Month: November 2013

By MoneyMorning.com.au

The market has selected different things as money throughout history. Some of these items have served as money in isolated places for specific periods of time – for instance, cigarettes in prisoner-of-war camps.

Cigarettes continue to be a currency in prisons if allowed, but if not, according to Wikipedia, ‘postage stamps have become a more common currency item, along with any inexpensive, popular item that has a round number price, such as 25 or 50 cents. Mylar foil packets of mackerel fish, or ‘macks,’ are one such item.‘

Cigs, stamps, macks? Doesn’t seem very cool, like, say, a gold doubloon, but the market decides what’s cool, despite what Matthew O’Brien at The Atlantic thinks. Apparently, he’s not a big fan of the cybercurrency Bitcoin.

He writes that only techno-libertarians will transact business in Bitcoin, and compares the cybercoin of the virtual realm to Segways. O’Brien reminds us these stand-up motorized vehicles were at one time thought to become a big deal. I only see cops whiz by on them at the Hartsfield-Jackson airport in Atlanta.

Is Bitcoin ‘inherently ridiculous’?

O’Brien describes Bitcoin as ‘inherently ridiculous’. The price swings alone make the cybercurrency look more like a dot-com stock than money. What The Atlantic senior associate editor can’t explain is why the price of Bitcoin has exploded recently. He writes something about demand from China and the Fed’s seizure of Silk Road’s considerable Bitcoin stash.

But he’s not paying attention. ‘Senior U.S. law enforcement and regulatory officials said they see benefits in digital forms of money and are making progress in tackling its risks,‘ Ryan Tracy reports for The Wall Street Journal. ‘The price of Bitcoin, the most common virtual currency, soared to a record following the comments.‘

That won’t sway The Atlantic writer’s mind. O’Brien believes ‘Bitcoin… has deeper problems. Its product doesn’t work.‘ However, Washington has had a dog in the Bitcoin fight,since it seized 26,000 of them from Silk Road. At around $18 million, it’s enough to keep the Department of Justice interested. So count DOJ attorneys along with the libertarian nerds rooting for the cybercurrency.

In a testimony before the Senate Homeland Security and Governmental Affairs Committee, Mythili Raman stated, ‘The Department of Justice recognizes that many virtual currency systems offer legitimate financial services and have the potential to promote more efficient global commerce.‘

Raman is the current acting assistant attorney general for the department’s criminal division. Bitcoin and virtual currencies are a direct attack on central bank monetary management.

Yet even Ben Bernanke, in a letter to senators, said virtual currencies ‘may hold long-term promise, particularly if the innovations promote a faster, more secure, and more efficient payment system.‘

Senators, being senators, worry about things like whether the cybercurrency is financing terrorism or whether Bitcoins can be used to evade taxes. Neither is likely.

What Bitcoin can do is be moved instantaneously around the world. With something as simple as cellphones thousands of miles and many time zones apart, the cybercurrency can be transported via Skype.

Try moving dollars through your bank. You have to fill out forms, show ID, and have a human being input data. Then more of the same happens on the other end – when the bank opens, that is. Bitcoin has shown the Federal Reserve how it’s done.

In a report called Payment System Improvement – Public Consultation Paper, the Fed calls for banks to speed up payment systems. The central bank wants to see ‘a ubiquitous system for near-real-time payments‘.

End-users, the Fed points out, want real-time validation of payment and posting, assurance the payment will not be returned, timely notification, and ‘masked account details, eliminating the need for end-users to disclose bank account information to each other.‘

This sounds familiar to anyone who uses Bitcoin. Validation of transactions is nearly instantaneous in the blockchain. Bitcoin transfer is not a credit transaction, but a transfer of assets. There is no third party in the middle to return a payment. And of course, payments are done anonymously. No financial disclosures are required.

So while end-users tell the Fed they want assurances against returned payments, O’Brien writes that a weakness of Bitcoin is there is no third party making sure everyone is satisfied. Financial intermediaries ‘make sure buyers and sellers are both trustworthy, and handle any disputes,‘ writes O’Brien, who wants to make sure people can get their money back if things go awry.

