Month: July 2013

By Profit Confidential

The S&P 500 may be nearing a new record high, but trust me when I say there’s some nervousness growing in the market. I really don’t blame you if you want to take some profits.

In fact, I insist.

When I look for sectors that I feel are less sensitive to what the global economy does, I always come back to the food sector as a buying opportunity.

Simply put, people have to eat. They really don’t care about how the economies are faring, whether there is jobs growth, or if the world central banks are pumping trillions into the global economic system. People have to eat, and that’s where I see a buying opportunity.

With this thought in mind, I continue to like the agriculture sector as a longer-term buying opportunity; farm fields will need to be plowed to produce the massive crop yields that will be needed to feed a growing world population.

A company that I feel could lend itself to some good above-average longer-term gains and is a possible buying opportunity is West Fargo, North Dakota-based Titan Machinery Inc. (NASDAQ/TITN). With a market-cap of $433 million and well down from its 52-week high of $32.00, there’s good potential here. North Dakota, of course, is known for its burgeoning shale oil production, which could offer another buying opportunity. (Read “Why This Cold Prairie State Is an Investment Hotspot.”)

Titan not only distributes and sells new and used agricultural equipment to markets and farmers in America and Europe, but the company also sells construction equipment, which given the major infrastructure buildup worldwide, could really drive the company’s revenues.

The company has been steady in expanding its revenues in each fiscal year from $97.46 million in fiscal 2004 to an impressive $2.2 billion in fiscal 2013, for a strong compound annual growth rate of 41.38% during these years. The revenue growth rate is expected to fall to eight percent in fiscal 2014 and 3.2% in fiscal 2015, according to Thomson Financial. The slower rate of growth, while a slight concern, is expected as the company’s revenue base gets bigger.

The valuation versus that of the much bigger Caterpillar Inc. (NYSE/CAT) is more attractive, based on estimates from Thomson Financial. Titan trades at 9.59-times (x) its forward earnings and a low 0.2x sales versus 10.58x forward earnings and a more expensive 0.87x sales for Caterpillar.

At the current price, there’s a potential buying opportunity as Titan is languishing at the bottom of its current sideways channel as shown on the chart below. If Titan can hold, we could see a rally back to the resistance level around $32.00, and a buying opportunity could surface.

Chart courtesy of www.StockCharts.com

For Titan to move higher, the company will ultimately need to deliver; given my positive view on agriculture and infrastructure, there may be good potential for a buying opportunity here.

Article by profitconfidential.com

By The Sizemore Letter

Is this past weekend’s Financial Times, Gillian Tett commented that falling fertility rates in Europe threaten government tax revenues.

Well, yes, they do.  But not necessarily for the reasons Ms. Tett expects.

European fertility rates have been below the replacement rate of 2.1 children born per woman for decades.  The UK and France have hovered near the replacement rate for most of this period, but birth rates in Germany, Spain and Italy have been limping along at crisis levels since the 1980s.

Think of it this way: Here in the United States we hear about the next great generation—the Millennials (also called Gen Y and the Echo Boomers)—and how they will shape the country in the decades ahead.  Numerically and culturally, they are the most important generation since the post-war Baby Boomers.

Well…let’s just say that no such sentiment exists in Germany, Italy or Spain.  None of these countries had a secondary baby boom in the 1980s and 1990s.  The young personalities dominating the discussion here were simply never born in Europe.

Of course, young workers that were never born will not be able to pay taxes or man the factories of tomorrow.  This is the point that Gillian Tett makes, and it is a valid one.

But it also happens to miss the very large elephant in the room: Workers can be replaced by automation and outsourcing; consumers cannot.  To carry this a step further, General Motors or Ford can program a robot to build a car.  But that robot has no interest in buying a car.  And as roughly 70% of the modern economy is consumer spending, that’s a big problem.  Without a steadily growing population, the modern consumer economy breaks down.

I’m not picking on Ms. Tett; she has a much better grasp of the importance of demographics than most journalists, and she has clearly done her homework.  But virtually everyone in the economics and investment professions that follows demographics (yes, there are a surprising number of us) focus their energies in the wrong places. They focus almost solely on supply.  Demand—when it is considered at all—is viewed as a byproduct; something that just happens on its own (For the geeks in the room, this concept has a name: Say’s Law).

This is not an academic argument about how many angels can balance on the head of a pin.  It matters because the focus on production and boosting GDP growth is actually counterproductive in a world of aging and shrinking populations.  Boosting supply during a period of slack demand simply causes deflation…which in turn discourages future investment and creates a debtor’s nightmare.  Just ask Japan.

Japan’s is further along the path of demographic decline than Europe.  It has the oldest population in the world, and adult diapers are now a more promising growth business than infant diapers.    Japan also happens to have the largest debts in the world, fast approaching 240% of GDP.

Japan’s leaders have effectively spent their country into insolvency with Keynesian deficit spending and have nothing to show for it.  Sure, Japan has great roads and infrastructure.  But it’s all for naught if there are no Japanese citizens left to use them.

