped $1.2 trillion into the European financial system in the last few weeks via bank swaps apparently. I must have missed the memo on that one. Clearly there is some trouble brewing.

As for Germany repatriating its gold from the US: How can it take seven years to repatriate 350 tonnes, when China can import that much every six months? Just maybe it’s because the US doesn’t have Germany’s gold…

Some Other Investment Angles

As always, Sprott loves silver. The supply of investible silver is three times bigger than gold, but investors are buying 50 times more than gold according to the US Mint website…so at some point this will have to translate into a supply crunch.

In the 1980′s, Volker admitted that in reference to the gold run of the 70′s ‘the biggest mistake we made was not controlling the gold price’. Sprott expects that the gold price is being similarly managed today to create the illusion of recovery, when nothing could be further from the truth. During Barack Obama’s presidency, the number of food stamp users has jumped form 20 million to 47 million, or 15% of the US population.

As for gold stocks, he doesn’t doubt they’re immensely cheap, but thinks we need to see a sustained move in gold for gold stocks to follow suit. Gold above USD$1,700 would be a good start.

A big theme in the conference is the novel ways of financing the mining sector. With equity hard to come by, two new players are moving in: private equity, where private money buys a company lock stock and barrel, finances it, and turns it around; and the other is royalty streaming – where private money finances it in return of a cut of the product for a long period. There’s more talk about this tomorrow, so I’ll hold back on it until them.

There was a great panel debate about China’s economy, mostly held in Cantonese by Chinese bankers, so I listened via translator. It was pretty interesting seeing it from their eyes. This is something I’ll cover in the next issue of Diggers & Drillers.

I’ve spoken to a dozen companies today, and need to run through all their details when I get back. There is plenty of new fodder to run the ruler over.

One seminar that was pretty cool was on Myanmar, formerly Burma, which is taking off now it’s opening up. Apparently if you want to make a quick buck on property, you should go and check it out – its property market grew at 47% in 2012! Not bad for a year’s work!

That’s it for me tonight. I’m stuffed. I’ll check in tomorrow.

Dr Alex Cowie
Editor, Diggers & Drillers
Join me on Google+

From the Archives…

Can This Indicator Predict The Dow Jones Next Move?
16-03-2013 – Kris Sayce

Seven Situations to Watch in the Pacific Currency War
15-03-2013 – Dan Denning

Stock Market Warning: Next Week Could be a Blood Bath
14-03-2013 – Murray Dawes

REVEALED: One Opportunity to Escape Your Mortgage
13-03-2013 – Nick Hubble

UK Property: How You Can Buy a House For Less Than 250 Grand
12-03-2013 – Dr. Alex Cowie

Source: Stockopedia – Stock Market Research Network.

With virtually no money to play with, Chancellor George Osborne has proposed a ‘fiscally neutral’ Budget, but there were a few point of interest for investors… 

• An abolition on the payment of stamp duty (0.5pc) from next April on the purchase of shares quoted on the Alternative Investment Market in a move designed to force capital into smaller companies. This should remove the distortion between investing in shares and spread-betting for those stocks and should help liquidity. Read more about this here. Marcus Stuttard, the head of AIM, has been reported as saying that stamp duty is a barrier to capital raising for small caps. Separately, the Government is already consulting on allowing investors to buy shares through ISAs. 
• All the major housebuilders have seen their share prices rise on news that the Government is set to pump more cash in to supporting buyers of new homes. The ‘Help to Buy’ shared equity scheme will see the Government lend up to 20pc of the cost of a new home to help potential buyers secure a deposit and mortgage. Buyers will have to stump up a deposit of 5pc before the Government steps in with interest-free loans of up to 20pc on homes worth less than £600,000. A second part of the scheme involves a £130bn mortgage guarantee scheme to help current homeowners move up the property ladder. 
• Shares in UK gas producer Igas Energy (LON:IGAS) jumped on news that the Government will introduce a new tax regime for shale gas development in the UK to promote early investment. 
• Confirmation that the Government will later this year sign contracts for future North Sea decommissioning relief, which Osborne said was already increasing investment there. 
• Ramp;D credit increased to 10pc – which is good news for innovators. 
• Shares in many brewers and pub groups have moved into positive territory on news that the beer duty escalator has been scrapped and a penny knocked off the price of a pint.