He actually doesn’t believe people will use the cybercurrency to pay for things at all. Thus his quip, ‘Bitcoin is a Ponzi scheme libertarians use to make money off each other – because gold wasn’t enough of one for them.‘

What the ‘Father’ of Austrian Economics Would Call Bitcoin

Maybe he doesn’t realise more and more merchants are accepting the alternative currency. O’Brien doesn’t know that two Bitcoin advocates, Austin and Beccy Craig, lived and travelled for several months paying for everything with Bitcoin.

He hasn’t heard the highly connected Winklevoss twins are seeking approval for a Bitcoin fund. O’Brien doesn’t read The Wall Street Journal, which recently listed six Bitcoin-related venture capital deals funded just between mid-August and mid-November of this year.

The deflationary bias, O’Brien says, means the price will be volatile. The limited supply of Bitcoin will mean it will rise in value against the dollar, but early speculators will then sell, driving the price down ‘quite violently‘. From there, he voices his incorrect analogy to Mr. Ponzi.

Because of Satoshi Nakamoto, we have the rare opportunity in history to watch the birth of a currency. It’s not always a smooth process. In his book Principles of Economics, Carl Menger, the father of Austrian economics, wrote about how any commodity can be traded as money because of its greater marketability:

‘This knowledge will never be attained by all members of a people at the same time. On the contrary, only a small number of economizing individuals will at first recognize the advantage accruing to them from the acceptance of other, more saleable, commodities in exchange for their own whenever a direct exchange of their commodities for the goods they wish to consume is impossible or highly uncertain.‘

As people become successful trading any good or commodity as money, more people will in turn trade fewer marketable goods for that more marketable one. ‘Since there is no better way in which men can become enlightened about their economic interests than by observation of the economic success of those who employ the correct means of achieving their ends,‘ writes Menger.

The Bitcoin market is tiny compared with government currencies, especially the dollar. As the new cybercurrency gains acceptance, its price in dollars can reasonably be expected to be volatile. But as futures markets develop and ways to sell Bitcoin short are created, the price action for the cybercurrency will smooth out.

The question isn’t whether Bitcoin is a Segway, but whether it’s a prison cigarette or a gold doubloon. Either way, Bitcoin is money.

Douglas French
Contributing Writer, Money Morning

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By MoneyMorning.com.au

Zombies Make Dangerous Neighbors

By Doug French, Contributing Editor

On March 16, 2009, the Financial Accounting Standards Board (FASB), a private-sector organization that establishes financial accounting and reporting standards in the US, turned the stock market around and at the same time motivated banks to become the worst slumlords and neighbors imaginable.

Most people believe accounting is conservative, the rules cut and dried. Accountants make economists look frivolous. But accountants are people too, and FASB succumbed to pressure from Capitol Hill in the wake of the 2008 financial crash.

How It All Started

The S&P 500 hit a devilish low of 666 on March 6, 2009. More major bank failures seemed a certainty. Somebody had to do something—and in stepped the accounting board prodded by the House Committee on Financial Services.

The board changed financial accounting standards 157, 124, and 115, allowing banks more discretion in reporting the value of mortgage-backed securities (MBS) held in their portfolios and losses on those securities. Floyd Norris reported at the time for the New York Times,

The change seems likely to allow banks to report higher profits by assuming that the securities are worth more than anyone is now willing to pay for them. But critics objected that the change could further damage the credibility of financial institutions by enabling them to avoid recognizing losses from bad loans they have made.

“With that discretion,” fund manager John Hussman writes, “banks could use cash-flow models (“mark-to-model”) or other methods (“mark-to-unicorn”).”

And author James Kwak wrote on his blog “The Baseline Scenario” just after FASB amended their rules: “The new rules were sought by the American Bankers Association, and not surprisingly will allow banks to increase their reported profits and strengthen their balance sheets by allowing them to increase the reported values of their toxic assets.”

