Month: October 2013

By Profit Confidential

Recently, Alexandre Gautier, the director of market operations at the central bank of France, was quoted saying, “We have no plan to sell gold.” Meanwhile, the director general of the Italian central bank, Salvatore Rossi, said, “Gold underpins the independence of central banks in their ability to (act) as the ultimate bearer of domestic financial instability.” (Source: “Banca d’italia says gold reserves key to cenback independence,” Reuters, September 30, 2013.)

The central bank of France and Italy are a few of the biggest holders of gold bullion when it comes to their reserves. When they say they don’t plan to sell (by the way, Germany has said the same thing), it should be taken as confirmation gold bullion is still very important to central banks.

We all know how fiat currency started. Some central banks didn’t like the idea of the paper money being linked to gold. They resorted to printing more paper money to pay their bills. And many central banks sold their gold bullion once the U.S. dollar was no longer officially linked to its gold reserves. Now, many central banks are having a “change of heart” when it comes to gold bullion. Central banks of emerging markets are adding to their gold reserves as some countries say they just don’t have enough of the precious metal.

As gold investors, we need to remember central banks will never pre-announce when they are going to buy more gold bullion. They are like an elephant trying to quietly step into a swimming pool. Central banks can cause gold bullion prices to quickly skyrocket if word gets out they are accumulating more of it. That’s why we only hear about it after they have made their purchases. And as we have been seeing all year, central banks, especially emerging market ones, have been accumulating gold bullion.

The recent pullback in gold bullion prices has, in my opinion, created a great buying opportunity for investors, and I wonder if central banks are thinking the same.

Today, we are seeing a slight weakness in gold bullion prices in spite of the current debt ceiling debate and the U.S. government shutdown. The last time the U.S. debt ceiling debate was approaching, in 2011, gold bullion hit its all-time high of just over $1,900 an ounce. Today, gold bullion prices stand much lower. Something doesn’t sound right.

Are gold bullion prices being manipulated? No one can say with certainty. But when I look at just the fundamentals of the equation—the shrinking supply and increasing demand for gold bullion—they keep me bullish on the yellow precious metal. I continue to believe it’s a great time to accumulate (or average down into) the depressed gold miners.

What He Said:

“‘Home sales down 8.4%, could be the bottom,’ read the headline in last Friday’s USA Today. What do they know that I don’t? They know what realtors and their associations tell them and that’s about it. Unfortunately, the real estate news is predominately written by reporters—not real estate investors with years of experience to share. The hard facts about the real estate market in the U.S. are truly scary. How can the U.S. economy escape the hard landing in U.S. home prices? As we’ll soon find out, it simply can’t!” Michael Lombardi in Profit Confidential, January 31, 2007. While the popular media was predicting a bottoming of the real estate market in 2007, Michael was preparing his readers for worse of times ahead.

Article by profitconfidential.com

By Profit Confidential

I might as well come out and say it: I just don’t like gold as an investment at this time. Let me explain.

At the moment, you could trade the yellow precious metal by buying on weakness and selling into strength, but in this stock market, there’s really no other reason to hold the yellow ore.

Back on September 18, the price of gold surged to over $1,350 an ounce after the Federal Reserve decided against tapering its bond buying. The feeling was that the continued cheap money would fuel growth in the emerging markets and gold. However, I’m not sure that the move was entirely justified.

In August, I talked about my bearish view towards the yellow metal when prices were at $1,335. (Read “Yes, We’re Bullish on Gold, But Here’s One Bear’s Case Worth Reading.”) Fast-forward two months, and I continue to not like gold or see any reason to want to hold it unless, of course, tensions in the Middle East pick up or the U.S. economy tanks into another recession. The metal is generally acquired as a safe haven against a major global risk, and at the moment, I don’t see one.

Global inflation is benign. With the global economy growing at a moderate rate, inflation is under wraps, and I doubt it’s going to change in the immediate future.

Now, take a look at the following price chart of gold from a technical analysis point of view.

Chart courtesy of www.StockCharts.com

First of all, note the bearish “head and shoulders” formation on the chart, marked by the three short horizontal lines. Also note the long horizontal line, which reflects the neckline support. A break below this could drive prices towards $1,200.

Prices could surge higher if investors feel the government shutdown could last more than a few days or if there fails to be an agreement on the debt ceiling before the October 17 deadline. Under this scenario, the country will not be able to pay its debt holders and its debt could likely be downgraded. In my view, this is really the only supportive thing that could drive gold prices higher.