Stockopedia

Original Article: Budget 2013 – Initial reaction for investors

By www.CentralBankNews.info
   The U.S. Federal Reserve maintained its target for the benchmark federal funds rate and its monthly purchases of $85 billion of housing-related debt and Treasury bonds, saying the economy was returning to moderate growth, and while the labor market has improved, the unemployment rate remains elevated.
    Repeating previous statements, the Federal Reserve said it it expects that its “highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens.”
    This means that the federal funds rate will be kept at the current level of 0-0.25 percent for a least as long as the unemployment rate remains above 6.5 percent and inflation is projected at a maximum 2.5 percent between one and two years ahead, the Federal Reserve’s policy committee, the Federal Open Market Committee (FOMC) said in a statement.
    The U.S. headline consumer price inflation rate rose to 2.0 percent in February from 1.6 percent in January while the unemployment rate fell to 7.7 percent from January’s 7.9 percent.
    The FOMC’s latest forecast calls for the jobless rate to decline faster than forecast in December but  first hit the target of 6.5 percent in 2015 when the rate is forecast at 6.0-6.5 percent.

    The Federal Reserve said household spending and business fixed investment had advanced, and the housing sector had strengthened further since its last meeting but fiscal policy had become somewhat more restrictive.
    U.S. fourth quarter Gross Domestic Product was revised upwards to growth of 0.1 percent from the third quarter from an initial estimate of a 0.1 percent shrinkage. The annual growth rate in the fourth quarter was 1.6 percent, down from the third quarter’s 2.6 percent.
    In its latest economic forecast, the FOMC trimmed its 2013 GDP forecast to 2.3-2.8 percent, from a previous forecast of 2.3-3.0 percent, and the 2014 forecast to 2.9-3.4 percent from 3.0-3.5 percent.
     In 2015, GDP is forecast to grow 2.9-3.7 percent compared with December’s forecast of 3.0-3.7 percent.
    The U.S. unemployment rate is forecast to ease to 7.3-7.5 percent this year and then decline to 6.7-7.0 percent in 2014. The inflation rate, as measured by personal consumption expenditures, is forecast to remain below the Federal Reserve’s 2.0 percent target this year, then hit 1.5-2.0 percent in 2014 and 1.7-2.0 percent in 2015.

     www.CentralBankNews.info

By Bill Bonner

We came up to the family ranch in northwest Argentina about a week ago. But the “sustainable” power system we installed turned out not to be very sustainable. The juice was off.

So were we also cut off from foolish opinions. Spared nonsense news. We didn’t know what was happening in the big world of politics, economics and show biz. It was good while it lasted.

Our power system is a marvel of modern technology. It takes the sun’s intense, high altitude energy and turns it into nothing at all. Where does all that energy go?

It seems to defy the first law thermodynamics. No one seems to know. It is supposed to produce heat and electricity. In practice, it produces little of anything — unless you spend a lot of money and use a lot of fossil fuel to bring parts and technicians up from Salta City, about five or six hours away.

They fiddle with it. They replace parts. They tell us how bad the system is. And somehow, at great expense and aggravation, they get the juice flowing again.

Around the Fire

Thus were we cut off from news, opinion and claptrap for a few days… when our friends Doug Casey and John Mauldin arrived for a visit.

With time on our hands and no “news” in our faces we sat around the fire and talked.

“What do you think will happen?” was the subject, along with a few empty wine bottles, on the table.

“Well,” said John, “of course I don’t know any better than you do. But what I see is a long period in which the bug heads for the windshield, but doesn’t hit it.

“Japan shows us how long and how far you can run down this road without a major accident. And America is a richer country. And now we have plenty of energy. So we don’t have that to worry about. We could have a major bull market on our hands, as people switch out of bonds and put all this extra money to work in the stock market.

“Overall, I’m not pessimistic. This is not to say there won’t be a major disaster down the road. But it could be a long way down the road.”