Given all of this, you might be surprised to hear that I am actually bullish on Europe, at least in the short term.  European companies are, on average, quite a bit cheaper than their American or Japanese counterparts, and I expect investors to warm up to Europe as the threat of meltdown continues to recede.  Furthermore, Europe is finally starting to see those first green shoots of growth; in the past week, the Spanish unemployment rate fell for the first time in two years, and European oil demand is on the rise—again, for the first time in two years.  As better economic news continues to drip in, I expect investors to reevaluate Old World stocks.

But at the same time, I recommend you choose your European investment carefully.    Focus on companies that are domiciled in Europe but that get the bulk of their revenues overseas.  In my last article, I mentioned Dutch brewer Heineken (HEINY) for its outsized exposure to developing Africa.   Unilever (UL) and Nestle (NSRGY) are also fine additions.  Both have relatively modest exposure to the European markets and both are well positioned to benefit from rising living standards in emerging markets.

Unilever and Nestle also happen to be holdings in my “Drip and Forget” dividend investing strategy, and Heineken is a current recommendation of the Sizemore Investment Letter.

SUBSCRIBE to Sizemore Insights via e-mail today.  This article first appeared on InvestorPlace.

Source: Brian Sylvester of The Gold Report (7/29/13)

http://www.theaureport.com/pub/na/15478

It is like a carrot on a stick for small-cap mining investors: the promise that we have finally hit bottom and can expect gold prices and stocks to begin to emerge again. That time is almost here, according to Ron Struthers, the publisher and editor of Struthers’ Resource Stock Report. In this interview with The Gold Report, Struthers discusses how a run on bullion banks has played with the gold price and which indictor is telling him things are about to move. If Struthers’ forecast is right, the market could be on the cusp of one of its best corrections yet.

The Gold Report: Ron, the Federal Reserve has decided to continue quantitative easing (QE) for the foreseeable future. Gold has risen steadily since that news. Is that what you predicted the Fed would do?

Ron Struthers: It is not that hard to predict the Fed’s behavior when you understand what it’s trying to do and how it’s trying to do it. I do not take what they say literally, except within the context of its goals. The Fed is trying to instill confidence in the economy because of massive U.S. debt and its future debt appetite. The economy needs to improve for there to be higher tax receipts. We need foreign investment to finance the debt. If the Fed can convince Americans and those abroad that its bonds are the safest/most attractive, its stock market will have the best returns and that debt machine keeps running.

But the truth is that the economy is very weak. Employment is weak. Foreign investment has been fleeing. The Fed has to purchase $85 billion of debt a month because nobody else will. The Fed can’t do this forever, and it knows it. It has to talk as if the economy is improving so the Fed debt purchases can end in the near future.

If you dig into what’s really going on in the economy and markets, you’ll find the underlying weakness that guarantees that QE will be here for a long time, as least as long as the markets themselves will allow it or are tricked into allowing it.

TGR: Why are Americans so complicit in this?

RS: Too many take for gospel what they read and see in the mainstream media. There’s a pretty good media propaganda machine out there for the government.

TGR: Do you think the Fed should exist?

RS: I’ve never gotten into whether it should exist or not. Let’s just deal with what we have. I do think that its hand has gotten way too heavy in the markets.

TGR: Now that QE is going to continue for a while, what is the trade in gold and where are the catalysts for an even higher gold price?

RS: We’ve been waiting for a bottom. We’ve seen that now, and it’s time to buy. There are still a lot of the same catalysts, such as many central banks are switching out of the dollar, yen, euros and diversifying to gold. Continued QE just means a continuation of that diversification.

Asia still has record demand for physical gold. Since the Bank of Japan announced the most aggressive QE program thus far, Japanese funds and the pension funds have started to buy gold-related investments; this is a first and has only just begun.

Since the price drop, we’ve seen a lot of mine closures and curtailment, which will only result in less supply in an already tight physical market.

However, the main catalyst is the reason gold was driven down in the first place. It has run its course and that was fulfilling the goal of the bullion banks.

TGR: Which is?

RS: The bullion banks run a fractional reserve gold system just like the bank system, meaning they only have one ounce of gold for every 50, maybe even 100 or more, sold. We don’t know the exact numbers, but it’s something along that line. That system came under stress with the lack of confidence and was driven, in part, by major countries like Germany repatriating gold. The fact that it is going to take seven years for Germany to get its gold tells you something about this fractional reserve system.

The bullion banks were, and are still, seeing a run on their physical reserves as inventories are falling, and so are the COMEX inventories. But at the same time, the bullion banks had this huge short position in gold and silver. We’ve seen a behind-the-scenes rescue of these bullion banks, at least for now.

TGR: In a recent edition of Struthers’ Resource Stock Report, you said that many of these bullion banks are actually long gold now.