If the shutdown is over soon and a debt ceiling deal is reached, I could see gold heading lower.

At this point, I’d recommend that you play gold only if you are a trader. I would not be a buyer for the longer term at this juncture.

Article by profitconfidential.com

By Profit Confidential

Wow!

In the first nine months of this year, the S&P 500 has run up 18%—that’s about two percent per month. Other key stock indices have provided similar returns. At this pace, by the end of 2013, the S&P 500 will be up 24% for the year.

As my doubts about the performance of key stock indices continue to mount, some in the mainstream are saying the market will only go higher.

A story that ran in Bloomberg on Monday said the movement we see in the S&P 500 now is an almost exact duplicate of what we saw in 1954—a year in which the S&P 500 rose 45%. The research found that the S&P 500 is moving pretty much the same on a day-to-day basis as it did in 1954. The correlation coefficient (a statistical measure that looks at the movement in two variables) is 0.95. The maximum you can have is 1. (Source: Bloomberg, September 30, 2013.)

In 1954, the S&P 500 reached the highest level since the Great Depression. (Yes, in 1954, 25 years later, the stock market finally broke above where it was in 1929!) Please look at the chart below to get a more precise picture.

Chart courtesy of www.StockCharts.com

After 1954, the S&P 500 continued to rise, and since then it has never tested those levels again. There were a few glitches, and that stock market went nowhere between 1965 and 1979 (14 years), but overall, the trend until 2000 was upward.

Now, with the S&P 500 doing the same (breaking above its previous tech boom highs), will the key stock indices continue to rise? Is it a buying opportunity?

Readers of Profit Confidential know I am very skeptical of the rally we are experiencing in key stock indices. Comparing the 2013 rally to the rally of 1954 is just outright wrong. The fundamentals behind the two stock market rallies (1954 and 2013) are very different.

Here’s why…

In the year following 1954, U.S. gross domestic product (GDP) increased more than seven percent. (Source: Federal Reserve Bank of St. Louis web site, last accessed October 2, 2013.) The U.S. unemployment rate in 1954 stood at 5.6%. In 1955, it declined to 4.4%, and in 1956, it fell to 4.1%. (Source: Ibid.)

Now, let’s fast-forward to today.

In the second quarter of 2013, U.S. GDP came in at an anemic annual pace of 2.5%. The Federal Reserve expects U.S. GDP to slow in 2014. In 2015, the Fed expects GDP to run 3.0%-3.5%. For 2016, it expects a GDP of 2.5%-3.3%. (Source: “Economic Projections,” Federal Reserve, September 18, 2013.)

And let’s not forget that our GDP growth projections keep falling! For example, in June of this year, the Federal Reserve forecasted U.S. GDP would average between 2.3% and 2.6% this year. In September, it revised that projection down to 2.0%-2.3%.

The average unemployment rate in the first eight months of this year has been 7.6%. Where is it headed next? The Federal Reserve doesn’t expect the unemployment rate to hit between 5.4% and 5.9% until 2016! (Source: Ibid.) You also have to keep in mind the quality of jobs being created in the U.S. economy now are part-time, low-wage-paying work.

Anywhere you look, there’s misery in the U.S. economy. We have millions of homeowners living in houses with negative equity, the number of Americans using food stamps has skyrocketed, and the majority of Americans closing in on retirement have next to no savings!

2013 is no 1954! The U.S. economy was booming 60 years ago!

Dear reader, the key stock indices are rising on nothing but the Federal Reserve printing tons of paper money. We saw what happened when the Fed started talking about tapering its $85.0 billion a month in printing: stocks tanked, bonds tanked. Stocks are holding on by a thread; but the only certainty is that the Fed can’t go on printing forever.

Companies in key stock indices have found ways to show “better-than-expected corporate earnings.” They revise them lower, and then they beat their revised (lowered) expected earnings.

And another new phenomenon is public companies buying back their own stock to push up per-share earnings!

At the end of the day, companies in the U.S. economy are really not selling more. They are just cutting costs. Recently, we heard Merck & Co., Inc. (NYSE/MRK), one of the biggest drug manufacturers traded on the S&P 500, will reduce its labor force by 8,500. These lay-offs and other cost-cutting measures will save the company about $2.5 billion in operating expenses by 2015. (Source: Merck Investor Relations, October 1, 2013.)