“I don’t know either,” Doug added. “But I see this whole thing blowing up. I mean really blowing up. And it could happen any time. We all talk about the central banks and what they are doing as though they really were a fact of life. They’re not. They’re an embarrassment of modern life.

“People think the central bankers know what they are doing… or at least that they won’t make a major mistake. But they clearly have no idea. These are the same guys who thought the collapse of subprime debt was nothing to worry about. And now they’re doing things that used to be illegal and shameful. And they are going to lead the developed world’s financial system to a huge catastrophe.

“Of course, I’m optimistic too… because when that happens a lot of people will realize that we don’t need these central bankers manipulating things. A few years from now, I don’t think there will be any central banks. And that’s a good thing.”

“I’m with you guys,” we joined the discussion. “Deleveraging has to end sometime. We’ve been steering toward Tokyo for the last four years — since Lehman Brothers bit the dust — with very little of the Fed’s money getting into the real economy.

“But at some point, we’re going to change course… and head for the pampas. It’s going to be the kind of “crack-up boom’ Mises wrote about. Or like Argentina in the 1980s. Prices went crazy as people tried to protect themselves from printing press money.”

Cui Bono?

Here in Argentina, what they don’t know about a financial crisis is not worth knowing.

“Everybody’s talking about how Cyprus stole money from its savers to pay off its lenders. That’s what Argentina did too. It froze bank accounts and forcibly devalued dollar accounts to pesos. But instead of ripping off savers for 10% of their money, like the Cypriots, the Argentines took 66%.

“Governments do not go out of business. They do whatever they have to do to keep the lights on and the payoffs flowing.”

Right now, we all agreed, the governments of the developed world are doing the same thing as Argentina and Cyprus — but in a more sophisticated form. Artificial and ultra-low interest rates penalize savers.

Who benefits? Lenders… bankers… and the zombies.

More to come from Finca Gualfin — where the power is back on!

Regards,

Bill

By Jim Nelson

Last week, the Fed released the results for the latest round of stress testing of 18 big U.S. banks.

These tests are supposed to show how low banks’ capital ratios would fall under their proposed plans for dividend hikes and stock buybacks under “severely adverse” economic conditions.

The Fed approved the capital plans of 14 of the 18 banks it tested.

It conditionally approved another two, as long as they resubmit their dividend and share buyback plans to the Fed by the end of the third quarter. These were JPMorgan Chase & Co. (NYSE:JPM) and Goldman Sachs Group Inc. (NYSE:GS) – two of the more aggressive dividend payers.

JPMorgan Chase will hike its quarterly dividend payment 15% and spend another $6 billion on share buybacks. Goldman Sachs hasn’t yet made its plan public.

Of the other 14 to get the green light, Wells Fargo & Co. (NYSE:WFC), American Express Co. (NYSE:AXP), U.S. Bancorp (NYSE:USB), Regions Financial Corporation (NYSE:RF) and Fifth Third Bancorp (NASDAQ:FITB) have already announced dividend hikes.

This is dangerous. In fact, I can almost guarantee you’ll lose money if you buy them now.

As I pointed out last week, these banks haven’t yet been stress-tested using the new Basel III rules – which will require them to hold more of their capital in reserves. And if they were, they wouldn’t likely pass as easily as they
did this time around.

But it gets worse…

Because even if you never buy another bank stock, you may still end up owning some – and suffering the consequences once Basel III gets ahold of them.

The culprit: ETFs. And more specifically dividend ETFs.

Dividend ETFs are becoming more and more popular – especially with investors now forced to reach for yield in the stock market as a result of the Fed wiping out yields in bonds.

Take the iShares Dow Jones Select Dividend ETF (NYSE:DVY). This tracks the performance of the 100 highest dividend payers in the S&P 500.

DVY pays a yield of 3.4% – not great, but not too shabby either. The problem is its exposure to dividend-paying bank stocks.

Prior to the 2008 meltdown, 42.5% of DVY’s holdings were in the bank stocks now under scrutiny by the Fed. (These were among best dividend-paying stocks before the housing bubble burst.)

