Investing Amidst the Gold Market Ruins

By MoneyMorning.com.au

Never laugh at live dragons,’ wrote J. R. R. Tolkien in his classic book The Hobbit, published in 1937.

Tolkien was on to something, I believe. His words come to mind because I keep seeing more and more news about China – the national symbol of which is the dragon – and its many citizens buying more and more gold. It’s fair to say that China and the Chinese hoard yellow metal.

Not long ago, for example, I saw video of Chinese rioting over access to a gold-selling mall in Shanghai. Evidently, some Chinese are desperate to convert their currency into gold. It’s a gold-lust much like that of Tolkien’s gold-loving dragon named Smaug:

There he lay, a vast red-golden dragon, fast asleep…about him on all sides stretching away across the unseen floors, lay countless piles of precious things, gold wrought and unwrought, gems and jewels, and silver red-stained in the ruddy light… [The] hobbit could see his underparts and his long pale belly crusted with gems and fragments of gold from his long lying on his costly bed.

If you’re looking for gold, I don’t recommend walking into the lair of a fire-breathing dragon. But I’m okay with accumulating gold and gold shares via less dangerous means, and today I’ll explain my logic.

In fact, despite a generally ‘down’ market for gold this year, I’ve got my eyes on cheap miners. Some of these shares are set to be a great buy at current, beaten-down gold prices. And looking ahead – in the long-term – what if gold prices rise?

Considering an economy marked by low interest rates and all manner of bizarre government policies, long-term gold fundamentals are still holding true.

What about Those Chinese?

First, let’s take another look at Chinese gold-buying. It’s just astonishing. The Chinese government and people are buying gold by the tonne (metric ton). See the nearby chart of Chinese gold imports from Hong Kong, showing strong, steady accumulation over the past two years.

In specific numbers, since September 2011, China has imported 2,116 tonnes of gold. That is, in just over two years, China has imported almost the equivalent of the entire gold reserves of France (2,435 tonnes) or Italy (2,451 tonnes).

According to the World Gold Council, about one-third of China’s gold imports are due to individual Chinese buyers who want to own ‘personal’ gold, as bullion and/or jewellery. That is, the buyers are people who don’t want to tie up their wealth in the Chinese yuan – the national currency. There’s also a modest amount of imported gold going for industrial use in electronics and such.

Much of the rest of the gold going to China – well over half – is, apparently, destined for the Chinese central bank. This gold is intended to back up government monetary policy.

Like Smaug the dragon, the Chinese do what they do. Or look at it another way. Here in the West, monetary players and many mainstream media pundits heap disdain upon gold. The conventional wisdom is to sell gold.

We see that conventional wisdom reflected when nominal gold prices fall and large gold holders like SPDR Gold Shares (GLD) liquidate holdings. Of course, for every seller, there’s a buyer, and right now, on net balance, the Chinese are buying every ounce sold, and then some.

It’s not far-fetched to believe that despite the harsh words of Western ‘experts’ against gold, the People’s Bank of China (PBOC) is making good on its quietly stated long-term goal of creating a gold-backed national currency.

Meanwhile, China is making trade deals with a host of nations in which those nations trade with China using their own national currencies and the Chinese renminbi (the currency used in international trade). This cuts the US dollar out of the cycle.

There are deep issues to ponder here. Why are Chinese people and their government so eager to buy and import gold? What do they know? Why does the Chinese government make so many bilateral trade deals? Why don’t the Chinese want to use the dollar? What’s the strategy at work?

Really, don’t the Chinese know that yellow metal is just a so-called ‘barbarous relic’ in the eyes of many Western economists and political gurus? Are the Chinese trying to take the world back to the days of Middle Earth and hobbits?

What Do the Gold Price Charts Tell Us?

Let’s follow the facts and look at gold price charts. As you can see in the chart below, the price of gold declined this year, after a long run-up over the past decade:

See the close-up chart below, of gold prices this year, showing the 2013 decline in more detail. It’s a steady price deterioration, although perhaps we’re near the end of this downturn. Could gold prices fall further? I hope not, but never say never.

In the past year, the price decline for gold has dragged down share prices across the gold-mining sector too. Here’s a 10-year chart for the Market Vectors Gold Miners ETF (GDX: NYSE). For the sake of comparison, I’ve thrown in the Market Vectors Gold ETF (GLD: NYSE) as well.

So here’s what we know. China is importing large amounts of gold. Western holders are selling gold, as evidenced by the GLD decline and outflow. And gold miners are hurting, as we see from GDX.

In short, 2013 has been a strange year for gold. China lit the physical gold market on fire with overall purchases and imports. But you’d never know this from gold’s price, which has fallen more than 20%.

Investing Amidst the Golden Ruins

After all of this, what do we really know? In the Western world, large holders are selling gold – GLD and the like. In the East, multitudes of Chinese are buying. What should you do?

On the one hand, beware plunging into a turbulent gold and mining share market. Gold is not the latest investing fad, to be sure. Gold lacks that sexy allure of the latest high-tech vaporware or the aluminized hand-held device that will be obsolete in eight months.

On the other hand, if you foresee rising gold prices over the long haul in an era of volcanic government spending, there’s nothing wrong with buying into the best of the best mining plays while they’re beaten down.

Remember, the Chinese are hoarding gold. Demand in the Middle Kingdom has far surpassed gold mine production in the rest of the world. The only way for the global gold market to meet Chinese demand is to sell stockpiles – the GLD stashes of the world.

Sooner or later, the wheel will turn for gold. And when that happens, the markets will encounter a supply deficit unlike anything we’ve ever seen. When that deficit hits, we should see gold prices spike upward. When that time comes, it’ll be good to hold your favourite mining plays – they’re certainly cheap right now.

Until next time. Thanks for reading.

Byron King
Contributing Writer, Money Morning

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By MoneyMorning.com.au

Do not get into a Battle with the Market without a Money Management System

Article by Investazor.com

money-management-image-24.11.2013As we stated in our Trading Plan article, it is very important to also have a very good Money Management system which is suited for your needs. It should be adapted for each situation and also should complete your trading system so that you will get as much money from the market as possible. With a good Money Management plan even a very easy trading strategy can become a profitable one.

Guide lines for a good Money Management

From the past experience of the traders, it was observed that it is important to lose as less as possible on a trade and look for bigger profits then your risks. This means that you have to use a risk to reward ratio in your favor. You will find in a lot of trading books that a good risk reward is about 1:3 (you risk 100$ to obtain 300$ from the market).

Let’s take some theoretical examples for you to understand better how this risk to reward ratio works.

Example 1:

We take 2 investors with the same initial balance of 10.000$. First investor uses a 1:1 risk/reward, he risk 50% of his balance and hopes to win 50%, and with each second trade is a profitable one. The second investor risk’s 3% of his account but hopes to win 50% (1:16.6 risk/reward) and each second trade is profitable. Both investors are making 10 trades.

example-chart-1-money-management-resize-24.11.2013

The first investor will end up having his account almost erased while the second one has a pretty interesting profit.