The rally in stocks that began in 2009 is running out of fuel—and I’m very surprised it has lasted this long. The disparity between the economic fundamentals and the performance of key stock indices continues to increase, and the longer that goes on, the steeper the sell-off will eventually be.

Article by profitconfidential.com

By Profit Confidential

If there was a surprise in corporate reporting this quarter, it’s Walgreen Co.’s (WAG) earnings, which soared due to an increase in generic prescriptions. Total quarterly sales grew 5.1% to $17.9 billion, of which prescription sales accounted for 64%, representing 203 million prescriptions during the quarter, for a comparable gain of 8.2%.

Those are good numbers, especially in tandem with the company’s reporting a 19.1% increase in filled prescriptions for all of fiscal 2013.

Walgreen has been making acquisitions on a consistent basis, but at the same time, sales from stores open at least a year grew by 4.6%, which is a very good metric for any mature company.

With those numbers, Walgreen’s share price is poised to keep moving higher. Reliability and consistency is what Wall Street wants in a slow-growth environment. (See “Consistency, Rising Dividends Make This Benchmark a Possible Winner for Savers.”)

Another company that surprised the Street with good earnings results was Global Payments Inc. (GPN). This is a very interesting enterprise; the company does electronic payment processing for merchant and institutional customers like financial institutions, big corporations, and even government agencies.

The stock’s been in consolidation for years, but I think it’s on the cusp of a major breakout.

The company beat on consensus earnings per share and revenues, while revising its fiscal 2014 earnings per share to above the previous outlook.

In its 2014 fiscal first quarter, the company’s revenues grew seven percent to $629.7 million, up solidly from $590.3 million in the comparable quarter.

Fully diluted GAAP earnings per share were $0.87, way up from $0.59 per share in the fiscal first quarter of 2013.

This is a very interesting business and a company worth keeping on your radar. Management said that the company plans to buy $100 million of its own stock this month. Street estimates for Global Payments are going to go up.

While it’s very early days this reporting season, I am seeing some decent financial results from companies that already had fairly low expectations for growth. It’s mostly single-digit growth, but at least bigger companies aren’t reporting contractions from the previous and comparable quarters.

There has been a pullback in the stock market’s strongest blue chips over the last two months. They can, however, reaccelerate if their numbers are good. Balance sheets continue to be excellent and earnings productivity is very much the result of strong cost control.

Recognizing that quarterly earnings results are a game of managed expectations, the combination of balance sheet health and revenue and earnings growth among many brand-name companies so far has been quite positive.

It’s a good sign in a stock market that is fully valued. Good numbers from corporations help justify current share prices; however, they don’t make the case for buying this market currently.

Article by profitconfidential.com

By Profit Confidential

Obamacare is here after the Affordable Care Act was signed into law in March 2010. The Act dictates that all Americans, poor and rich, will need to have some form of insurance coverage.

Americans can select the appropriate level for them from the four levels of coverage—bronze, silver, gold, and platinum. The actual coverage in each plan is the same, with the difference being the deductable you have to pay. Moving from the bronze level to the platinum level, the deductable declines but the initial amount paid for the plan increases. Some Americans may be eligible for government assistance, depending on their financial situation, of course.

While Obamacare may seem complicated at first, making money from it is not; Obamacare makes a good buying opportunity.

The end result of Obamacare will be the addition of tens of millions of Americans who previously had little or no coverage to the healthcare system, now having access to basic healthcare. This means the demand for healthcare will increase across the board, providing a good buying opportunity.

Overall, Obamacare will be a positive catalyst for the healthcare sector, which will see demand rise for healthcare goods and services and provide a buying opportunity for healthcare stocks.

Big pharmaceutical stocks, such as Merck & Co., Inc. (NYSE/MRK), Pfizer Inc. (NYSE/PFE), Johnson & Johnson (NYSE/JNJ), and UnitedHealth Group Incorporated (NYSE/UNH), offer a possible buying opportunity, as they will be direct benefactors of Obamacare. Each of these stocks is excellent and is a possible buying opportunity for long-term growth.

If you’re looking for a buying opportunity in a variety of healthcare companies, then take a look at the Health Care Select Sector SPDR Fund (NYSEArca/XLV), which includes key healthcare companies that could rally from Obamacare.

The chart below shows the nice upward move since the start of July.