But that changed when bank stocks started cutting their dividend payments during the financial crisis. Now, financial sector dividend payers make up just 10%.

But that’s about to change, as banks get the all-clear from the Fed to hike their dividend payments again.

If you own DVY… or any other U.S. equity dividend ETFs… go to its website and check out its sector allocation. See if it is adding banks back into its portfolio. If it is, I recommend you sell it immediately.

When Basel III comes into effect in 2015, these banks will be forced to hold on to more of their capital. That means they’ll have to cut their dividend payments.

Bank stocks may look attractive right now. But they are NOT a smart way to add stable income streams to your portfolio.

Avoid these temporary dividend payers and the ETFs that hold them.

Sincerely,

Jim

P.S. I recently uncovered something even more dangerous to your financial well-being than bank dividend stocks. It
could have a major impact on not only your investments, but your way of life. I urge you to check out my brand-new report explaining it all…

Source: Stockopedia – Stock Market Research Network.

Understanding analyst research, who writes it and what it tells you 

Over the past 15 years, DIY investors have enjoyed some notable improvements in the availability of market data and sophisticated execution capabilities. But while the tools to make investment decisions have got better, one issue that continues to divide opinion is the usefulness amp; availability of analyst research. 

Most investors are familiar with the ‘buy’ and ‘sell’ recommendations from City analysts that routinely crop up in the financial press. Journalists feast on these signals without necessarily giving them much thought or context, and bulletin boards buzz about their meaning. But the detailed research behind these recommendations is often either hidden away or leaves the investor wondering about its reliability, accuracy and value. 

In this mini-series of articles we are going to explore some of the reasons why analyst research is both loved and loathed by investors and whether trading off recommendations it a viable strategy. We will also show you how you can profit from analyst research by using the tricks, tools and screens available at Stockopedia to get a new insight into what it really means. 

Who writes this stuff? 

If the stockmarket is an engine and information is the oil then analysts are best thought of as the mechanics. They may not enjoy the glamour or compensation of the traders and investors who drive the car, but without analysts the engine would soon grind to a halt. When Richard Wyckoff wrote Studies in Ticker Tape Reading back in 1910, he not only introduced the world to the science of market analysis but he also kicked off increasing academic and professional interest in how markets and companies can and should be analysed. 

Since then the role of the analyst has become more defined and more influential – but has also come under major scrutiny from regulators and academics. Research notes are routinely produced on the day of company results (final and interim), trading updates and major news. Analysts enjoy special access to management teams when discussing events, forecasts and in the development of their financial models, which means that their insight and opinions ought to be of interest to any investor, although often it is restricted to a privileged few. 

Who is research produced for? 

Market players – from investment banks to boutique brokers – employ analysts to cover companies, advise clients and ultimately encourage them to trade shares. But structural problems in a sometimes myopic market mean that the information and insight they produce doesn’t get to everyone. Unless you are a client of the firm in question, getting your hands on the research notes of the best analysts can be a challenge. Often this information is only designed for the eyes of institutions that pay fees or offer fixed-commission business, with disclaimers and restrictions stemming the flow to a broader base of recipients. This situation led the United States to introduce Regulation Fair Disclosure back in 2000 to ensure that sell-side analysts were not getting access to special information from management which is not available to the market at large. 

On this side of the pond, things are lamentably much further behind. However, the emergence of independent research houses, which often charge companies for coverage, has tried to open the door to a great deal more independent analysis. This work is distributed for free and is therefore more widely accessible by individual investors. The London Stock Exchange has encouraged this type of fee-based research, particularly for smaller companies, as a means of improving visibility and liquidity. Smaller companies often don’t attract mainstream research beyond what a house broker might produce, which can be a deterrent to both institutions and individuals that might otherwise want to invest. As a result, fee-based research has flourished, though the impartiality of the research produced under these arrangements should be questioned. 

How reliable are the opinions? 