Example 2:

In the second example we will get a little bit closer to the reality. The first investor will risk 20% to win 20% (1:1), with each second trade profitable, and the second investor will risk 3% of the account for winning 10% (1:3) and for him each third trade is profitable. They have 10 trades each.

example-chart-2-money-management-resize-24.11.2013

As you can the first investor will have a loss in his account after the 10 trades and the second investor will end up with more than 7% win.

This means that if you adjust correctly your money management you can have more losing trades than wining ones but still end up with a profit.

Out of the Box Money Management

We said it before and we say it again! It is important for you to be able to adjust you money management to suit the situation. If you will pin a certain risk to reward ratio to your trading strategy you will not be able to get the best out of the market.

If you will keep your mind open and think a little out of the box you will see that it is important to:

–          Lower your risk if you do not trust a certain setup, but you would like to be in the market in case you are right. This way you will lower your negative emotions and maybe end up in a very good trade;

–          Risk more if you trust your setup, but it is important not to do stupid thinks, like risking too much. Your experience and your trading strategy will tell you when you can risk more on a trade or trades;

–          Scale in (add more volume to your current trade) when the setup is consolidating and you have signals that tells you the market will move in your trade direction. This way you will end up with some interesting profits at the close of your trade.

–          Scale out if you have signals that your Take Profit levels will not be reached so you will put aside some profits but also leave some space for the market to move and still reach your levels.

–          Adjust your risk depending on the instruments you are trading on and on its volatility;

–          Modify your stops and take profits level depending on the moment of the day and if new signals appear, but never in your detriment;

These are some examples that you can use to adjust your Money Management to suite better with your personality, with your trading strategy and of course with the market.

The post Do not get into a Battle with the Market without a Money Management System appeared first on investazor.com.

The Practical Investor – Weekend Update 11-22-2013

Weekend Update

November 22, 2013

 

 

— VIX has either completed a truncated Primary Wave [5] or it is in the final stages of completion.  The low on November 15 is at an appropriate time, but it could extend another week into the Thanksgiving weekend.  The Cycles Model suggests that the decline is finished or very nearly so.    A breakout above 13.94 will suggest the change in trend is at hand..

SPX continues its throw-over.

— SPX maintained its throw-over above the massive Ending Diagonal.  Thanksgiving week is often considered the “peak week” of the positive season for stocks. Normally throw-overs last no more than a few days, but an Ending Diagonal this size may be allowed up to three weeks.  The reversal from the top may be violent.

 

(ZeroHedge)  The S&P 500 has now managed the longest weekly winning streak (7 weeks) since May 2007 (when it managed a 9% gain). Off the recent lows, the current run is an impressive 9.6% (for the S&P) with Trannies up 12.5% in the same period. (we hesitate to mention that May 2007’s run-up was halted by the first of the structured credit funds imploding) On the week, Trannies and NASDAQ ended back practically unch, Russell 2000 outperformed but the afternoon melt-up in stocks (on the back of more shorts being squeezed) held the S&P above 1,800 close for the first time ever.

 

NDX meets two trendlines.

— This week NDX is again pressing against two upper trendlines, that of the Massive Ending Diagonal and the upper trendline of the Broadening Wedge formation.   While Ending Diagonals often have throw-overs, Broadening Tops do not.  This suggests that NDX may be approaching the end of the line as it presses to meet the Broadening Top trendline one final time.

 

(ZeroHedge)  Analysts are forecasting the highest fraction of companies to post year-over-year margin expansion in our data history, despite the already near-record profit levels today. The only thing one can say when looking at this chart of expectations (apart from – imagine the job losses needed to achieve this) is WTF?!

 

The Euro is bouncing between support and resistance.

 

.  

 

           — The Euro bounced higher up to Short-term resistance at 135.58 this week.  The bounce appears to be complete, since the Cycles Model suggests the Euro may be due for a significant low in mid-December.

 

(ZeroHedge)  Talking-heads and commission-takers have momentum-chased clients’ hard-earned money into Europe’s ‘what works now’ markets – on the basis of what has now proved to be entirely fallacious macro- and micro-fundamental improvement (as we noted here and here). But, while “whatever it takes” has smashed bond spreads lower and has blown stock prices higher; most critically, the ‘confidence’ has seen the EUR rise almost 15% against the USD from its July 2012 “whatever It Takes” lows.

 

The Yen gains downside momentum.

–The Yen continues its slide toward the Head & Shoulders neckline at 96.00. The Yen may break down beneath the neckline in a Primary Wave [5] in a very strong Primary Cycle decline through mid-December.

 

 (WSJ)  TOKYO—Bank of Japan Gov. Haruhiko Kuroda on Friday rejected the view that the central bank’s aggressive pumping of money into the economy is creating a stock market bubble and excessive yen weakness, instead stressing that he will press ahead with monetary easing to vanquish deflation.  “I don’t think there is any bubblelike, abnormal yen weakness right now in the currency market,” Mr. Kuroda said during a parliamentary session when an opposition lawmaker accused the BOJ’s policy of merely causing bubbles in asset prices. “I have no particular concerns that a bubble may be in the making in the asset markets,” he added.

The US Dollar consolidates at mid-Cycle support.

 

— USD may continue its consolidation beneath mid-Cycle support next week.  In all likelihood, it may retest the lower trendline of its Triangle formation at 80.00 before spiking higher.  This may prove to be a head fake for dollar shorts since the next Cycle high may occur by mid-December.

 

(TheGuardian)  Since 1976, the US dollar‘s role as an international currency has been slowly waning. International use of the dollar to hold foreign-exchange reserves, denominate financial transactions, invoice trade, and as a vehicle in currency markets is below its level during the heyday of the Bretton Woods era, from 1945 to 1971. But most people would be surprised by what the most recent numbers show.

But the dollar’s status as an international currency has not fallen uniformly. Interestingly, the periods when the public is most concerned about the issue do not coincide with the periods when the dollar’s share in international transactions is in fact falling.

 

Gold hovers above a Head & Shoulders neckline.

— Gold appears to be hovering just above a small Head 7 Shoulders neckline at 1235.00.  Although gold is oversold, it may continue its decline to the next cyclical low, due in mid-December.  The nearer term target is the completion of its smaller Head & Shoulders formation at or near 1070.00.  I hope that I am wrong on the lower target, which may arrive in 2014.

 

(ZeroHedge)  What do the following dates have in common: September 12October 11and now, November 20? These are all days in which there was a forced gold slamdown so furious, it triggered a “stop logic” event on the CME resulting in a trading halt of the precious commodity.

 

Treasuries also bounce from the Cycle Bottom.

— USB declined to its Cycle Bottom at 130.27.  The lower trendline of its Broadening Wedge is just beneath it, but may provide little support.  It may retrace to its weekly Short-term resistance at 132.45 next week before resuming its downtrend.