Chart courtesy of www.StockCharts.com

The top 10 holdings (as of August 30, 2013) in the Health Care Select Sector SPDR Fund are as follows:

Alternatively, if you are looking for potentially higher returns, small-cap healthcare stocks or exchange-traded funds (ETFs) may make more sense for you as a buying opportunity. Smaller companies tend to adjust quicker to changes and may be more domestic, which is great as a buying opportunity under Obamacare.

On the small-cap side, take a look at PowerShares S&P SmallCap Health Care Portfolio (NASDAQ/PSCH) for a possible buying opportunity. Here you have stocks such as Cubist Pharmaceuticals, Inc. (NASDAQ/CBST), Questcor Pharmaceuticals, Inc. (NASDAQ/QCOR), and Align Technology, Inc. (NASDAQ/ALGN).

Chart courtesy of www.StockCharts.com

For some other small-cap stocks that pay good dividends and offer above-average capital appreciation, read “Why Investors Should Look to Small-Caps for Dividends.”

Article by profitconfidential.com

By MoneyMorning.com.au

Technology:
Is The US Government Hoarding Bitcoins?

By now you’ve possibly heard the illegal hidden website ‘Silk Road’ has been taken down by the FBI. If you’re unaware of Silk Road, it is/was a hidden website on the Tor Network.

The Tor network is a completely anonymous part of the internet. Some call it the Dark Web, but in essence it supposedly keeps your identity anonymous when online.

Around the 10th July this year, US Border Patrol conducted a routine search on a mail delivery. During that routine search they uncovered a parcel. In this parcel were nine counterfeit identity documents.

Ross Ulbricht had ordered these documents. Ulbricht used the website he owns, operates and profits from to get these documents. That website? Silk Road.

This chain of events culminated in Ulbricht’s arrest this week. Ulbricht is a 29 year old that runs a criminal website selling drugs, explosives and guns.

So you’d expect a Hollywood style arrest. In some plush hotel suite littered with the paraphernalia his website sells. But no, his arrest was subtly done while he was at the library.

Due to the shutdown of Silk Road and Ulbricht’s arrest the price of Bitcoins plummeted to $109US. This kind of volatility isn’t unusual for Bitcoins, and it’s this kind of news that often makes it jump around.

For some time the US government has been wary of the Tor network, Bitcoins and the way in which criminal activity is fuelling their notoriety. And Silk Road has been a target for the FBI for some time.

In response to this the Tor project posted a statement about the anonymity of their browser. In part I’d suspect because there would be many concerned (legitimate) users now worried about their privacy.

‘So far, nothing about this case makes us think that there are new ways to compromise Tor (the software or the network). The FBI says that their suspect made mistakes in operational security, and was found through actual detective work.’

The FBI has subsequently arrested Ulbricht. The US has now lodged a criminal complaint against him. They also lodged a civil complaint against Ulbricht and…

‘Any and all assets of Silk Road including but not limited to the Silk Road hidden website and any and all Bitcoins contained in wallet files residing on silk road servers, including the servers assigned the following internet protocol addresses: 46.183.219.244; 109.163.234.40; 193.107.86.34; 193.107.86.49; 207.106.6.25; and 207.106.6.32.’

In the Civil cases the US Department of Justice can take proceedings against property, not just the person involved. In order to keep the property the only proof needed is that the property is a result of crime. In this situation, the property they’ve seized is Bitcoins.

Voilà, the U.S is 26,000 Bitcoins richer.

Now what’s worth asking here is, what will they do with the Bitcoins? Because the aim of seized property is to maximise the net return from seized property then one would assume they have to sell the Bitcoins back into the market? And if that’s the case, then this is just a temporary dip in the Bitcoin price. In other words, a buying opportunity.

But let me leave you with this. If you’d just acquired 26,000 Bitcoins and it cost you nothing, would you hold onto them to ‘maximise the net return’? I know I would. But the US Government…surely not?

Makes you even think if they can seize Bitcoins, who’s to say they haven’t been actively buying them for some time? Maybe the Winklevoss twins aren’t alone. Maybe, just maybe the US government is hoarding Bitcoins too?

Energy:
E.Coli to Be The Number Two in Fuel

We’ve written before about the genius of Korean scientists. More specifically the scientists at the Korean Advanced Institute of Science and Technology (KAIST). They’re a smart bunch at KAIST and they haven’t let us down this time.