Banks were loaded with securities containing subprime home loans. When borrowers stopped paying en masse, the value of these securities plunged. Until the change in March 2009, these losses had to be recognized. With financial institutions leveraged at upwards of 30-1 at the time, the sinking valuations made much of the industry insolvent… until March 16, 2009. Since then the S&P has nearly tripled.

Bad-Neighbor Banks

Nobody has more friends on Capitol Hill than bankers, who are not wild about free-market capitalism when it works against them.

“Bankers bitterly complained that the current market prices were the result of distressed sales and that they should be allowed to ignore those prices and value the securities instead at their value in a normal market,” Norris wrote for the New York Times on April 2, 2009.

The change in the rules first of all allowed banks to remain in business. Second, with banks having wide discretion in valuing mortgage-backed securities, they had little incentive to care for the collateral of the loans contained in those MBSs. It may even be in a bank’s best interest to leave houses in what the Sun Sentinel newspaper called “legal limbo.”

Last year the Florida paper devoted a three-part series to “Bad-Neighbor Banks.” When homeowners walk away, one would think it would be in the banks’ best interests to gain legal possession as soon as possible and either sell as is, or repair and sell quickly.

Apparently that’s not the case. All across Florida, banks “have halted foreclosure proceedings because the remaining equity in the properties is deemed inadequate to cover the banks’ costs to reclaim title and maintain, refurbish and sell them,” Megan O’Matz and John Maines wrote for the Sun Sentinel.

When pressed about weed- and rodent-infested abandoned properties, banks often pointed the finger at mortgage servicers. South Florida attorney Ben Solomon, who represents condos and community associations in foreclosure cases, stated, “We see bank delays every day. They really continually have been getting worse. More and more time is going by.”

As banks sit on assets indefinitely without having to recognize a loss, homes get lost in vast bank bureaucracies. When the banks finally figure out what they have, “lenders also have been walking away from foreclosure actions involving homes with low market values, after their cool-headed calculation that the homes cannot resell for enough to offset the costs of foreclosing, repairing, maintaining and marketing them,” O’Matz and Maines wrote.

Now banks have rebuilt their balance sheets and are able to withstand losses from bad property loans. Enough banks are walking away from properties that the Treasury Department issued “guidance” in 2011, advising to do so cautiously.

Banks that do foreclose with tenants living in a property are notorious for not maintaining their newly acquired properties. “Some banks are failing to follow local and state housing codes, leaving tenants to live in squalor—without even a number to call in the most dire situations,” writes Aarti Shahani for NPR.

I’m not sure why anyone would expect banks to be good property managers. “Banks don’t want to take your home and own it,” Paul Leonard, senior vice president of the Housing Policy Council, told NPR. “They’re stuck with plumbing and electrical maintenance that is well beyond their mission. They have to hire a property manager to take care of the property.”

Global banking behemoth Deutsche Bank foreclosed on 2,000 houses in the Los Angeles area between 2007 and 2011. The big bank was such a bad landlord, the city filed suit and the bank recently settled the case by paying $10 million—which the bank didn’t even have to pay itself. According to Deutsche Bank officials, “The settlement will be paid by the servicers responsible for the Los Angeles properties at issue and by the securitization trusts that hold the properties.”

If banks, not to mention Fannie Mae, Freddie Mac, and FHA, had been allowed to fail, the housing market would have cleared and stories like these would be a thing of the past. However, one intervention begets another, and the market is held stagnate.

Auctions: Bids Coming Up Short

While there are housing booms popping up in various cities, Bloomberg just reported a failed auction by the US Department of Housing and Urban Development (HUD).

After successfully selling 50,000 non-performing, single-family FHA-insured loans since 2010, HUD deemed the bids for $450 million too low to accept at their October 30 sale.

(As an interesting aside, the FHA was a product of Roosevelt’s administration during the Great Depression and hasn’t required the help of taxpayers until this September when the agency asked for a $1.7 billion bailout to keep operating… a piece of news that got drowned out by the looming government shutdown, the slowly developing Obamacare train wreck, and the Breaking Bad series finale.)