RS: We don’t know exactly what any one bullion bank does, but we get some very good clues from the weekly COMEX Position of Traders report. The section of the report called “The Commercial,” which includes the bullion banks, shows the reported short and long positions. We have seen a large net short position there for many years. But with this big drop in gold prices, that short position has been taken down to near nothing. At the same time, we’ve seen the category where we find the speculators and hedge funds at record net short levels. The short position has been moved from the strong hands to weaker ones. I see this as another bullish signal.

TGR: You also see some weakness in the recent jobs data. Tell us more about that.

RS: We hear the U.S. headline job number, talk about all these jobs we’re creating and how good it is. The devil is in the details, they say. The last report actually saw 220,000 full-time jobs disappear. All the gains were part-time jobs. Right now, the second largest employer in the U.S. is a temp agency, and some 10% of the workforce is temporary because companies can’t afford full-time workers or have little confidence for that commitment. That’s a big sign we never have seen a real recovery.

Only 47% of Americans have full-time jobs. Some people have two part-time jobs now. The same person working in two places counts as two jobs, but it’s just one person. The previous month’s report sounded good, too. It reported more new jobs, but the hours of work dropped. I just see these employment numbers as part of the virtual economy, not the real one.

TGR: Do you believe that gold has already bounced off of its 2013 bottom?

RS: I think so. The $1,100–1,200/ounce ($1,100–1,200/oz) barrier was a good support level for gold, and we bounced out of that. I think we’ve seen the bottom. I thought we could possibly see a retest of that support, but because gold has done so strongly already, I think a retest of that becomes less likely now.

TGR: A group of Canadian financial companies led by the Royal Bank are attempting to launch a stock exchange to rival the Toronto Stock Exchange (TSX). The carrot at the end of the stick seems to be the elimination of predatory trading by computer-based programs. Does this idea have any traction?

RS: It has traction given that a large bank is behind it. I talk to investors and traders almost daily, and they’ve been fed up with computer trading for quite a while. Very simply, it’s just totally unfair. Orders are not real and come and go quicker than humans can act.

Maybe you see a bid for 1,000 shares on some stock. You try to sell, but the computer sees your order coming, maybe fills 200 and then reduces the bid and you remain unfilled. You can take lower and lower prices if you want.

The same with buying. More shares can show up less than a second after you buy, so you don’t know how many shares there are on offer, who is selling, how much or whether something is wrong because there’s so much selling. Sometimes you don’t even see your trades. You’ll see, say, a bid at $0.35 and an offer at $0.40 on some particular stock. Maybe you put an order in to buy at $0.40, and you see no trade go through, but your brokerage account shows filled. The next day you find it settled at $0.38 because there was an offer there from a different trading platform.

For the most part, these different platforms are computer-driven participants. It has induced a huge lack of confidence and unfairness in the markets. It created two playing fields: the rich, big players and the small investor on the bad end of the stick.

What is also unfair is that these computer trades are given a rebate or less fees on their commission, so they’re even given an advantage on commissions over regular investors. They say it’s in the name of supply and liquidity, but it’s just another unfair practice.

TGR: Wouldn’t the Toronto Exchange argue that it’s not a profitable enterprise without computer trading?

RS: I’m sure it is going to put up any kind of blocks that it can.

TGR: This sounds like an almost ideal bourse for junior mining stocks. What incentive would the new exchange offer for companies to come over?

RS: I don’t think they will have to actually come over; TSX-listed companies could trade there. It would operate like another trading platform. The TSX has already lost about 40% of the volume to other trading platforms out there now like Alpha. This bourse is still in a discovery period right now. It’s still exploring all the options for how to work this. It has an outline, but the goal is to go with a formal application around year-end. If it makes an official application by year-end, we could see this in 2014.

One thing I found quite interesting is it would take private company shares. A brokerage could take in the shares and create a market, creating some liquidity for private companies.

TGR: Why would private companies list? They have no desire to make their financials public.

RS: They actually don’t list but it creates some liquidity for their current shareholders. At the same time, they don’t have the regulatory burden as a public startup company. They can put more money into their companies and bring them to a stronger level before going public.

TGR: Without the transparency, investors could lose a lot of money.

RS: On the private sector side, it would only be qualified/accredited investors under the current TSX guidelines that could own and trade in these shares.

TGR: Is there any word from the federal government on whether it would back a new exchange such as this?

RS: I haven’t heard much yet. This just came out at the end of June. We’re going to hear lots about it between now and year-end, but it’s just in its infancy now.

TGR: You follow a number of small-cap, mid-cap and large-cap gold and silver equities. Please outline your thesis for the small-cap silver and gold equities.

RS: We use stop losses, and we got stopped out of almost all of our gold stock positions quite a while ago. I’ve never seen anything like it, but the market is what it is. Seeing a bottom, we first started going in and buying back the larger and midtier producers and some of the junior producers. Then later on, we’ll start adding more of the exploration plays as long as the market keeps advancing.

TGR: What are some junior companies you’re writing about in Resource Stock Report?