Excitingly this breakthrough isn’t just about electric buses. This breakthrough from the KAIST scientists has to do with petrol, poo and E.Coli.

The humble little gut bacteria that spoils food and makes you sick has some pretty potent potential for producing petrol.

Oh and it does it through poo.

In a report by the Wall Street Journal the scientists said,

‘When the modified E. coli were fed glucose, found in plants or other non-food crops, the enzymes they produced converted the sugar into fatty acids and then turned these into hydrocarbons that were chemically and structurally identical to those found in commercial fuel.’

That is, the E.Coli poo is petrol.

It might not necessarily replace traditional fuel, but it could be…the number two. The process is nowhere near efficient enough to start pumping E.Coli poo down at the local Shell just yet. But like all good science and technology breakthroughs, it’s a start.

What this could do is flush the concept of dwindling fuel supplies down the toilet. You see E.Coli is very common, easy and inexpensive to grow. It could lead to a common way of creating fuel.

I know it all sounds a little out there, bacteria poo as fuel. But the science doesn’t lie. In a world where we’re consistently seeking alternative forms of energy this is but another option, hopefully. The future of energy will come from multiple sources. Whether it’s fusion power, EV’s, solar, wind or bacteria poo, each one has a role to play.

And with the team at KAIST advancing their research, E.Coli might just turn out to be better for you than you think.

Health:
Is Eugenics Alive and Well?

Earlier this year Dan Denning, Nick Hubble and I had our DNA analysed. If you haven’t seen my results have a look here.

Anyway, I found the results to be particularly helpful. Not in the sense that I now know I’m prone to atrial fibrillation and heroin addiction. But in the sense that I’m more educated about my own body.

I think this kind of information is invaluable. I also know what kind of traits I’m likely to pass on to any future children I might have.

The company we used for our DNA analysis is 23andme.com. It was pretty easy. They sent us a kit, we gave them a saliva sample, shipped it back to the US and a few weeks later we had our results.

23andme are under fire at the moment for a new patent they just had approved. The company says it’s nothing new and that they lodged it five years ago.

The patent was designed to assist with 23andme’s Family Traits Calculator. As the company states,

‘The tool – Family Traits Inheritance Calculator – offers an engaging way for you and your partner to see what kind of traits your child might inherit from you.’

They go on to say,

‘The tool offers people an enjoyable way to dip their toes into genetics. It aligns nicely with our goal to introduce people to their DNA and help them better understand the science of genetics.’

But the particular wording of the patent states,

‘(Gamete donor selection includes) identifying a preferred donor among the plurality of donors, based at least in part on the statistical information determined.’

What this really means is the patent allows for something that will raise the eyebrows of many. It effectively allows for selection of a preferred donor based on particular genetic traits. It’s a roundabout form of eugenics.

In today’s world we have cutting edge technologies. In particular the rise of Personalised Medicine and the DNA revolution has opened the proverbial can of worms.

Because of the availability of such pioneering technology we have to ask a simple question. Is eugenics so wrong in the world we currently live in?

It’s a huge topic, which I’ll cover in more detail over the next few weeks. But there’s significant debate about what eugenics actually means. And over the course of history the term has taken on some significant, and horrible definitions. None more so than the incorporated ideas of Eugenics in Hitler’s Mein Kampf.

But what if eugenics led to a better life for people? What if we had the ability to use genetic code to prevent suffering? What if we could prevent a child suffering from leukaemia? What if we could eliminate genetic disease completely? Alzheimer’s, Parkinson’s, perhaps more. The potential is astounding.

But of course there are moral and ethical issues too. There will always be those that seek to use such practices for immoral purposes. There will also be plenty of people that use this technology for its greater benefit.

Besides, what’s to say the practice of eugenics isn’t currently alive and well? Perhaps the patent issued to 23andme is more a sign of the times rather than a horrible mistake.

There are arguments from both sides of the fence. But when you think about the potential eugenics might have with available technologies, maybe it’s not such a bad thing after all?

Sam Volkering+
Technology Analyst, Revolutionary Tech Investor

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By MoneyMorning.com.au

Last Saturday in Money Weekend we discussed the growing trend toward streaming services in the Australian market.

That got an interesting follow up this week when Channel Ten launched its latest digital strategy alongside the reboot of its catch up service ‘TENplay’.

TENplay will allow you to watch most Channel Ten shows on demand, along with a bunch of other nifty features.