HUD has another $5 billion auction scheduled and is currently qualifying bidders. The auctions run through the website DebtX, which has compiled a Bid-Ask Index to compare recent years’ buyers’ bid performance versus seller expectations. For the last three years, bids have come up short of sellers’ ask prices. The index prior to the failed auction was -5.7%.

Meanwhile, the banking industry purrs right along earning a record $42.2 billion in the second quarter.

The Banks Are the Only Ones Profiting

For the banks, this was the 16th consecutive quarter of year-over-year increases. A primary driver of the record earnings is less money being socked away in loan-loss reserves. Banks put away the lowest loss provision since the third quarter of 2006. The banking industry’s coverage ratio of reserves to noncurrent loans is still only 62.3%, far below what was once the standard of greater than 100%.

Remember when President Obama and the Treasury Department claimed the bank bailouts were generating a profit? Special Inspector General Christy Romero overseeing TARP said, “It is a widely held misconception that TARP will make a profit. The most recent cost estimate for TARP is a loss of $60 billion. Taxpayers are still owed $118.5 billion (including $14 billion written off or otherwise lost).”

Fannie Mae and Freddie Mac have turned things around and are generating huge profits, you say?

Not so fast.

According to bank analyst Chris Whalen, “If we were to implement the guidance from FHFA today, it is pretty clear that the profits of the GSEs [government-sponsored enterprises] would have been largely offset by the allocations needed to replenish the reserves.” GSE profits would disappear, and $10 to $20 billion would need to be added to reserves.

“Not only does FNM [Fannie Mae] seem to be unprofitable under the new FHFA guidance, but payments made to Treasury might need to be reversed,” writes Whalen.

A zombie government armed with accounting tricks has bailed out a zombie banking industry using even more financial phoniness. A few numbers pushed here and there, and the industry is earning record profits. But out in the real world where people live and work, things aren’t so rosy. Zombies make negligent landlords and dangerous neighbors.

Read more from Doug French, former president of the Ludwig von Mises Institute, in the Casey Daily Dispatch—different writers, different topics, different investment sectors each day of the week. Get it free of charge in your inbox, Monday through Friday—click here.

By George Leong, B.Comm.

The second installment of The Hunger Games trilogy, Catching Fire, debuted in theaters last Friday to heightened anticipation. The early bet is the film could set a new box office record.

Whether the lofty expectations pan out or not, believe it or not, there is more than one investment opportunity you can take advantage of to make money on the success of The Hunger Games series and other major Hollywood blockbusters.

The company behind the production of The Hunger Games is Lions Gate Entertainment Corp. (NYSE/LGF), which is already up over 100% from its 52-week low and could head higher if the film sets new records, meaning this production company may be an investment opportunity. In addition to films, Lions Gate also produces 28 television shows over 20 networks.

Chart courtesy of www.StockCharts.com

Fundamentally, Lions Gate has delivered decent results, beating the Thomson Financial consensus earnings-per-share (EPS) estimate in each of the past four quarters, making it a possible investment opportunity. Revenues are estimated to grow 6.4% to $2.93 billion in fiscal 2015 ending in March. Fiscal earnings are estimated to rise 50% to $1.54 per diluted share in fiscal 2015. While the best gains are behind the stock for the time, longer-term, I see Lions Gate as a good investment opportunity.

A second investment opportunity on the success of The Hunger Games series and other blockbusters is IMAX Corporation (NYSE/IMAX). IMAX offers venues in which you can see the film on a specialized 12,000-watt power-packed screen that could be as high as 98 feet. In general, every major blockbuster film is shown on IMAX screens around the world.

There are IMAX screens in North America, Western Europe, Japan, China, and Russia. In all, there are about 767 IMAX theaters in 53 countries as of June 30, 2013. (Source: IMAX Corporation web site, last accessed November 22, 2013.)