RS: Claude Resources Inc. (CRJ:TSX; CGR:NYSE.MKT) is one I recently bought back. I couldn’t believe how far that got beat down—to about $0.20/share. The main reason was that its costs are high at around $1,245/oz. However, it just completed a shaft extension at its Seabee mine that will reduce costs. It already has higher costs at the first of year because it has to restock its mine utilizing winter ice roads. The restocking program went well this year, with lower costs than last year and lower costs in many consumables. Given that and the recovery in the gold price, we could see quite a turnaround in that stock.

TGR: Claude posted a loss of $0.01/share in Q1/13. Is it on track to turn that around?

RS: The extra leverage you get is another advantage when you buy companies with costs very close to the current price. A $100/oz increase in gold would turn it from losses to profits. Just that $100/oz can make quite a difference, and you can see that leverage reflected in the improvement in the stock price.

TGR: Where is the growth going to come from, Ron?

RS: It is going to get some growth from the Seabee mine, but the big growth is going to come from its Madsen project in Red Lake, Ontario. It actually has more gold resources there than its mine. It has been advancing that project. Bringing that into production down the road is going to provide quite substantial growth.

TGR: What is another junior story?

RS: Richmont Mines Inc. (RIC:TSX; RIC:NYSE.MKT) has 2 million ounces (2 Moz) in reserves and resources and is producing about 65,000 ounces (65 Koz) a year. Its cash cost was high last quarter, at $1,300/oz, but that should improve. It had lower grades mined the previous quarter, which is going to improve in H2/13. It is also putting a new W Zone at the mine into production. It did a successful bulk sample test, at grades of 5.3 grams per tonne with 97.4% recovery.

The company has always been managed very prudently. It only has 40 million (40M) shares out, a strong cash position of $43M and less than $1M in debt. It has a $50M loan facility available as well, so it is in a strong position. The market is valuing its mines and ounces at just $20M right now. If you look at 2 Moz reserves and resources, they’re valued at $10/oz—and that’s at a producing mine. I just find that ridiculously cheap, but the market is ridiculous now.

TGR: Do you think Richmont would use its cash position to take advantage of some other players that are not as cash rich?

RS: I don’t think so. The management’s track record is to more or less invest internally. It is more apt to improve the current mines and to acquire and advance some other properties. It could take advantage of acquiring properties off some of these other companies instead of taking out a whole company.

TGR: You mentioned its cost of production was a touch high. What is it doing to remedy that?

RS: The high costs are a short-term issue. It will get by this as the year progresses and fall more in line with normal grades that are a bit higher. This additional zone is a higher grade zone that will help with that. It’s also paring costs wherever it can, cutting corners here and there like all the gold miners now.

TGR: What other stories are you following?

RS: On the senior side, I added Newmont Mining Corp. (NEM:NYSE) recently.

TGR: Because of the yield?

RS: Newmont gives good leverage as a dividend play because its dividend is based on the gold price. The dividend was $1.40/year, which is yielding about 5%, but that’s probably going to drop to about $0.80/year because of the current gold price.

The dividend goes by the average of the previous quarter. The dividend increase is for every $100/oz increase in gold, $0.20/year. Once gold hits $1,700/oz, then it increases $0.30/year for every $100/oz increase. At $2,000/oz gold, it jumps $0.40/year for every $100/oz increase. That’s some pretty good leverage there. If we get to $2,000/oz gold, the dividend would be $2.70 each year per share.

For now, I’m just betting gold recovers and Newmont is at least paying $1.40/share. That would give us a 5% yield at the current stock price.

TGR: Is yield the only reason why Newmont hasn’t been beaten up like Barrick Gold Corp. (ABX:TSX; ABX:NYSE)?

RS: They’ve all been beaten up pretty good. Maybe Newmont was spared a little because of the yield. Most of the majors are paying some kind of dividend now, but Newmont is among the highest.

TGR: Are there some distressed names that offer compelling value in this market?

RS: They’re all distressed at this point!

I’ve been looking at another good company that is quite interesting in South Africa. I haven’t picked much up there for a long time. Gold Fields Ltd. (GFI:NYSE) spun a company out of its holdings this year to createSibanye Gold Ltd. (SBGL:NYSE). It came out trading around $7/share in February, just in time for the market to get hammered, and it dropped all the way down to a few bucks.

It is actually going to be the third largest producer in Africa behind Gold Fields and AngloGold Ashanti Ltd. (AU:NYSE; ANG:JSE; AGG:ASX; AGD:LSE). The trailing price-earnings ratio is just 2x earnings. It had a very positive Q1/13 with $170M profit and $66M free cash flow. Falling gold prices would naturally have an effect, but its impact has been overdone on the share price. Sibanye has two producing mines and offers good value down at these prices.

TGR: Why did Gold Fields decide to spin it out?

RS: It wanted to split its mining into two types. It spun out narrow-grade, underground mining that’s labor intensive. Its other projects are more open-pittable, bulk scenarios with more machinery-type mines. It felt it was trying to manage two different types of mines. Now there is better concentration with a split along synergies.

TGR: Could you give us another small-cap name?