(Bloomberg) Treasury 10-year yields rose to the highest level in two months as Federal Reserve officials said they might reduce $85 billion in monthly bond purchases “in coming months” as the economy improves, minutes of their last meeting show.

The difference between the yields on three-year notes and the 30-year bond widened to the most in more than two years as the policy makers expect “ongoing improvement in labor market conditions.” Fed Bank of St. Louis President James Bullard said earlier a cutback in the central bank’s purchase program is “on the table” for the December meeting, while 5 percent of investors surveyed are looking next month for a Fed decision to taper, according to the latest Bloomberg Global Poll.

Crude appears ready to overcome resistance.

— Crude challenged overhead resistance at its weekly mid-Cycle at 95.98.  At this point, it appears ready to stage a multi-week rally.  Crossing above the mid-Cycle (mean) puts crude back into positive territory.  The Cycles Model suggests that, should it rally above critical support, it may continue to rise into mid-December.

(Bloomberg)  West Texas Intermediate’s discount to Brent reached an eight-month high as rising inventories weighed on U.S. futures and limited progress in Iran nuclear negotiations supported the European benchmark.

The spread widened to $16.21 from $14.64 yesterday. WTI declined as rising domestic output added to inventories at record highs for this time of year. Brent reached a six-week high as envoys haggled over language in their efforts to ease the standoff over the atomic ambitions of Iran, whose oil exports have been reduced by sanctions.

 

China stocks repelled at trading channel trendline.

–The Shanghai Index rallied back to its declining trading channel trendline, which has defined Cycle tops for the past 3 years.  China stocks reached a Cycle Pivot day yesterday and may aleady have commenced its decline.  The next Pivot low may occur in late December, so this may be a strong decline.

The India Nifty loses Short-term support .

— The India Nifty index is showing rising volatility as it made a strong (65%) retracement, then gave it all back as it resumed a very fast decline to its Cycle Bottom.  The next levels of support are both Intermediate-term and Long-term at 5876.97.

The trigger to activate the Orthodox Broadening Top formation lies at the bottom trendline at 4900.00  It appears that CNXN may be reaching the bottom of this chart as early as the end of November, due to a Primary Cycle decline now underway.

The Bank Index may be due for another positive week.

— BKX  appears to be targeting its Cycle Top at 68.86 or perhaps slightly higher before “giving it up.”  Certain long-term Cycle relationships are met over Thanksgiving weekend, so enjoy the turkey, but don’t linger for any leftovers..

(ZeroHedge)  Overnight repo rates are spiking once again in early trading as the typically smaller banks that are more desperate bid aggressively for whatever liquidity they can find. 5Y Chinese swap rates have also reached a record high as the Yuan reaches its highest since Feb 2005.

The gambit between the PBOC’s liqudity provision and the growing dependence on their “spice” is clear – the question is, of course, will banks send a message (via the markets) to the PBOC or will they self-select (on first-mover’s advantage) eradicating the weakest.

(ZeroHedge) That didn’t take long…

  • *SENATE BANKING PANEL VOTES 14-8 TO APPROVE YELLEN AS FED CHIEF

  • *REPUBLICANS CORKER, COBURN, KIRK VOTE IN FAVOR OF YELLEN

  • *MANCHIN ONLY PANEL DEMOCRAT TO OPPOSE YELLEN FED NOMINATION

  • *YELLEN NOMINATION AS FED CHAIRMAN SENT TO FULL SENATE

Given this, the full Senate vote will be a rubber-stamp heralding the new era of Yellenomics as the QEeen takes her throne.

(WSJ)  With Tuesday’s $13 billion settlement with J.P. Morgan JPM +0.42% over the sale of mortgage-backed securities, the Justice Department has finally solved the mystery of the financial crisis. Turns out that the bankers did it—to each other, and even to themselves.

We’ve been critical of this government plundering of a bank that did not need a bailout in 2008, but we defy anyone to follow the logic of Tuesday’s Morgan agreement.

 

It seems the Justice Department has its hands in the till, too.

Regards,

Tony

Anthony M. Cherniawski

The Practical Investor, LLC

P.O. Box 129, Holt, MI 48842

www.thepracticalinvestor.com

Office: (517) 699.1554

Fax: (517) 699.1558

 

Disclaimer: Nothing in this email should be construed as a personal recommendation to buy, hold or sell short any security.  The Practical Investor, LLC (TPI) may provide a status report of certain indexes or their proxies using a proprietary model.  At no time shall a reader be justified in inferring that personal investment advice is intended.  Investing carries certain risks of losses and leveraged products and futures may be especially volatile.  Information provided by TPI is expressed in good faith, but is not guaranteed.  A perfect market service does not exist.  Long-term success in the market demands recognition that error and uncertainty are a part of any effort to assess the probable outcome of any given investment.  Please consult your financial advisor to explain all risks before making any investment decision.  It is not possible to invest in any index.

 

The use of web-linked articles is meant to be informational in nature.  It is not intended as an endorsement of their content and does not necessarily reflect the opinion of Anthony M. Cherniawski or The Practical Investor, LLC.

 

P.O. Box 129  Holt, MI  48842  (517) 699-1554  Fax: (517) 699-1558

Email: [email protected]  www.thepracticalinvestor.com

 

 

 

USDCHF: Weakens For Two Weeks In A Row.

USDCHF – With a second week of decline occurring the past week, there is risk of a return to the 0.9000 level. A violation of here will turn attention to its Oct 2013 low at the 0.8889 level. Further down, support lies at the 0.8750 level followed by the 0.8700 level. Its weekly RSI is bearish and pointing lower supporting this view.On the other hand, to resume its recovery triggered off the 0.8889 level now on hold, the pair will have to take out the 0.9249 level. This if seen will aim at the 0.9454 level. A cut through here will pave the way for a push towards the 0.9496 level and possibly higher towards the 0.9750 level. On the whole, the pair remains biased to the downside in the medium term.

By fxtechstrategy.com

 

 

Investors: Follow The Developments in The Chinese Steel Industry

By MoneyMorning.com.au

Take a bow Tom Miller.

If you haven’t heard the name, don’t be surprised. Mr Miller isn’t a hotshot fund manager or finance guru. He’s a journalist and author who wrote a relatively recent book called China’s Urban Billion.

It’s probably never going to rival Stephen King or JK Rowling for sales, but so far his reporting and analysis on China in that book is proving accurate.

For example, Miller doesn’t give much credence to the notion that the Chinese property market is an unstable Ponzi scheme forever dangling on the edge of collapse. That’s a contentious view now, but a gutsy call when you consider he wrote the book around the time the fear was arguably at its greatest in the market.

That’s not to say there aren’t bad debts out there in the Chinese system, but the rumoured big collapse hasn’t happened.

So far he’s been right.

But it’s another insight of his that popped up in the news this week that deserves a mention and could prove profitable for investors…

Who Talks About This Industry?