The market of China has great potential for IMAX, as it does for many multinational companies, such as Apple Inc. (NASDAQ/AAPL). (See “If Apple Does a Deal with This Company, I’d Buy the Stock.”) At this time, there are about 150 IMAX theaters in China with contracts for 400 additional IMAX theaters to open over the next few years, according to the company. This makes IMAX a possible investment opportunity. IMAX also has a deal to open up more than 120 IMAX theaters in China with China-based Dalian Wanda Group Corporation Ltd., which acquired AMC Theatres in the United States.

IMAX’s revenues are estimated to rise 14% in 2014, according to Thomson Financial. If IMAX can steadily record higher revenue growth, the stock will continue to deliver and provide a sound investment opportunity.

The chart of IMAX below shows a bullish golden cross with the 50-day moving average (MA) trading above the 200-day MA of $22.21, based on my technical analysis. The Fibonacci retracement levels suggest that if IMAX can hold onto its current break at the horizontal resistance line (blue), we could see a move towards $38.00; this would be a great investment opportunity.

Chart courtesy of www.StockCharts.com

As an investment opportunity, IMAX could also be helped by short-covering on the stock, as there were 15.82 million shorted shares of IMAX as of October 31, representing 28.1% of the float, according to Thomson Financial.

This article How to Play the Success of Today’s Hollywood Blockbusters is originally posted on Profitconfidential

By CentralBankNews.info
    Ghana’s central bank maintained its policy rate at 16.0 percent, saying the upside risks to inflation were mainly structural and may not need to be countered by higher interest rates while there are no significant risks to economic growth.
    The Bank of Ghana, which raised rates by 100 basis points in May, said the upside risks to inflation that had been identified earlier this year had crystalized in the form of pass-through of higher petroleum and electricity prices – following the removal of subsidies and higher utility tariffs – as well as fiscal and exchange rate pressures.
    The central bank said it expects headline inflation to breach it’s target this year but inflation should track back to the target of 9.5 percent, plus/minus 2 percentage points, by the end of 2014 as fiscal measures in the 2014 budget should mitigate some of the pressures.
    Ghana’s inflation rate  jumped to 13.1 percent in October from 11.9 percent in September, the highest rate in more than 3-1/2 years and continuing the trend of rising inflation from last year’s average inflation rate of 9.2 percent and 8.7 percent in 2011. The International Monetary Fund has forecast 11.0 percent average inflation this year, declining to 9.8 percent in 2014.
    Economic activity is forecast to improve in the third quarter, the bank said, citing the economic activity index (CIEA), which rose by 7.5 percent at the end of September from 5.8 percent in July.
    “The key drivers of economic activity for the third quarter were DMB’s credit to the private sector, industrial consumption of electricity, SSNIT contributions and port activity,” the bank said.
    Ghana’s Gross Domestic Product expanded by 3.9 percent in the second quarter from the first quarter for annual growth of 6.1 percent, down from 6.7 percent in the first.
    Ghana’s finance minister recently forecast that the economy would expand by 8 percent in 2014, up from an estimated 7.4 percent this year. He also said the government aimed to narrow the budget deficit to 8.5 percent of GDP in 2014 from about 10.2 percent this year.
    In the first nine months of this year, the budget deficit was 8.4 percent of GDP compared with a target of 7.2 percent due to lower imports, commodity prices and a slowdown in the economy, the central bank said.
   Ghana’s current account deficit widened to US$4.5 billion in the first nine months of the year from $4.1 billion in the same 2012 period due to a deterioration in the services, income and transfers account but this was moderated by a better trade balance.
    In the first 10 months of the year, Ghana’s exports were largely steady at $11.4 billion from last year with earnings from gold down 12 percent to $4.2 billion while cocoa bean exports fell by 33.5 percent to $1.3 billion due to lower prices. Oil exports, however, rose by 30.9 percent to $3.9 billion to to higher production and earnings from non-traditional exports, which includes cocoa products, rose 25.8 percent to $2.2 billion.
    As of Nov. 20, Ghana’s cedi currency had depreciated by 9 percent against the U.S. dollar, less than 17.4 percent in the same 2012 period. The cedi was trading at xx

    www.CentralBankNews.info

By Marin Katusa, Chief Energy Investment Strategist

Over the weekend, the world changed.