RS: Argonaut Gold Inc. (AR:TSX) has not been beaten down nearly as much because its costs are quite low at around $600/oz. The company has two producing mines and produced 93 Koz last year. It is projected to increase to 120–140 Koz this year. Argonaut has two advanced projects under economic assessment, two more mines that could come onstream down the road. It should be able to fund all this internally because it is sitting on $168M in cash and has no debt. Argonaut could be a stock that could continue to outperform in the market going ahead. It’s quite a good growth story.

TGR: How are you staying positive throughout what’s happening in the junior mining sector?

RS: I keep a long-term outlook. We have these ups and downs. This has been the worst, but this could be the fourth good correction. Each time, these corrections get a little bigger and a little longer, but they’re from bigger and higher prices. The next move will be a bigger and longer upmove. That’s the carrot for belief in what’s yet to come. Being that these stocks are so depressed, it’s the best buying opportunity that I’ve ever seen, even better than in 2000 at the bottom.

TGR: Are you buying?

RS: Yes. I like the long-term call options on some of these majors, too. Because the market is so beaten up, the call premiums have gone to nothing. You can buy these call options that are out a year-and-a-half for $1 or $2 and control a $5–10 stock. There’s a lot of leverage there.

TGR: Thank you for your insights.

Ron Struthers founded Struthers’ Resource Stock Report almost 20 years ago. The report covers senior and junior companies with ample trading liquidity. Since 2000, $1,000 invested in Struthers’ Model Portfolio ended 2012 at $9,251. Struthers’ Newsletter Stocks went from $1,000 to $20,934. Struthers’ Millennium Index, which started in 2003, began at $1,000 and was worth $4,133 at the end of 2012.

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DISCLOSURE:

1) Brian Sylvester conducted this interview for The Gold Report and provides services to The Gold Report as an independent contractor. He or his family own shares of the following companies mentioned in this interview: None.

2) The following companies mentioned in the interview are sponsors of The Gold Report: Richmont Mines Inc. and Argonaut Gold Inc. Streetwise Reports does not accept stock in exchange for its services or as sponsorship payment.

3) Ron Struthers: I or my family own shares of the following companies mentioned in this interview: Claude Resources Inc. and Richmont Mines Inc. I personally am or my family is paid by the following companies mentioned in this interview: None. My company has a financial relationship with the following companies mentioned in this interview: None. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview.

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The EURUSD Drops to Support at 1.3239

The EURUSD failed to overcome the resistance at 1.3295 and the pair forced to retrace to the support at 1.3264. After another unsuccessful attempt to break the upper limit of the range, the support has been broken through while the euro dropped to 1.3239. Thus, the limits of the range that occurred as a result of entering a consolidation phase of the EURUSD, expanded. The pair has been neither overbought nor oversold. The Parabolic SAR is lower than the price chart yet.Some important events planned for the current week can influence currencies momentum. That is why it could be senseless to make conclusions based on the current situation of the pair and build up trading strategies. Since the major market participants are waiting, it is better to follow them and refrain from taking action.

The GBPUSD Corrects to 1.5315

The similar situation with the EURUSD pair has been observed in the GBPUSD, as well. The highs reached by the pound last week has not been overcome. Such market situation forced the bulls to retrace to the support in the area of 1.5376 and it was come across soon. So, the pound decreased to 1.5315. It is not the point to speak about trend switching due to decreasing is happening within the frame of consolidation after increase. Later during the week, the Bank of England will announce its decision on interest rates and the terms of the asset purchase program that may affect the dynamics of the pound and make significant adjustments to the current situation of the pair.

The USDCHF Trying to Recover

The bulls on the USDCHF were unable to break through below the lows of the last week. The bulls have used such situation in their favor and tried to recover control under the situation. They managed to overcome the resistance at 0.9307, but when they tested the 0.9323 mark they lost their enthusiasm and the pair occurred under pressure. Thus, consolidation has been observed while a downward trend continues. The U.S. dollar should increase and consolidate its positions above the 94th figure to be in force of the upward momentum again.

The USDJPY May Increase to the 99th Figure

Yesterday the Japanese yen tried to continue the downward correction started last week. The U.S. Dollar did intend to decrease below the support level of 97.63, but it was trying to increase higher at this stage. Till now the dollar has experienced the 98.46 marking. Despite the negative close for the dollar it could recover its positions to the 99th figure broken by the bears, where theoretically selling positions should be opened. Increase above 99.70—100.00 will mean recovery of the uptrend movement.

provided by IAFT

London Gold Market Report
from Adrian Ash
BullionVault
Tuesday, 30 July 08:30 EST

PRECIOUS METALS held in a tight range in London on Tuesday morning, moving sideways as world stock markets rose and commodities slipped ahead of the US Federal Reserve meeting, which begins today.

 “No outstanding features, volumes fairly light and very little to report,” says broker Marex Spectron.

 After telegraphing its intention to start reducing the $85 billion in monthly quantitative easing as soon as September, the Fed will announce its latest policy on Wednesday, soon after the release of official US data for second-quarter GDP.