In case you missed it, the Australian reported this week that the Chinese steel industry is returning to profitability thanks to unexpectedly robust demand. It’s keeping the iron ore price anywhere between $10-$50 above expectations (depending on whose analysis you use).

Iron ore miners are skimming off a lot a cream while it’s up there and the Aussie dollar retreats back toward US90c.

Don’t forget how bearish the calls on iron ore have been. The bears may be proven right in 2014, but we’re sure even they’d admit the slowdown is taking longer than they thought it would. That’s why iron ore stocks have rerated lately. Mr Market was expecting a lower price by now, and hence lower revenues for the miners.

What’s happening?

On the supply side there’s a suggestion that Chinese iron ore mines are struggling with poor grades and rising costs. China is the biggest producer of iron ore in the world.

Bad news for them is obviously good news for Aussie suppliers.

What’s driving the demand? According to the Australian, ‘Australia’s iron ore price bonanza looks set to continue as Chinese steel output beats expectations and even the Asian powerhouse’s biggest steelmaker, Baosteel, concedes a short term drop is unlikely…steel production is being bolstered by increased car, railway and household goods manufacturing.

The one that jumps out of that for us is the railways. We don’t know about you but there’s not many people we hear who talk about Chinese railways.  But it’s big news in China.

Tom Miller is one who does talk about this industry. He pointed out in China’s Urban Billion that China essentially has no choice but to invest in mass transit systems that can connect its major cities and bind together massive urban areas. China needs to move a lot of people as efficiently as it can.

Miller says China already has 18 mass transit systems in action, with a further 18 under construction and 23 at the planning stage.

The New York Times reported back in September that the rail network is making Chinese workers more productive, according to a study by the World Bank.

China’s high-speed rail system has emerged as an unexpected success story. Economists and transportation experts cite it as one reason for China’s continued economic growth when other emerging economies are faltering.

You can also throw in the added benefits of time saving for travellers, reduced noise, fuel savings and less air pollution. The NYT:

China’s new prime minister, Li Keqiang, publicly endorsed further expansion of the 5,900-mile high-speed rail network this summer. He said the country would invest $100 billion a year in its train system for years to come, mainly on high-speed rail.

You Should Be Watching This

This is part of a broader trend that you should be watching an investor. How can China grow its economy and cut its pollution? That’s the dilemma.  But as long as the Chinese government is prepared to throw billions at it, companies will try to find solutions.

Less air pollution is exactly why the central government of China is prepared to throw billions at this problem. Watching the construction of the Chinese railway system is one way to play this idea.

Another is to watch the car and fuel industries. Caijing.com reported this week that China will begin enforcing stricter standards on its fuel refineries from the beginning of next year to contain vehicle emissions. Roughly 30% of pollution in China can be attributed to motor vehicles. 

Plays on this theme don’t mean you have to invest in China, of course. China is a high risk market with insecure property rights and limited rule of law.

But there are plenty of firms that trade here in Australia or the in the US that have operations or business with China or are correlated to what’s happening over there in some way, with less risk.

Iron ore miners are the obvious example, but so are certain Japanese export stocks, US tech companies or other resource firms.

This is one reason Kris Sayce over at Australian Small Cap Investigator  is jumping up and down about a recent innovation in the car industry that could reduce the weight of vehicles and cut down their emissions. He thinks one Aussie small cap could take off like a rocket if it plays out like he expects. Stay tuned.

Callum Newman+
Editor, Money Weekend

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By MoneyMorning.com.au

Don’t Touch This Toxic IPO: Nine Entertainment Co.

By MoneyMorning.com.au

If you were planning on investing in the Nine Entertainment Co. (Nine) IPO…I’d think again. The days of ‘traditional’ TV networks are numbered.

Why? Because the digital world is taking over. And there’s already one internet TV streaming company gearing up to take on all TV networks. This company is the beginning of the new TV revolution.

Furthermore, if a secret trade deal between a group of pacific nations is ratified this company will get even bigger and more profitable…

When it comes to the Nine IPO the funny thing is that in their prospectus they’ve predicted their own death.

Here’s what the prospectus says,

Nine Network is primarily reliant on generating advertising revenue from broadcasting activities. In attracting advertising revenue, FTA TV broadcasters such as Nine Network compete primarily on the basis of audience share ratings, programming content and advertising rates. With the continued development of alternative forms of media, particularly digital media, Nine Network may face increased competition for advertising revenue.

It continues,

Newer technologies, including streaming and downloading capabilities through the Internet, video-on-demand and other technologies, are increasing the number of media and entertainment choices available to audiences.

It also goes on to list other risks, such as ‘lack of popular programming content‘. To summarise it all here’s a simple translation,

‘We (Channel 9) are competing against the internet to make our money.’

Now I don’t know about you but I’d think Channel 9 are paddling up ‘that creek’ without the proverbial paddle. Their profits are at risk from the internet. In other words, online TV streaming companies.

The Secret (Useless) Trade Deal

You may have heard about a recent ‘Secret Treaty’ leaked by Wikileaks. If you haven’t, it’s a proposed trade agreement between the US, Japan, Mexico, Canada, Australia, Malaysia, Chile, Singapore, Peru, Vietnam, New Zealand and Brunei Darussalam.

The Wikileaks description says about it,

The chapter covers proposed international obligations and enforcement mechanisms for copyright, trademark and patent law, and includes the combined positions of all of the parties as they were by the end of August 2013.

This trade deal is to protect the profits of companies (predominately US companies). Piracy, intellectual property and industrial design protection are some of the key issues at stake.

If this treaty gets the green light it will hurt the consumer. Prices will rise. You’ll have to pay more for over the counter and prescription drugs. TV shows, music and movies will all cost more. It’s protectionism at its finest.

In its simplest form, piracy, IP theft and copyright infringement isn’t great. I’m of the opinion if you create original material you should have right to profit from it.

But at the same time I think prices should be more affordable. As it stands we already pay too much in Australia for TV, music and definitely movies.

My point is maybe the problem isn’t the piracy and infringement itself. Maybe the problem is why it’s happening in the first place.

Let me paint you a picture.

You head out to the movies. You book two tickets to see the new Hunger Games movie. At the ticket booth you shell out $19 for a ticket. You head to the candy bar. $15 for a small popcorn and coke. Of course you’re not on your own, so multiply all that by two. If you’re a family…well you get the drift.

Anyway, $68 dollars later you’re in your seat watching previews. All you can think about is the ridiculous cost even to just be there. You feel quite mad sitting there as you’ve dropped a fair bit of coin for something that could end up being crap anyway.

Now here’s the alternative.

You’ve practically got a cinema size TV’s at home. You want to watch the new Hunger Games movie. But it’s not out at the movies for another week. So? You can download a pirated copy for free from a Torrent site. You skip over to Coles while it’s downloading, grab a bottle of Coke and some microwave popcorn for about $3. You times that by…one, as that’s enough to cover everyone. You sit on the couch and start the movie pretty chuffed because you’ve saved $65.

Of course with the second option you’re breaking the law. But I’m pretty sure many of you do it anyway already.