That was just one of the developments this week that are set to change the way we watch TV, buy products and spend our money… 

Big Changes Coming to a Business Near You 

Ten chief digital officer Rebekah Horne is behind the development of TENplay. An interesting point she made to the Australian is her belief that the small size of the Australian market means it can only support two major streaming players.

Last week we pointed out Channel Nine, Seven West Media, Foxtel and Quickflix all have plans to tap into this market in one way or another. Offshore players Netflix and Hulu are considering it as well.  Add Channel Ten and you have a very competitive landscape.

But it gives you an idea of the ‘internet everywhere’ theme we’ve explored in Money Weekend lately. TENplay will be available on mobiles, tablets, game consoles and smart TVs. In fact, one feature is the ability for the user to navigate between different devices while watching the same program.

But it’s not just free to air TV that’s evolving thanks to the digital revolution. The car industry is too. In this case, as reported by the Australian Financial Review, it’s the success of Subaru selling its BRZ sports car exclusively online, direct from the manufacturer. The AFR: ‘Its success highlights the potential for low cost retailing that may change the way we buy cars.‘

For the moment this trend is for fleet buyers, not retail. But it’s already changing the business model of dealerships. One of those changes will be a shift into greater investment in creating virtual showrooms to attract buyers researching online.  From the AFR again: ‘The digital age is the tipping point, and we will see the biggest changes to hit dealerships in the past 50 years.‘

Research shows retail buyers prefer to search online but make personal contact by visiting a dealership to close the sale. Online behaviour like this is why companies spend so much money on research. It’s enabled Facebook to find another lucrative way to tap into consumers’ online behaviour.

The Coming Death of the Traditional Bank Branch

The Financial Times reported this week that Facebook is expanding its offering of mobile ads to cash in on app makers and retailers. Apparently two thirds of people who download a mobile app only open them between one and ten times. The challenge for companies is to get users to keep using the app.

According to the FT:

‘Retail and e-commerce companies such as Target, eBay, and HotelTonight, an online booking site, have used the ads to get people to download their shopping apps. The new ads will allow them to entice shoppers back to the app for a product promotion or 24 hour sale.’

Facebook can help them do this and make a growing, tidy stream of revenue. But the company will be really cashing in if it can dominate the payments market. That’s the idea behind its latest launch, ‘Autofill for Facebook’.

Revolutionary Tech Investor analyst Sam Volkering gave us his take this week:

‘Essentially you store card details in Facebook’s platform, which means when you go to shop on your mobile, instead of buggering around with fiddly card numbers, cvc’s and actual cards, you just tap on ‘Autofill with Facebook’ and bang, your card details are in and you can check out. And if you think no one would give their card details to Facebook…the 20 million per day users of Candy Crush Saga and the 8 million per day users of Farmville 2 will disagree with you. And if you think those users don’t pay for games, try over $1 billion in total revenue from Farmville and over $850,000 per day from Candy Crush.‘

The big banks are hustling to develop their technology platforms, and their priority is mobile devices. Take this from The Age this week:

‘In a speech to the Trans Tasman Business Circle last month, Westpac CIO Clive Whincup said the convergence of mobility, digitisation and social media had "radically shifted the balance of power, placing the customer in control".‘

It will also mean bank branches will become much more tech-orientated, with fewer staff.

The Age article suggests that the number of financial services organisations engaging customers through mobile devices is expected to grow to 92 per cent within five years.

The way Sam sees it, Facebook and the other big tech companies are making online payment easier and stand to take a chunk of the market off the established banking system by cutting them out of the process.

Kris Sayce and Sam over at Revolutionary Tech investor have one niche payments company on the buy list. Arguably, that potential is priced into the big players like Google, Facebook and eBay. And the big banks won’t be easy to dislodge with their massive resources, either.

But there are different angles to the same idea. Another way to play it is to consider online security.  Who can profit by making your mobile transactions, accounts and networks secure?

As mobile banking and payments get bigger and bigger, this will be a trend to follow.

Callum Newman+
Editor, Money Weekend 

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Special Report: UNAVOIDABLE: Australia’s First Recession in 22 Years  

By The Sizemore Letter

To everything there is a season.  After trailing the market for the first half of the year, the Sizemore Global Macro Portfolio has come roaring back with a vengeance.  According to returns data compiled by Covestor, the portfolio was up 17.0% in the 90 days to October 1 vs. a gain of 4.9% on the S&P 500.