 Gold moved on Tuesday morning barely $4 per ounce above $1322 – the “crash” low of mid-April.

 Silver moved just 0.7% around $19.70 per ounce.

 “We could see some downside open up,” says Standard Bank’s commodities team, “if the Fed announces tomorrow that it will stay the tapering course.”

 Looking at recent bullion price action, “Gold is pushing hard” says technical analysis from Commerzbank “into the 2-month downtrend and the 55-day moving average at $1333/40.”

 Gold bullion and futures prices “reacted violently in June” Federal Reserve comments on policy, says a note from Bank of America-Merrill Lynch. But now “near-dated gold volatility has been falling in recent weeks.

 “After the initial Fed fears lifted 10-year US Treasury rates from 1.6% to 2.7% in just a few weeks, rates seem to have stabilized in a 2.5% to 2.6% range, contributing to a drop in gold vols.

 This “normalization” says BAML is now being reflected in gold futures prices. August futures settled Monday below further-dated contracts, confirming what the bank calls gold’s “typically contango structure” – whereby prices are higher for delivery further into the future.

 But “we are moving closer and closer to tapering,” reckons Tom Tucci, head of Treasury trading at CIBC World Markets, currently with $12bn in assets under management, speaking to Bloomberg.

 “With no new news, the risk right now is for higher rates, not lower,” says Tucci, saying 10-year Treasuries should yield around 2.75% “given the state of the economy and the Fed’s stance.”

 The quantity of gold bullion held to back investors’ shares in exchange-traded trusts funds was unchanged Monday, remaining 25% lower from the start of 2013 at four-year lows.

 Emerging-market central banks “disappointed gold bulls” with their bullion purchases in June, says a note from Swiss investment bank and London market-maker Credit Suisse.

 “Reserve asset managers are as unwilling to ‘catch a falling knife’ as any other fund manager we think,” says the note, “and in general are wary of spikes in volatility.”

 But in China – now the world’s second-largest economy, and likely to overtake India as world No.1 gold consumer in 2013 – private household demand for gold bullion “does hold the promise of a sturdy price floor” says a note from fellow Swiss investment bank and London market-maker UBS.

 Moreover, “In China banks are setting up and/or growing gold accumulation plans offered to the public. Better and easier access to gold via banks’ growing networks combined with strong appetite from retail customers have driven the tremendous appetite from China this year.”

Adrian Ash

BullionVault

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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 in Zurich, Switzerland for just 0.5% commission.

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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 www.CentralBankNews.info

By WallStreetDaily.com

Stocks are officially cool again!

As I shared yesterday, everyday investors finally realized that we’re in a bull market. And they’ve begun rotating out of bonds into equities.

Ever the contrarian, though, I should be alarmed, right? Especially considering that the S&P 500 Index is higher today than it was at the height of the dot-com and credit bubbles. And everyday investors are notorious for being late to the profit party.

But I’m not alarmed one bit. Here’s why – along with three more dangerous myths about the current bull market.

Anything But “Great” Yet

Although the “Great Rotation” is definitely underway, it’s far from over.

You see, investors don’t rotate money out of bonds into stocks in one fell swoop. They wade back into stocks, instead of doing a cannonball. Or, more simply, they take their merry old time.

So even though a little more than $20 billion “rotated” out of bonds into stocks over the last two months, we’ve still got a long way to go.

Consider: Since the bull market began in March 2009, investors plowed $1.1 trillion into bond funds, but only $379 billion into stock funds, according to data from the Investment Company Institute.

There’s a whole lot of rotation left between those two numbers. (Just saying.) And as more retail money rotates into stocks, it’ll naturally push prices higher, which leads me right into the first myth about the current bull market…

~ Myth #1: The Idiocy of the Too-Many-New-Record-Highs Camp

Many pundits want you to believe that you’re a sucker if you buy stocks now.

Why? Because the stock market keeps hitting new record highs, and that simply can’t continue.

Fearmongers!

Or, as S&P Capital IQ’s Chief Equity Strategist, Sam Stovall, says, “I don’t know why they say that, other than to instill fear and thereby ensure that investors stay tuned. History, on the other hand, shows that new highs are typical in a maturing bull market.”

Indeed!

Consider: As of July 19, the S&P 500 Index hit 22 new all-time highs. But during the average “secular” bull market, Stovall found that the S&P 500 notches 127 new all-time highs.

Now, we can save the “secular” versus “cyclical” bull market debate for another day. Suffice it to say, we’ve got 105 new all-time highs to hit before we need to start worrying, based on Stovall’s research.

If you want a second opinion, consider Bespoke Investment Group’s…

They crunched the numbers on all-time closing highs for the Dow during bull markets and found that the current tally of 28 new highs “is nothing out of the ordinary.”

In fact, there have been 20 years with more than 28 record highs. The runaway record holder? That distinction belongs to 1995, when the Dow hit 70 new all-time highs. Again, we’re nowhere close to that.