So what’s a legal way of getting good content, at a fair price, without breaking the law?

Well I think Netflix [NASDAQ:NFLX] has it all figured out. In fact Netflix is the first legitimate internet TV streaming service, and it’s set to kill ‘traditional’ TV channels.

Netflix 101

Here’s how it works. You log into Netflix through your TV. If you don’t have a TV you can use the computer, Apple TV, Blu-ray player, Xbox, PS3, etc.

Then you just find the show you want and stream it through the screen. Its on-demand TV. Of course this isn’t particularly new. But there’s a few things that indicate it’s the only way forward for TV networks.

Part of that is Netflix now produce original content. That is they make and screen shows that you can only get on Netflix. That means, Foxtel won’t get these shows and Channel 9 definitely won’t.

As a subscriber to Netflix the cost of subscription makes Foxtel look like the rip-off it is. It’s about $9 a month. Now that’s affordable to most people. Actually it’s affordable to over 40.4 million people around the world.

Of course you’re saying now, ‘That’s great Sam, but I can’t get Netflix in Australia.’

Good point. You can’t, yet. The main reason is Australia’s less than average internet infrastructure. Simply to get the best out of Netflix you need a decent internet connection speed. So blame the government for that one…

But it doesn’t mean you can’t capitalise on Netflix’s current dominance and future dominance of internet TV streaming. They’re so dominant, Netflix alone accounts for over 31% of all internet traffic in North America. That’s more than YouTube, Facebook, and iTunes combined.

When Netflix does come to Australia, and they will soon, it’s the end of TV stations like Channel 9. There’s simply no way they can compete with the likes of Netflix for content. So as people switch off from the likes of Channel 9, watch their profits fall away.

To me the Nine Entertainment Co. IPO looks toxic, and I’d avoid it at all costs. Particularly when you’ve got investable companies like Netflix that are way ahead in terms of content, innovation and technology.

Sam Volkering+
Technology Analyst, Revolutionary Tech Investor

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By MoneyMorning.com.au

My First Encounter with Air Force One

By Michael Lombardi, MBA

It was a regular flight for me to Miami…a late Saturday afternoon two weeks ago. As our flight approached Miami International Airport, the captain announced we would soon be starting our descent.

Then something happened that I thought was strange.

We started circling in the air. Not once or twice, which is common when air traffic gets congested, but we circled for what seemed to be 20 to 30 minutes. I told my wife, “Something is up. I wish the captain would come back on and tell us what’s going on.”

And finally that announcement came. The captain came on and said, “Ladies and gentleman, as you probably know, we have been circling up here for the last little while.”

The captain then proceeded to tell us President Obama had left the Miami airport on Air Force One within the last hour or so, and when that happens, commercial airlines are not allowed to take off or land for a specific amount of time. We were stuck in the backlog of flights trying to land because Air Force One had recently taken off.

The next day, I heard on the news that President Obama was in Florida the night before for Democratic fundraisers and to play golf on Saturday morning.

This got me thinking and researching.

Air Force One costs approximately $200,000 per hour to operate. (Source: USA Today, May 22, 2012.) But that doesn’t include the cost of lost productivity for the thousands of business people who are often delayed when Air Force One travels (or the thousands of tourists who are inconvenienced).

According to Kiplinger Washington Editors, the White House has asked Congress to allocate $1.14 billion for “research and development” of the next-generation Air Force One scheduled for debut early the next decade. (The United States is the only country in the world that has a custom-made aircraft to carry around its leader.)

So we live in a society where our leader is transported at the cost of $200,000 per hour when traveling in the air (I believe it’s much more than that) in an aircraft that costs hundreds of millions of dollars in taxpayer money to, in this case, attend fundraisers and play golf on Saturday morning.

Meanwhile, we have 17.6 million American households having trouble putting food on the table; we have millions more on food stamps and a government spending trillions of dollars on 80 different poverty and welfare programs. (See “Trouble Putting Food on Table for 17.6 Million American Households?”)

I have written before how we will never reach a time when we have an annual budget surplus. Our government spends way too much; if it were a business, it would be bankrupt. But the Federal Reserve does have the luxury of printing billions of dollars of new money each month so the government can cover its obligation.

A national debt of $17.0 trillion? As I have written before, that’s nothing. Get ready for double that—$34.0 trillion. And it might just happen in my lifetime.

This article is My First Encounter with Air Force One originally publish at Profitconfidential

 

 

The Stunning Potential of Gene Silencing: Nobel Laureate Craig C. Mello

Source: George S. Mack of The Life Sciences Report (11/21/13)

http://www.thelifesciencesreport.com/pub/na/the-stunning-potential-of-gene-silencing-nobel-laureate-craig-c-mello

The era of gene regulation has begun in earnest. Craig Mello and Andrew Fire won the Nobel Prize in Physiology or Medicine in 2006 for discovering RNA interference, which can stop genes in their tracks. Drug therapy traditionally has been about finding a molecule that would bind to a protein and short-circuit the reaction pathway that led to disease. Thanks to Mello and Fire, it is now possible to prevent synthesis of the protein itself. In this interview with The Life Sciences Report, Craig Mello, professor at the University of Massachusetts Medical School and investigator with the Howard Hughes Medical Institute, discusses the stunningly disruptive potential of technologies that can silence genes. He also mentions some interesting companies in the field.

The Life Sciences Report: I can still remember that October morning in 2006 when I heard on National Public Radio that you and Andrew Fire had won the Nobel Prize for your discovery of RNA interference (RNAi)—gene silencing by double-stranded RNA. I have always believed that this technology would be momentous for medicine. How did becoming a Nobel laureate change things for you?

Craig Mello: The best thing about the Nobel, for me, is that it has given me an opportunity to do more community outreach, especially trying to inspire kids with what fun it is to do science. Quite honestly, in the first two years after I got the prize I didn’t get a whole lot of work done, because I didn’t know how to say no and I was on the lecture circuit. I gave about 100 lectures a year for those two years. But I really enjoy speaking to lay people about science because it energizes me. I get so much out of it. The comments you get from people make you look back at what you’ve been taking for granted and say, “Wow, that is pretty cool.” I enjoy that. I didn’t have much of an opportunity to do that kind of lecturing prior to the prize. Now I could do it 24/7 if I wanted.

TLSR: Could you talk about double-stranded (RNAi) versus single-stranded (antisense) gene silencing? When I’ve discussed this topic over the years with Isis Pharmaceuticals Inc. (ISIS:NASDAQ) Chairman and CEO Stan Crooke, he says, “It’s all antisense.” Care to comment on that?

CM: Double-stranded and single-stranded oligonucleotides basically function through base pairing with target sequences. So, as Stan says, they really are all antisense at the final level. The difference is that double-stranded RNA enters into a cellular pathway where it’s actively processed by the cell, and is loaded onto cellular machinery that is essentially a search engine for the cell. Our discovery was so surprising because we found that when we put double-stranded RNA into a cell, we were not only giving the drug, which is the antisense strand, but also, essentially, the antidote at the same time. The duplexed RNA should, in principle, be incapable of base pairing with anything, since it is already very efficiently base paired with itself.