While the selective dissemination of research is a bugbear of information-hungry investors, it isn’t the only criticism of analyst coverage. Over the past ten years regulators and academics have scrutinised the independence of analyst forecasts, their accuracy and how predictive they really are. An interesting observation here is that there is a weight of evidence that analysts issue far more ‘buy’ recommendations than they do ‘sells’. This is believed to be the case because a bullish stance encourages trading and makes corporate clients happy even though it might not necessarily reflect the reality of the fundamentals. 

Changes have been made in the way analyst notes are presented, such as clarifying the relationships between the company and the broker, but many believe that a lot of research can still be biased and of varying quality. In some instances, it’s claimed, research notes can turn out to be at best just a rehash of company news rather than thoughtful analysis or, at worst, a biased siren song ahead of impending calamity. 

In large and mid-cap stocks, the credibility of analyst research is likely to be improved by the number of analysts covering the stocks. Usually, multiple analysts from a broad range of banks and brokers will put out notes, making it easier to identify divergence from what’s known as the ‘consensus’ view. At this higher end, the concerns tend to focus on whether there is any movement of information between Chinese walls inside investment banks and the pressures that an analyst might feel if, say, his firm also provides corporate finance advice, investment banking or even brokerage services to the company. Some observers suggest that analysts from the house broker will be among the most conservative of all the analysts tracking a company, perhaps with a view to letting the company beat forecasts – and hopefully seeing its share price rise as a result. 

Further down the scale, the research supporting smaller, less liquid companies presents different issues. AIM companies can, and often do, hire Nominated Advisers (the buffer between the company and the stock exchange) that also act as brokers. This doubling-up means that it’s possible for the only research on the company to have come from a firm that already has strong fee-based links to it, which again gives rise to concerns about potential conflicts. The emergence of independent research boutiques that charge companies for research services have partially resolved this problem but, again, critics point to the potential for influence in research that the company itself has paid for. 

Is following analysts an investment strategy worth considering? 

There have been numerous academic studies into the quality and the predictive nature (or otherwise) of analyst research – with very mixed results. As we will discuss later, work by David Dreman and James Montier has shown that it’s important not to be too swayed by the opinions of these so-called “experts” as their forecasting track record is generally not good. Still, one of the largest UK studies was carried out in 1984 by Dimson and Marsh from the LondonBusinessSchool. They examined 4,000 stock return forecasts for 200 of the largest UK shares provided by 35 different firms of brokers and analysts. They found that analysis did indeed provide a ‘small but potentially useful degree of forecasting ability’. But they also concluded that a large part of the information content in the forecasts was quickly discounted in the market place within the first month. 

For individual investors, keeping track of what analysts are saying about stocks is virtually impossible without access to top quality data and the tools to use it. At Stockopedia, our Stock Reports include details of the analysts covering a particular company, the consensus broker recommendation and the trend in the consensus forecast over recent months. This information helps to lift the lid on how each company in the market is being perceived by the analyst community. 

In the next article in this series, we will explore whether it is possible to make money by following analyst recommendations. We will look at the evidence that these recommendations can be profitable (or otherwise), the factors that can adversely influence recommendations and the costs of such a strategy. 

In this series:
1. Understanding analyst research, who writes it and what it tells you
2. Can you make money from analyst recommendations?
3. How to think differently and use analyst research to your advantage
4. Putting it all together – three strategies to make money from analyst research

Stockopedia

Original Article: How to make money from analyst research – Part 1

By Matt Michaels

Bitcoin is a new and innovative digital currency that can be accessible online, regardless of where you are. The bitcoin system is based on crypto-currency and it is acceptable all around the globe. Bitcoin works using a peer-to-peer (p2p) technology and operates without the need of a central authority or a oversight body. Bitcoin is a valuable form of virtual currency, as there is only a maximum of 21 million units in the market at a certain time. Besides that, new bitcoins are generated at a diminishing rate.

Compared to other online transaction systems like Paypal, bitcoin uses p2p which eliminates the need for a third party to complete the transaction. Using bitcoins will help you to save in terms of transaction costs. Especially for people and online businesses that make a large amount of virtual transactions, bitcoins can help you to reduce cost. Besides that, the currency is decentralized. What this means is that the currency is free from control of central authorities. Regular bank notes and coins are suppressed and controlled by statutory bodies which oversee the printing and distribution of real currencies to the public.