~ Myth #2: Low Volume? No Problem!

If we don’t buy into the myth about too many new highs, the bears simply move on to spinning a tall tale about trading volumes.

You see, ever since this bull market began, bears warned that the rally has zero staying power. Why? Because trading volumes have been anemic, and that indicates a lack of conviction.

Sounds plausible. But the numbers don’t back up the theory.

As Bespoke found, if we only invested in stocks during days when trading volumes were above average, we’d be down 36.9% since March 9, 2009.

On the other hand, if we only invested on low volume days, we’d be sitting on profits of 295.6%, roughly double the actual return for the S&P 500 during this bull market.

So much for low volume days being a bad thing. By all means, Mr. Market, keep them coming!

~ Myth #3: Still Not a Snaggletooth

The last myth about the current bull market we need to address concerns its duration. Many contend that it’s too long in the tooth.

It’s not.

Since 1920, there have actually been five bull markets that lasted longer and rose higher in percentage terms.

With stock valuations still reasonable (the S&P 500 currently trades at 16 times earnings), there’s strong fundamental support for even higher prices.

Especially considering that companies keep growing earnings…

The latest data from FactSet Research reveals that profits are up 1.8% for S&P 500 companies midway through the earnings reporting season. You’ll recall, analysts only expected profit growth of 0.7% for the quarter. So they were way off the mark, which I told you to expect.

Bottom line: Stocks might be getting cool again. But investors are nowhere near euphoric. Nor are valuations overstretched. So stay invested and stick to the plan to keep putting new money to work in undervalued – but overlooked – fast-growing companies.

Ahead of the tape,

Louis Basenese

The post A Bull Market, Myth-Busting Extravaganza appeared first on  | Wall Street Daily.

Article By WallStreetDaily.com

Original Article: A Bull Market, Myth-Busting Extravaganza

By www.CentralBankNews.info     India’s central maintained its main policy rates, as expected, but cut its growth forecast and appealed to politicians to take immediate steps to slash the current account deficit and it was “ready to use all available instruments and measures at its command to respond proactively and swiftly to any key adverse development.”
    The Reserve Bank of India (RBI), which has taken a string of measures in recent months to curb the fall in the rupee, maintained its repo rate at 7.25 percent – it has been cut by 75 basis points this year in the face of declining growth – along with the reverse repo rate at 6.25 percent and the cash reserve ratio (CRR), which was cut by 25 basis points in January.
    The forecast for Gross Domestic Product growth in the current 2013/14 fiscal year, which began April 1, was cut to 5.5 percent from 5.7 percent due to “tepid” global growth and the main risk to the outlook stems from global financial markets and a sudden stop or reversal of capital flows.

   The International Monetary Fund (IMF) has forecasts Indian economic growth of 5.6 percent in 2013/14, up from 3.2 percent in 2012/13 but still well below the 6.3 percent rate in 2011/12.
    “India, with its large CAD (current account deficit) and dependence on external flows for financing it, will remain vulnerable to the confidence and sentiment in the global financial markets,” RBI said.

    India has a history of current account deficits and for the last three years the deficit has exceeded 2.5 percent of GDP – seen as a sustainable level by the central bank – hitting 4.8 percent of GDP in the 2012/13 fiscal year that ended March 31.
    The RBI said the deficit posed a “formidable structural risk factor” that has brought the external payments situation under increased stress and “eroded the economy’s resilience to shocks.”
    India’s currency, the rupee, has been declining over the last two years and is down 27 percent since its slide began in late July 2011 when it was trading at 44 to the U.S. dollar compared with 59.5 today.
    The rupee stabilized in late 2012 and at the beginning of this year, but the downdraft from the shift in investors’ view of global risks in May triggered a sharp bout of weakness that took it below the psychologically important level of 60 rupees to the dollar on July 8.
    From May 1 through July 8, the rupee lost close to 11 percent but since then it has bounced back following the RBI’s measures to tighten liquidity, which include raising short-term lending rates.
    The RBI said its measures, which would rolled back “in a calibrated manner as stability is restored to the foreign exchange market” had provided politicians with a window of opportunity and “emphasized that the time available now should be used with alacrity to institute structural measures to bring the CAD down to sustainable levels.”
      The RBI said it was currently “caught in a classic ‘impossible trinity’ trilemma whereby we are having to forfeit some monetary policy discrection to address external sector concerns.”
    The trilemma refers to an concept in international economics that says it is impossible to have a fixed exchange rate, free capital movement and an independent monetary policy at the same time.
    Under normal circumstances, the RBI would have been able to continue last year’s policy of easing to further stimulate growth as softening food inflation from this year’s robust monsoon would have given it room to act. But the downward pressure on the currency is limiting the bank’s options.
    India’s main inflation gauge of wholesale prices rose slightly to 4.86 percent in June from 4.7 percent and the bank said the stronger than expected monsoon had not yet softened food prices and some vegetable prices had been hit by weather-driven supply disruptions.
    “The sharp depreciation of the rupee since mid-May is expected to pass through in the months ahead to domestic fuel inflation as well as to non-food manufactured products inflation through its import content,” the RBI said, adding the timing of this and a revision to administered prices was a source of uncertainty for the inflation outlook.
    The RBI’s objective is to maintain WPI inflation at 5.0 percent by March 2014 while its medium-term objective is to keep the rate at 3.0 percent.
    The RBI’s policy stance today was largely expected following the release yesterday of its review of economic and monetary developments in the first quarter of the current 2013/14 fiscal year, in which it said that its priority is to restore stability in the currency market and the macro-financial risks warranted a cautious monetary policy stance.