The way that an antisense technology works is that you introduce a single strand. That strand finds, through base-pairing interactions, a target, and then wraps around it and interferes with the function of that target. But, in the RNAi pathway, the double-stranded RNA is first acted on by the cell through a number of steps that lead to the separation of the two strands and the loading of enzymes called argonautes, which then help present the now single-stranded RNA for base pairing. Argonautes can do so more efficiently than an RNA strand can by itself. They facilitate the base-pairing interactions and speed up the search for a complementary sequence in the cell.

TLSR: In the antisense world, the single-strand molecule can modify protein synthesis, not just inhibit synthesis. I’m thinking of Sarepta Therapeutics Inc.’s (SRPT:NASDAQ) phase 2 candidate for Duchenne muscular dystrophy, eteplirsen, a single-stranded oligonucleotide that modifies the synthesis of dystrophin and produces a shorter protein that is actually functional. Isis Pharmaceuticals has a phase 2 candidate, ISIS-SMNRx, that does not inhibit but rather increases production of a protein, and it’s being tested in spinal muscular atrophy. Can double-stranded technology modify protein synthesis, not just inhibit it?

CM: You mean, like to skip exons? No, to my knowledge RNAi has not been used for that. Off the top of my head, I can’t think of an easy way that you could use an argonaute loaded with a small RNA to directly induce exon skipping. It’s an interesting question, but I don’t know of any literature suggesting that it’s possible to do that with RNAi. But it might be worth looking into.

There are a few studies showing that you can induce exon skipping indirectly by inhibiting certain components involved in the normal messenger RNA (mRNA) splicing machinery. This does not lead to skipping a single exon, but instead can globally alter exon inclusion in hundreds of mRNAs.

TLSR: What about moving oligonucleotides across a cell membrane? It seems like it would be easier to get a single strand through a cell membrane than a double strand. What is your thought?

CM: That is actually, as you know, a major bottleneck for RNAi therapeutics. They are big molecules, and they are charged, and they don’t like to go through membranes. The reality is that this is a difficult platform, regardless of the type of oligonucleotide therapy you’re contemplating, double- or single-strand. What’s really terrific about RNAi is that once it’s inside the cell, it enters very efficiently into the cellular machinery. However, we do know from thousands of experiments over the last 10 years or so that the overwhelming majority don’t get in, and do not enter into the enzymatic machinery. There are bottlenecks that we don’t understand.

Oligonucleotide therapies are clearly limited by delivery. Everybody knows that is a major problem, and it does apply to both types of oligos. For some types of tissue we can get delivery. With antisense technology, the single-stranded version—Isis’ version—you use a very high dose, and in some cases, because of toxicity, it’s a lot higher than you would prefer. We worry about improving delivery for all of these technologies. A lot of research is going into that area.

On the other hand, quite surprisingly—and I would add that I think this is fascinating—many organisms, including the nematode worm Caenorhabditis elegans (C. elegans) that Andrew Fire and I worked on, can seemingly actively transport double-stranded RNA. There is growing awareness now that, in humans, a lot of oligonucleotides are actually in circulation in the blood. There is a growing interest in natural mechanisms that are involved in transporting oligonucleotides in and out of cells. This is a very active area of research.

TLSR: I have been doing some diligence on DNA vaccines. One company, Inovio Pharmaceuticals Inc. (INO:NYSE.MKT), is using electroporation—an electrical pulse—to get plasmids into cells. It seems to be working because the cells are synthesizing antigens encoded by the DNA. Is electroporation something you’ve worked with and thought about?

CM: Sure. Many years ago, I tried electroporation to deliver DNA into the nematode. Basically, you’re using electric shock to disrupt membranes and to get big molecules—in this case RNA, or even DNA—to go across the membrane. It’s a viable route for local delivery, and you certainly can electroporate oligonucleotides, even into human tissue. I’m not sure it’s a very pleasant experience for the person who’s getting electroporated, but I do think it should be possible to do that.

Many people use electroporation in the laboratory to deliver RNAi into model systems, and it works beautifully. Again, some delivery strategies, such as electroporation, work wonderfully in the laboratory but are hard to translate into a human setting. I don’t know of anyone using that approach successfully with RNAi, or anyone contemplating clinical applications of RNAi that way. As I’ve said, there is a lot of work to do in the area of delivery.

TLSR: At least for the time being, would you say that there are needs for both double-stranded and single-stranded technology?

CM: Absolutely. There are niches for all of these technologies.

In many ways, the single-stranded (antisense) technologies are more mature. They’ve been around longer in some cases, and they are somewhat better understood in terms of how they work. I think they are very viable approaches, and there are plenty of opportunities for all of types of oligonucleotide therapies to coexist and produce excellent clinical applications in their own, particular settings.

For instance, I think antisense technology is very attractive as an anti-microRNA approach. These microRNAs are the cellular endogenous RNAi machinery that is regulating many genes involved in a whole variety of processes. You name it: Nearly every physiological function in the human has a microRNA involved. They’re fairly ubiquitous regulators of development, and are often implicated in disease. There may be value therapeutically in knocking down the activity of microRNAs with antisense technologies, which are very well suited to that type of application.

TLSR: You bring up an interesting point here with microRNAs. Again, initial research into microRNAs was done in C. elegans. We know that a single microRNA can inhibit dozens to hundreds of messenger RNAs, and prevent them from synthesizing their protein. It’s a natural form of antisense, or RNAi, as you put it. There must be an evolutionary basis for these mRNA genes being related in their function. If we’re dealing with genetic disease, microRNAs seem like a tremendous pathway to follow to find out what all these different genes have in common, since one microRNA can control so many mRNA genes.

CM: Certainly, microRNAs are important regulators inside the cell. Interestingly, they have been implicated now in major diseases, where their misregulation is, at least in part, an underlying cause. Most striking examples are in cancer, where there are tumor suppressor microRNAs. There are also oncogenic microRNAs, which cancer cells find ways of turning on inappropriately.

As you can imagine, these are very interesting targets for clinical applications in cancer therapy. If you can inhibit the function of an oncogenic microRNA, you could potentially have a beneficial effect. As you pointed out, because microRNA regulate many genes, it can strongly influence many different aspects of the cellular phenotype. You can also contemplate strategies where you would replace a microRNA function that’s missing by putting in a mimic of the microRNA. Again, once we solve the delivery issue, microRNA become much more attractive targets.

TLSR: Let’s continue with that bottleneck theme for a moment, and discuss how it might be overcome. Can you tell me a little bit about the next-generation platform at RXi Pharmaceuticals Corp. (RXII:OTCQX)? You are a founder and currently on the scientific advisory board of the company. Tell me what you can about RXi’s self-delivering (sd) rxRNA platform?