So how do you use bitcoins? First of all, you will need to create a bitcoin wallet. Bitcoin is a virtual currency, so you will have to keep it in an e-wallet. E-wallets are secure and easy to access and use. To get you started, you can start by signing up for a bitcoin wallet on the Internet. There are many service providers like My Wallet from blockchain.info which provides you with free e-wallet services.

To make bitcoins even more accessible, many companies are providing users with bitcoin wallet applications for smartphones. Selling and buying of bitcoins can now be completed with a tap on your smartphone. If you are an Android user, you will be able to find many mobile apps to sell and buy bitcoins on your Google Play Store.

To improve the security of your bitcoin wallet, most people download and install desktop clients to store their bitcoin transactions into their computers. After you start your bitcoin wallet, always remember to save the file and back it up from time to time onto your desktop. Unlike banks, you are in-charge of the safety of your currency and money. The Satoshi Client is widely used by bitcoin users as it has been in the market since 2009.

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By Justice Litle

As part of a €10 million rescue deal, the European Union, the European Central Bank and the International Monetary Fund have decided to burn depositors in Cypriot banks.

Depositors with less than €100,000 face a 6.75% levy on their accounts. Depositors with accounts over that threshold face a 9.9% loss.

These institutions are run by clowns with matches. And their antics are taking place near tankers filled with kerosene.

The authorities argue that Cyprus is a “special case.” That’s because, in addition to being home to a spectacularly risky banking
system, Cyprus is a quasi-legal tax haven and black-money stash for Russian oligarchs.

So the authorities wanted to send a message to foreigners using Cyprus as an offshore haven for their hot cash.

And because someone had to pay for the Cypriot bailout (a demand of Germany, Finland and others)… and because the Cypriot government didn’t want to anger the big-money tax dodgers using it as an offshore bolt-hole… the powers that be decided to make small depositors take the hit instead of large ones.

The decision to confiscate funds from small Cypriot depositors… if it goes through… will have disastrous long-term effects for the following reasons:

1. Despite the draconian measures, the Cypriot economy is still a strong candidate for collapse.
2. The bailout shatters the unspoken rule protecting small bank depositors.
3. It strips the EU, the ECB and the IMF leaders of any remaining credibility in the eyes of small savers throughout Europe.

Details are hazy as to who green-lit the decision to punish small depositors. But it’s clear that Europe’s austerity enforcers demanded some kind of financial reckoning. And so they agreed to the Cypriot government’s panic proposal to protect the big fish by going after the little fish instead.

This is a colossal failure of common sense… and a truly dangerous precedent for other bank depositors in the euro system.

The Cypriot government’s last-ditch effort to save itself as a financial haven (somewhere between legal and illegal) was a waste of effort. The big money oligarchs who have been using Cypriot banks to stash their cash will now yank out remaining funds in fear of further confiscations.

This means that the Cyprus economy — basically a financial pyramid scheme — still faces collapse.

Meanwhile, small depositors in Europe’s other troubled periphery nations will wonder whether they will face the next “special case” confiscation next.

Put simply, millions of eurozone depositors could start pulling their cash out of the banks and stashing it under the mattress.

Here’s how the system is SUPPOSED to work…

Big fish investors have potential to see huge returns from their bond holdings. But they can also lose money if things go wrong.

Little fish depositors don’t have a shot at big returns. They earn their fixed rate of return (usually almost nothing) on their deposits. But in exchange for loaning money to the banks by way of their deposits, they are assured their
deposits will not be put at risk.

Except now the technocrats in Europe and the IMF have decided to break the unspoken rules and violate the sanctity of small depositor protection.

This is bad news for bank depositors. But it’s good news for gold. The yellow metal has been trading poorly of late. Since the start of the year, the gold price has fallen about 6% on a growing consensus the financial crisis was under control.

This is now being revealed as pure illusion… and an only temporary pause in the global financial crisis that began in 2008. The next stage of that crisis starts here. Now is a great time to buy gold, before this reality sinks home.

Carpe Divitiae,

Justice