    www.CentralBankNews.info

USDCHF remains in downtrend from 0.9751, the rise from 0.9264 is likely consolidation of the downtrend. Resistance is now located at the upper line of the price channel on 4-hour chart. As long as the channel resistance holds, the downtrend could be expected to resume, and one more fall to 0.9200 area is still possible after consolidation. On the upside, a clear break above the channel resistance will indicate that lengthier consolidation of the downtrend is underway, then the pair will find resistance around 0.9450.

Provided by ForexCycle.com

By MoneyMorning.com.au

‘Central banks have become the insider traders of the currency market, which is a paradigm shift that systematic traders cannot pick up as well as fundamental traders.‘ – Bloomberg News

If you had said 10 years ago that central banks were insider trading, you would have been laughed out of town.

Today everyone knows central banks trade in advance of upcoming policy decisions.

But it’s not just the central banks. The big investment banks play the same game too…

If you don’t believe us, take this story from Bloomberg back in May:

‘Goldman Sachs Group Inc. (GS), which generated about half its revenue from trading last quarter, posted losses from that business on two days in the first three months of 2013, compared with one day a year earlier.‘

If we assume there were 60 trading days in the first quarter, it means Goldman Sachs traders made profits 96.7% of the time.

In the world of trading that’s an unheard of strike rate. Most traders are happy to make profits on just half their trades.

Even if you factor in the large number of traders on Goldman Sachs’ trading desk, the law of averages would still dictate a win rate close to what an individual trader can achieve.

So there’s only one explanation – the big boys have a secret advantage compared to every other investor. But it’s not just insider knowledge. Until recently they’ve had another advantage…

Investing: Humans v Computers

Over the past few years, some folks have made a lot of noise about the influence of computer trading at the big banks and hedge funds. Another name for it is algorithmic or ‘algo’ trading.

Many worried that computers would take over the world. Some feared it would even be the end of investing as we know it.

But now it seems that computers aren’t quite so smart after all. In fact, according to Bloomberg:

‘Currency funds that use computer models for trading decisions made 0.7 percent this year through June, compared with 2.3 percent for those that don’t, the biggest margin since 2008.‘

The article says that computers haven’t yet figured out how to trade unpredictable markets. A good example was the US Federal Reserve’s about-face in May, when many thought it would start raising interest rates.

Human traders traded that move quickly as bond yields soared. It seems the computer (‘algo’) trading programs weren’t quick enough to catch the move.

(We guess we’ll find out soon enough on how many days Goldman Sachs traders and computers made profits during this rocky period.)

Saying that, the fallibility of computers and computer modelling shouldn’t surprise you. One of the big controversies during the 2008 financial meltdown was value at risk models (VaR).

Big traders used VaR to work out the potential loss for a portfolio. They use historical volatility and the expected behaviour of various asset classes in certain conditions – stress testing.

But none of this counted for toffee when financial markets collapsed. Events that the models said were a one-in-a-thousand-year’s possibility happened…and in a big way.

So, what does that tell you? For a start it tells you that even the smartest computer trading system needs a human to get involved when the computer misses something.

That’s why, as fond as we are of new technology and its ability to improve lives and drive down costs, we also know the human element is important.

‘Hands On’ Investing

In truth, as a fundamental analyst, we don’t leave anything to automation.

Because when dealing with revolutionary, breakthrough and leading-edge technology companies, the most important thing we look for is innovation.

And as far as we’re aware, there isn’t a single computer model that can identify a revolutionary change before it happens. There certainly isn’t one that can identify a company to benefit from the change.

So when it comes to finding revolutionary investments, we have no problem saying we’re old school. Call it a ‘hands on’ approach if you like.

But just as we prefer a ‘hands on’ approach with our investment research, we prefer to be ‘hands on’ when investing our own money too.

We like to know a human has complete control over our savings and investments. But not just any human. We like to have personal control over each of our investments.

That way, on any given day we can know exactly how much money is in our investment savings account. We know our shares balance. And we know the value of our precious metals.

This is vital. It’s important to know where your money is and what you’re invested in at all times. That means avoiding opaque investments. And most of all, avoid investments where you don’t have complete control.

This is the key to avoiding any nasty surprises during the next financial meltdown (whenever it arrives). Whether the cause of the next meltdown is computer trading or human traders, it’s doesn’t matter.

What matters is that you take charge of your investments today.

Cheers,
Kris+

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