CM: I can tell you that when we founded RXi, much of our thinking was directed at the problem of delivery. How were we going to make RNA molecules that would pass into cells more readily? There are various approaches: You can complex these oligos with other factors, like proteins, or you can envelop them in lipid bilayers, or into nanoparticles and try to get them into cells that way. The thing that’s really nice about the sd-rxRNA platform is that it’s a relatively simple strategy compared to those others.

What we’ve done at RXi is modify the RNA itself to make it more druglike, which improves its ability to penetrate cell membranes. The result is spontaneous cellular uptake of sd-rxRNA without having to complex it into a large particle to get it into a cell. This work is based on that of—and a lot of it published by—Dr. Anastasia Khvorova, who was the chief scientific officer at RXi until 2012, and before that worked with Dharmacon Inc. (a subsidiary of Thermo Fisher Scientific Inc. [TMO:NYSE]). The platform is the summation of many different chemical modifications. Some of them are described on the website, where the company has made that information available. The platform basically allows the RNA to enter cells much more readily than would a typical short-interfering RNA (siRNA). In fact, the uptake is really striking. Within minutes, you can see cells exhibiting substantial uptake of a fluorescently labeled sd-rxRNA, whereas a control RNA, without sd-rxRNA properties, would basically just not get into the cell at all.

TLSR: Is the problem solved? What are the limitations?

CM: The thing that limits sd-rxRNA is that you have to directly deliver it into a tissue. It doesn’t work by itself very well in serum—so far, anyway—so it needs to go directly into the tissue where it’s going to function. The problem of getting a therapy to function more systemically is common to all RNAi, and will require additional improvements in the technology. But right now, when you put sd-rxRNA on cells, it gets into them very rapidly. A good percentage of the self-delivering molecules will then enter the cellular machinery and begin searching for targets and silencing them. In my opinion, it’s probably one of the best, if not the best, self-delivering RNAi platform that’s out there.

TLSR: Is this sd-rxRNA technology platform entered into human trials as yet?

CM: Yes. RXi Pharmaceuticals has its anti-scarring compound RXI-109 in the clinic now.

TLSR: How does that work? What is the target there?

CM: The target is connective tissue growth factor (CTGF) in post-surgical scarring. CTGF is a hormone released by cells in response to injury. It promotes both healing and scarring. This is an application where reducing activity, not eliminating activity, is the goal. The hope is that reducing CTGF expression could prevent excessive deposition of scar tissue without impeding the natural healing process.

Scarring can be debilitating in some cases. Preventing scarring at an incision point in the skin following surgery could help maintain a person’s freedom of movement of a limb. There are many other applications for an anti-scarring therapy as well, including promising ocular indications.

TLSR: Did the company start with this indication because you get scarring in areas where you have direct access—where you can get to the tissue and inject sd-rxRNA directly?

CM: Exactly. I think a lot of pharmaceutical companies, especially the oligonucleotide-pharmaceutical-biotech companies, shoot for the stars and hope that the blockbuster indication is its first target. I think RXi Pharmaceuticals, very wisely, chose a target where delivery for the compound was guaranteed. That’s an obvious necessity if you want to have a clinical effect. You have to be able to get delivery into the target cells. The skin is a great target for these types of molecules.

TLSR: Craig, are there other companies that you think are interesting in antisense or RNAi?

CM: Yes. There are various partial solutions to the delivery issue that look like they’re good enough to succeed in the clinic, but may not be the blockbuster new drug platform that everybody was talking about back in the early 2000s. We’re still a ways away from that.

For one, I see a lot of good things coming fromAlnylam Pharmaceuticals Inc. (ALNY:NASDAQ). I’m particularly supportive of the company’s efforts to develop therapeutics for orphan diseases affecting liver and blood disorders, where its RNAi formulations have a good shot at significant delivery. I’m also seeing some interesting indications for the locked nucleic acids approach. Santaris Pharma A/S (private) is the company that owns that approach. Its pipeline looks very promising, and I know a lot of the company’s programs are working their way into clinical trials now. There are definitely going to be some interesting new drugs coming down the pike. I hope that they make it all the way into the clinic. It would be wonderful to see some real impact in the clinic.

TLSR: Where has RNAi had its biggest impact?

CM: I often get asked that question. Right now, and over the last 10, even 12, years, RNAi’s biggest impact has been in the laboratory, where it allows us to go from genes that may be expressed or whose expression may be altered in disease to a very rapid understanding of how those genes function and what pathway those genes function in. Even though there are no approved RNAi therapies yet, there have been many breakthroughs in laboratories, where new functions or new insights into potential therapeutic avenues have been uncovered using the RNAi approach. That’s going to continue to be a very important way that RNAi will help build pipelines in the pharmaceutical industry, and in clinical trials for new drugs that are not necessarily siRNA- or oligonucleotide-based at all. New targets are being discovered for small molecules whose identification as a target for a particular disease indication was made using RNAi. There are a lot of examples of that in the pipeline for new drugs.

The genomics revolution really is happening. It’s unfolding in laboratories around the world. People just need to be patient.

TLSR: Craig, are there even newer technologies that look interesting to you right now? Anything you might mention?

CM: One of the newer technologies that came onto the scene last year is a technology called clustered regularly interspaced short palindromic repeats (CRISPR). I have to caution people that it’s not ready for use in humans. But, again, much like RNAi, the CRISPR technology is a triumph of basic science. Are you familiar with this, George?

TLSR: I am not: Go ahead and tell me about it.

CM: The CRISPR technology is a fascinating example of basic science. Much like RNAi, the CRISPR system uses a nuclease that is guided by RNA, but this nuclease is guided to the DNA and cleaves the DNA. It’s a bacterial immune system. Bacteria use it to prevent viral infection; they cleave up the DNA genome of the virus and can destroy it using this RNA-guided enzyme. It’s a different enzyme than the argonautes, and it’s not homologous to the argonaute.

But the thing that’s amazing about CRISPR is that, even though it is a bacterial system in origin, it now has been shown to work in dozens of diverse organisms. Unlike RNAi, where all you have to do is provide the guide RNA and it gets loaded into the cell’s own RNAi machinery, CRISPR works by providing an mRNA, or a piece of DNA that expresses the bacterial enzyme, and a guide RNA that gets loaded onto that enzyme. Then that goes into the nucleus, and can cut the genome wherever you want. There are companies starting up in the space already, because there are so many things you can do with the technology. You can modify the genomes of crop plants, animals, human cells in culture. There are many applications for this technology.

TLSR: Are you doing any work with CRISPR yourself?

CM: We’re using it in the laboratory, just like hundreds and perhaps even thousands of laboratories around the world. It’s already dramatically speeding up the kinds of experiments we can do. We’re doing things now that we’ve always wanted to be able to do, but just couldn’t. It is an amazing technology.

TLSR: I hope we can talk about that in the future. It was such a pleasure meeting you, Craig. Thank you.

CM: Thanks, George.