Officials from Iran made a deal with six countries (the US, Russia, China, England, France, and Germany)—in exchange for suspending the world’s sanctions on Iran, Iran will curb its nuclear weapons program.

Though it’s only a six-month interim agreement for now, it’s an important first step toward bringing Iran economically closer to the rest of the world.

This is, by any standards, a historic deal (or a historic mistake, according to Iran’s archenemy Israel): the United States and Iran haven’t had diplomatic relations since 1979.

This is like Wile E. Coyote suddenly signing a peace treaty with the Road Runner.

But the more important question is “Why?” Why did Iran suddenly have this change of heart after pounding the table and claiming that enriching uranium is an inalienable Iranian right?

Is it really as the media portrays? Did the tough American and European sanctions placed upon Iran finally bring the country’s leadership to its senses?

As much as President Obama would like you to believe that, we think the answer is far more complicated.

All of these countries have some sort of agenda that they are pushing—and this deal is going to give them exactly what they want. And if you think that this is about “Middle East stability” and “world peace,” there is a bridge I would like to sell you.

There is only one thing on the minds of these countries: oil.

Hitting the Jackpot

It is pretty easy to understand why the Chinese are interested: with the one-child policy being relaxed and a constantly growing population, there is no doubt that they’re looking all around the globe for secure energy supplies. Given that Iran has one of the world’s largest reserves of both oil and gas, it’s the perfect location for China to be drilling.

When Iran begins to open up to the world, the Chinese petroleum companies will salivate at the opportunity to unlock some of the largest hydrocarbon fields in the world. While it is true that they’ll have to compete with companies around the world, the Chinese are known for their deep pockets and willingness to acquire energy reserves regardless of the cost.

What does Europe get?

If Iran is able to start selling oil on the global market again, Europe gets something crucially important: a source of non-Russian oil.

Russia currently has a stranglehold on European oil and gas supplies (something that we have written much about over the past few years). Though Europe is ramping up its own domestic production, a phenomenon we call the “European Energy Renaissance,” it cannot happen overnight. In the meantime, Europe depends on imported oil and gas… and believe it or not, Iran provides a better alternative to the heavy hand of Putin.

Because Iran just wants money for its product, but Putin wants control—both political as well as economic.

The Americans also got something great from the discussions: the continuation of the petrodollar. With a détente around the corner, America can monitor Iran’s activities and quietly make sure that the sale of this oil will be denominated in US dollars. The fact that Iran has constantly tried to shift away from the US dollar for petroleum trades has always been a thorn in the side of the US government. By “working closer” with Iran, America will in fact be able to better keep tabs.

But the biggest winners of the day may have been the Russians and the Iranians—because they can now get access to the biggest prize of all.

There’s no doubt that Russia and Iran are close: due to the sanctions, much of Iran’s military is Russian-built, and there is a great deal of cooperation between the two countries on the oil and gas front.

If Iran does indeed open up its oil and gas fields and invites the multinationals in, it means that the country will have access to the multinationals’ technology—the technology to unlock not only the vast conventional potential that Iran already has… but also the unconventional oil and gas that could dwarf Iran’s current reserves.

We are talking about access to not just billions, but even trillions of barrels of oil.

“Open Sesame”—Unlocking Ali Baba’s Treasure

America, rather than Russia, leads the world in unconventional oil and gas production. But more importantly, they lead the world in the technology it takes to unlock the complicated geology that lies beneath the Earth’s surface.

The ability to extract vast quantities of oil means energy independence or, in the case of Iran, even more oil and gas available for exports and to fill the country’s coffers.

So by inviting “the Great Satan” inside its borders, Iran will be able to acquire this valuable technology and begin to apply it.

And once everything has been built, it would only take a flick of a pen to evict the American companies.

The Russians would also be able to take this technology and apply it within their own borders… so that they can begin expanding their hydrocarbon empire beyond the boundaries of Europe.

It is clear the biggest loser in this negotiation is Israel. There is nothing they can do but stand by and watch. But Israel won’t show its cards until the six-month treaty expires.