The reason for the reversal of fortune?

Our allocation to social media stocks via GSV Capital (GSVC) was certainly a contributing factor. GSV Capital is up 80% year to date, and it is one of the portfolio’s largest holdings.

But the biggest contribution came from the portfolio’s allocation to Europe.  10 of the portfolio’s 22 current holdings are domiciled in Europe.  This overweighting was a major drag on performance during the first half of 2013, as the U.S. markets massively outperformed virtually all others.  But as investors rediscover the investment merits of the Old World, the gap is closing fast.

I expect to see Europe outperform the U.S. markets for the remainder of 2013 for the following reasons:

1. Continent wide, European shares are significantly cheaper than their American counterparts, particularly when you consider that European earnings have been depressed by years of crisis.  By Societe Generale estimates, European stocks trade at a 36% discount to their American counterparts.
2. The bond markets in Europe have stopped reacting to bad news.  The Italian government teetered on the brink of collapse this week due to the shenanigans of former prime minister Silvio Berlusconi…and yields barely budge.  A calm bond market creates the conditions of stability that a stock market rally requires.
3. European companies have better indirect exposure to emerging markets than their American counterparts.  This was a negative earlier this year when investors were fleeing the asset class.  But as China looks to be stabilizing, I expect to see emerging market growth surprise to the upside.

Disclaimer: All returns data is for informational purposes only; past performance is no guarantee of future returns.   

This article first appeared on Sizemore Insights as October 2013 Portfolio Outlook

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London Gold Market Report
from Adrian Ash
BullionVault
Fri 4 Oct 09:05 EST

WHOLESALE GOLD rallied from a 1-day low of $1310 per ounce lunchtime Friday in London, but was still trading 1.4% down from last week while European stock markets also reversed earlier losses.

The US Dollar rallied from 9-month lows on the currency market as the budget shutdown in Washington saw President Obama cancel a long-planned tour of Asia.

Major government bonds eased back, and crude oil ticked up towards $110 per barrel of Brent.

Silver tracked and extended the moves in gold, first dipping to a loss of 2.7% for the week and then recovering to last Friday’s finish at $21.80 as the start of New York trading drew near.

“Asian demand for physical gold picked up briefly this week when prices fell below $1300 an ounce,” says Reuters.

Indian wholesalers continue to shy away however, the Times of India reports, with the state of Gujarat seeing its second-lowest gold imports of the last 5 years in September as confusion over anti-import rules persists.

 “Macau [in contrast] imported more gold jewellery than food and drink in the period between January and August,” reported the Chinese city’s Statistics and Census Bureau today.

 “Where would gold be,” asked Jeremy East of Standard Chartered Bank at this week’s LBMA conference in Rome, “if China hadn’t come in and mopped up” what India didn’t buy over the summer?

 “I wouldn’t have been surprised to have seen gold testing its big support level at $1050,” said East.

 Yesterday, however, “We are not seeing any demand come in from China even at these levels,” Bloomberg quoted Chicago trader Frank Lesh at FuturePath, “indicating that people expect it to fall further.”

 Singapore dealers today reported ongoing demand for gold bullion from stockists in Thailand and other south-east Asian markets.

 Malaysia’s futures exchange will start trading gold contracts for the first time this coming Monday.

After auctioneers Christies raised $25 million with its first event in China last week, Singapore jeweler Mouawad is now offering a $55 million diamond and gold necklace, Reuters reports.

 State-owned Chinese bank ICBC – the world’s largest bank – is investing $£650m ($1bn) into a new business district at Manchester city airport in the UK, says the Financial Times.

 “Gold has within living memory remained very much a London-centric market,” writes Ross Norman of Sharps Pixley in the latest edition of Commodities Now.

“[But] not only is the epicentre of gold trading moving East, so is the vaulting. The emerging nations are making it ever easier and cheaper to buy and store. Their regulations and taxes are infinitely less onerous.”

 Singapore in particular is already seeing “significant flows of gold” according to ANZ Bank’s local head of FX and commodities Eddie Listorti.

 “Increasing numbers of high net worth individuals and family offices [are] opting for Singapore’s status as a safe haven,” he says.

 Looking at price action, however, “Events in the US will have the biggest impact over the coming two years,” reckons a new report from French investment bank and bullion dealer Natixis.