Dr. Craig C. Mello is an investigator at the Howard Hughes Medical Institute, the Blais University Chair in Molecular Medicine and codirector of the RNA Therapeutics Institute at the University of Massachusetts Medical School. Dr. Mello’s lab uses the nematode C. elegans as a model system to study embryogenesis and gene silencing. His collaborative work with Dr. Andrew Fire led to the discovery of RNA interference (RNAi), for which they shared the 2006 Nobel Prize in Physiology or Medicine. Together they showed that when C. elegans is exposed to double-stranded ribonucleic acid—dsRNA, a molecule that mimics a signature of viral infection— the worm mounts a sequence-specific silencing reaction that interferes with the expression of cognate cellular RNAs. For the layperson, RNAi is the cell’s search engine; the Google of the cell. RNAi allows researchers to rapidly “knock out” the expression of specific genes and to thus define the biological functions of those genes. RNAi also provides a potential therapeutic avenue to silence genes that contribute to disease. Before the Nobel Prize, Dr. Mello’s work on RNAi was recognized with several awards, including the National Academy of Sciences Molecular Biology Award, the Canadian Gairdner International Award, the Paul Ehrlich and Ludwig Darmstaedter Award and the Dr. Paul Janssen Award for Biomedical Research. He is a member of the National Academy of Sciences, the American Academy of Arts and Sciences, and the American Philosophical Society. Read Dr. Mello’s biographical sketch on the Nobel Foundation’s website.

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DISCLOSURE:

1) George S. Mack conducted this interview for The Life Sciences Report and provides services to The Life Sciences 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 Life Sciences Report: RXi Pharmaceuticals Corp., Inovio Pharmaceuticals Inc. Streetwise Reports does not accept stock in exchange for its services or as sponsorship payment.

3) Dr. Craig Mello: I or my family own shares of the following companies mentioned in this interview: RXi Pharmaceuticals Corp. I personally am or my family is paid by the following companies mentioned in this interview: RXi Pharmaceuticals Corp. 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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How My Friend’s New Cadillac Suggests Stock Market Vulnerability in 2014

By George Leong, B.Comm.

Never mind the record breaks on Monday. The bulls are screaming “higher.” Dow 20,000, S&P 500 2,000, here we come. Wall Street is giddily raking up profits. There’s going to be some happy Wall Street workers when the year-end bonuses are announced.

One of my friends works at a major brokerage, and he just bought himself a brand new Cadillac “Escalade,” complete with the 22-inch wheels and every conceivable option. As my friend said, it was that kind of year when everything was going higher and the flow of capital into his accounts grew exponentially as his clients wanted big gains. The higher the stock market advance, the more money flowed into his accounts as clients chased returns.

Heck, he couldn’t even sell bonds as even his more conservative clients wanted more of the stock market action, rotating funds away from bonds and into equities.

The reality is that what’s happening at my friend’s brokerage is occurring everywhere. Not only with full-service brokers, but with DIY online discount trading accounts, too, which is why we have seen some big gains with the likes of The Charles Schwab Corporation (NYSE/SCHW), up 88% over 52 weeks, and E*TRADE Financial Corporation (NASDAQ/ETFC), up 118%.

And based on all the bullish investor sentiment, it looks as though, regardless of the rapid rise in the markets and valuations, investors still want to chase gains higher. My broker friend confirms this, as he noted that despite the amazing advance so far this year, money continues to flow in.

When I begin to hear that everyone is chasing the stock market higher, including the more conservative investors, alarms begin to ring in my ears. I heard the same thing in late 1999, prior to the Internet implosion in early 2000—these are the same bells that I’m hearing now.

Of course, the stock market could head higher prior to a stock market correction. Bond yields are relatively low compared to what we saw in 1999, so the alternative is not there now.

How high the stock market will rise is unclear, but the Federal Reserve’s apparent strategy to continue its easy money and low interest rates will help support the stock market.

I’m not going to say jump off. It may be the wrong call. Imagine those who were told to divest holdings at the end of 2012? They would have missed out on one of the best years for the stock market, so I really don’t want to be telling you to run for the exits now. What I will say is to walk slowly toward the exits. Take some profits off the table and cut some of your losing positions prior to year-end, as I still sense there is a stock market adjustment on the horizon. (Read “Nomura calls for 50% Correction in Global Stock Markets.”) You’ll also want to make sure you have some put options in place as a hedge.

This article How My Friend’s New Cadillac Suggests Stock Market Vulnerability in 2014 is originally publish at Profitconfidential

 

 

Why This Food Processor’s Numbers Are a Good Indicator for 2014

By Mitchell Clark, B.Comm.

There are records being set everywhere, but where it counts—the financial results from corporations. However, there are some exceptions to this trend.

Tyson Foods, Inc. (TSN) is one of the biggest processors and sellers of meat and countless prepared food products sold in more than 90 countries. John W. Tyson founded the company in 1935 by hauling chickens to market in Kansas City and St. Louis.

Tyson’s total sales last year were $33.0 billion, with the sale of beef products representing 41% of total revenues, followed by chicken at 35%, pork at 14%, and sales in prepared foods at 10%.

Tyson’s most recent quarter (fourth fiscal quarter of 2013), turned out to be a record in terms of sales and earnings per share. The company beat its own expectations for fiscal 2013, handily beating its previous outlook for international sales; operating margins, especially for chicken and beef, also grew substantially. This contributed to a marked improvement in bottom-line earnings and adjusted earnings per share attributable to the company.

Management reported increased demand as well as higher prices in the most recent quarter. Input costs for fiscal 2014 are expected to drop due to higher grain supplies. The company continues to buy back shares, and it recently increased its quarterly dividend by a substantial 50%.

The numbers were exactly what Wall Street wanted to hear. The stock is up approximately 50% since the beginning of the year and has actually broken out of a long consolidation, which is a bullish signal. The company’s long-term stock chart is featured below:

Chart courtesy of www.StockCharts.com

The company’s fiscal fourth-quarter revenues grew seven percent to a record $8.9 billion, while earnings per share grew 37% to $0.70.

The company’s share price had been in the doldrums for years, and its huge quarterly dividend increase represents a renewed sense of confidence from management.

I think this stock has more upside near-term; $35.00 per share wouldn’t be an unreasonable 12-month price target. The stock isn’t expensively priced, and company management says it plans to beat its expected 10% gain in earnings next year.

Investors may not have a lot of enthusiasm for a company like this, and there are certainly higher dividend paying stocks available in the marketplace. However, Tyson is a good benchmark stock on consumer spending and consumption in the U.S. market, with one in every five pounds of chicken, beef, and pork in the U.S. being produced by Tyson.

All in all, it was a record quarter for the company and expectations going into 2014 are solid. With a 50% quarterly dividend increase, Tyson’s financial performance is a good indicator of consumer spending and consumption, making it the type of stock investors should watch going into the New Year.

This article Why This Food Processor’s Numbers Are a Good Indicator for 2014 is originally publish at Profitconfidential