The key to how this plays out for the US is how Iran acts the day after the six-month treaty is over. Will Iran continue under the same terms? If not, will Israel tolerate it?

So How Can We Profit?

By investing not in the companies that will be physically producing oil within Iran’s borders, but in the ones that will provide all the necessary services… the picks and shovels of the business, so to speak.

And we already know the ones that the big multinational companies like Shell and Exxon will turn to.

Want to find out which ones? Read all about it in the December issue of Casey Energy Dividends. Sign up now for a risk-free trial and begin profiting from the biggest diplomatic agreement in the past decade.

By Michael Lombardi, MBA

Given the recent further weakness in the price of gold bullion, should investors be running for the exit doors?

Some well-known “gold bugs” have recently turned bearish on the precious metal. But I’m on the opposite side of the spectrum; I see the pullback in gold prices as an opportunity of a lifetime for contrarian investors.

The gold bullion price chart below shows the long-term trend in gold bullion is still intact. Since 2001, the precious metal’s price has marched higher. Note there have been many pullbacks along the way, but in all cases, gold bullion prices recovered and moved higher after their pullback. And I believe we will see gold prices recover again from their current price correction.

Chart courtesy of www.StockCharts.com

From a fundamental point of view, demand for the precious metal remains robust. Many central banks have become net buyers of gold bullion over the last couple of years, and consumer buying in gold is very strong.

So the question is: with so much negativity towards the precious metal, have we reached peak pessimism on gold bullion? My answer is that I believe we are slowly getting there.

Just yesterday, Bloomberg ran a story saying hedge fund manager John Paulson would not be investing more of his own money in his gold fund at this time “because it’s not clear when inflation will accelerate.” (Source: Bloomberg, November 25, 2013.)

While investors seem to have turned very bearish on gold bullion, I see it as a bullish sign. If history has taught us one thing, it’s that when there’s increasing pessimism on any investment, a bottom is usually not far away.

So far this year, gold prices have fallen about 30% while the S&P 500 is up about 30%. I can’t see how this trend will continue in an environment where stock prices seem to be rising on nothing else but easy monetary policy. My wager is that in the years ahead, we will look back at 2013 and say, “What a great year that was to buy gold-related investments.”

This article Weak Gold Prices an Opportunity of a Lifetime for Contrarian Investors? is original publish at Profitconfidential

London Gold Market Report

from Adrian Ash

BullionVault

Weds 27 Nov 08:50 EST

EDGING BACK from 1.0% overnight gains, gold briefly dipped below $1250 per ounce in London on Wednesday morning, as world stock markets ticked higher.

Major government bonds slipped, but Spanish bonds rose in price, nudging 2-year yields down to their lowest level since 2009 following unsourced comments in a German newspaper that the European Central Bank is considering a new round of long-term asset purchases.

 Italian yields also edged lower, down to 6-month lows, after 2014 budget plans from prime minister Enrico Letta’s coalition won a confidence vote in parliament.

 The British Pound rose to new 2013 highs above $1.63 despite a revision to GDP data showing a 6% drop in business investment during the third quarter.

 That capped the price of gold for UK investors below £768 per ounce, some £10 above Monday’s new 3-year lows.

“Trading conditions could start to thin out going into the Thanksgiving holiday tomorrow,” says a US gold and commodity broker’s note.

 “With the US Thanksgiving holiday fast approaching,” agrees today’s comment from Standard Bank’s commodity team in London, “market activity may slow down, and only pick up next week Friday” when the next US jobless data are released.

 China’s gold trading volumes were solid on Wednesday, however, slipping from Tuesday but holding above recent averages as the major contract ended little changed, equal to $5 per ounce above London settlement.

 Western bearishness however will take the metal back to $1180 per ounce, the 3-year low hit at the end of this spring’s crash, says London market maker Barclays.

 Joni Teves at Swiss investment bank and London bullion market-maker UBS agrees, saying the gold price will average $1180 per ounce between now and New Year.

 Teves yesterday cut UBS’s 3-month gold price forecast to $1100 per ounce from $1375.