 “As the US economic situation continues to improve, so gold prices are at risk of further declines as interest rates rise and the need for a safe haven dissipates.”

 Australia’s government forecasting agency agrees, predicting that the gold price will average $1275 per ounce in 2014.

 “[Gold is] expected to rebound in the near term,” says the Bureau of Resources & Energy Economics in Canberra, due to the US Federal Reserve’s decision not to “taper” its money-printing quantitative easing program in September.

 However, “speculation on the tapering is likely again in 2014,” it goes on, “particularly if more positive US economic data is reported.”

 Such speculation about US Fed policy, “as well as investor preferences shifting to other asset classes as interest rates recover to normal levels, are expected to result in lower prices.”

Adrian Ash

BullionVault

Gold price chart, no delay | Buy gold online

Adrian Ash is head of research at BullionVault, the secure, low-cost gold and silver market for private investors online, where you can fully allocated bullion already vaulted in your choice of London, New York, Singapore, Toronto or Zurich for just 0.5% commission.

(c) BullionVault 2013

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.

Senior Analyst Jeffrey Kennedy explains why traders need to understand both personal and crowd psychology

By Elliott Wave International

Jeffrey Kennedy, editor of our educational Elliott Wave Junctures service, tells us that there are three phases of a trader’s education, and that aspiring traders typically go through them in this order:

1. Methodology – The first phase is that all-too-familiar quest for the Holy Grail – that is, a trading system that never fails. After spending thousands of dollars on books, seminars and trading systems, the aspiring trader eventually realizes that no such system exists.

2. Money Management – Frustrated with wasting time and money, the up-and-coming trader begins to understand the need for money management, risking only a small percentage of a portfolio on a given trade versus making too large a bet.

3. Psychology – The third phase is realizing how important psychology is – not only personal psychology but also the psychology of crowds.

Yet, even after trading for 15 years — and earning what he calls an expensive Ph.D. from S.H.K. University (School of Hard Knocks) — Jeffrey had an aha moment:

“Aspiring traders should begin their journey at phase three and work backward.”

Read more below to find out why he believes that psychology is so important.

AND, you can begin your trader education now to avoid further tuition fees from S.H.K. University. Get instant access to four free video lessons from Jeffrey — and get a week’s worth of additional lessons, October 2-9 — when you sign up for our FREE Trader Education Week today >>

Jeffrey Kennedy on the importance of both personal and crowd psychology (excerpted from his Traders Classroom Collection):

I believe the first step in becoming a consistently successful trader is to understand how psychology plays out in your own make-up and in the way the crowd reacts to changes in the markets. A trader must realize that once he or she makes a trade, logic no longer applies, because the emotions of fear and greed take precedence: fear of losing money and greed for more money.

 

Once the aspiring trader understands this psychology, it’s easier to understand why it’s important to have a defined investment methodology and, more importantly, the discipline to follow it. New traders must realize that once they join a crowd, they lose their individuality. Worse yet, crowd psychology impairs their judgment, because crowds are wrong more often than not, typically selling at market bottoms and buying at market tops.

 

Moving onto phase two, after the aspiring trader understands a bit of psychology, he or she can focus on money management. Money management is an important subject and deserves much more than just a few sentences. Even so, there are two issues that I believe are critical to grasp: (1) risk in terms of individual trades and (2) risk as a percentage of account size.

 

When sizing up a trading opportunity, the rule-of-thumb I go by is 3:1. That is, if my risk on a given trading opportunity is $500, then the profit objective for that trade should equal $1,500, or more. With regard to risk as a percentage of account size, I’m more than comfortable using the same guidelines many professional money managers use: 1%-3% of the account per position. If your trading account is $100,000, then you should risk no more than $3,000 on a single position. Following this guideline not only helps to contain losses if one’s trade decision is incorrect, but it also insures longevity. It’s one thing to have a winning quarter; the real trick is to have a winning quarter next year and the year after.

 

When aspiring traders grasp the importance of psychology and money management, they should then move to phase three: determining their methodology, a defined and unwavering way of examining price action. I principally use the Wave Principle as my methodology. However, wave analysis certainly isn’t the only way to view price action. One can choose candlestick charts, Dow Theory, cycles, etc. My best advice in this realm is that whatever you choose to use, it should be simple. In fact, it should be simple enough to put on the back of a business card, because, like an appliance, the fewer parts it has, the less likely it is to break down.

 

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