 But “gold posted a bullish daily reversal at the lows” on Monday, says a technical analysis of price charts from Citigroup.

 “Additionally silver posted a bullish daily reversal, and momentum has also crossed up from stretched levels.”

 Silver prices slipped in London trade Wednesday, but held above $20 per ounce after dropping through that level for the first time in 4 months last week.

 New data meantime said gold imports to China rose almost 20% to a near-record monthly high in October, with 130 tonnes being shipped through Hong Kong on what local analysts and traders called “stockpiling” ahead of the Lunar New Year festivities.

 Gold imports to Turkey last month took year-to-date inflows to a record, the Istanbul Gold Exchange showed on its 18-year data series, more than doubling from 2012 to 251 tonnes as buyers in the world’s 4th largest consumer nation took advantage of the sharpest price drop in 38 years.

 “We can [also] increase our gold exports to Iran dramatically,” Hurriyet Daily News quotes Ayhan Güner, head of Turkey’s Jewelry Exporters Association, “if [international] sanctions against Iran are eased” following last weekend’s agreement over Iran’s nuclear development program.

 Currently targeting 10 tonnes of domestic gold mine production per year, Iran is boosting its domestic gold refining capacity, says the Tehran Times, with 3 tonnes of gold bars slated for annual output from the new north-western Zarshouran plant, due to start production next month.

German regulator BaFin has meantime joined the “investigation” of gold’s London benchmark Fix, according to the Wall Street Journal Deutschland.

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.

By Mitchell Clark, B.Comm.

It’s an amazing performance that few people predicted at the beginning of the year—this stock market might just keep on climbing right into the New Year.

Just recently we looked at Automatic Data Processing, Inc. (ADP) as it broke a new all-time record high of $77.00 a share. Now, the position has surpassed $80.00 a share, still boasting a 2.4% dividend yield. It was $60.00 a share in January.

The stock market should have experienced a major correction this year, but it consolidated during the summer and reaccelerated instead.

The huge price movements of so many large and mature enterprises are not unusual in the historical performance of the stock market. In the middle of 1998, ADP was $30.00 a share (split adjusted). Two years later, the position hit a new, all-time record-high around $60.00 before correcting with technology stocks.

ADP and so many other positions illustrate the power that monetary policy has on the stock market’s business cycle. Clearly, equities today are overbought, but institutional investors have to be buyers, because investors don’t pay fees to have money sitting in cash.

While I feel that the stock market can close this year out strongly, generally speaking, I am not enthusiastic about investors buying this market. The fundamentals are slowly coming together to support the case for rising equity prices, but all the good news in terms of balance sheets and earnings outlooks are already priced into this market. Anything can happen going forward, but expectations for investment returns have to be extremely low if one is buying a stock market that’s already gone up.

A profound and prolonged correction would be an ideal development in my view. It’s not that I’m rooting for losses; in fact, it’s quite the opposite. Speculative fervor, especially among initial public offerings (IPOs), seems to be at a peak and investors with money to be put to work need more value than is currently being offered. While there are all kinds of reasons why an investor would buy stocks at their all-time highs, investment risk is not reasonable considering potential returns at this time.

Institutional investors, for the most part, can’t really keep their funds in cash, but individual investors can do so. I think the stock market remains a hold, but new money can sit on the sidelines in anticipation of what I hope will be a significant correction.

If the catalyst for such a correction next year is a change in monetary policy, it would likely be an attractive buying opportunity.

I’m of the view that the stock market’s recent strong performance is representative of a breakout from its previous long-run cycle (2000 to 2012), and what’s transpired is the beginning of a secular bull market and a new business cycle.

As I wrote in April, if this is the beginning of a secular bull market, there will be spectacular declines within it. (See “Unbelievable Stock Market Now Destined for Greatness?”) As the stock market has shown so well historically, price inflation is what keeps the system going, but it is that same price inflation that is responsible for the bubbles and collapses.

This article Institutional Investors’ Risk of “Having to Be in Stocks” High is originally posted at Profitconfidential

By John Mauldin