Source: Brian Sylvester of The Gold Report  (1/15/14)

http://www.theaureport.com/pub/na/how-to-avoid-pawnshop-lending-heiko-ihle

Heiko Ihle, senior research analyst at Euro Pacific Capital, wants to warn investors and companies about the perils of “pawnshop lending”—predatory lending scenarios that many junior miners find themselves in as a result of the current commodity price climate, overall financing climate, lack of interest from the buy side and incremental deals. In this interview with The Gold Report, Ihle outlines some alternative financing options and describes the three things he looks for in junior miners at the start of 2014.

The Gold Report: In 2012, the top 100 firms on the TSX Venture Exchange (TSX.V) raised $1.6 billion. In 2013, that dropped to a mere $795 million. What are the financing prospects for junior miners in 2014?

Heiko Ihle: It all depends on the price of gold, silver or whatever commodity the company is trying to get out of the ground.

If, as some people predict, gold hits $1,000/ounce ($1,000/oz), financing will be a whole lot tougher in 2014. I would think that for an asset that’s not very high grade and is fairly small, it will be close to impossible. If the gold price stays where it is now, financing will be more or less the same as in 2013, with the caveat that quality projects will get funding and lower-grade projects probably won’t. If the price of gold goes up significantly, everybody’s a winner, and we shall see what happens.

I personally do not believe we will ever see prices like this again, since this is below the global cost of production.

TGR: What are your forecasts for gold and silver in 2014?

HI: I’m not a macroanalyst, but for the net asset value (NAV) analysis in our reports we’re using $1,250/oz for gold and $20/oz for silver, with both numbers increasing slightly over the next couple of years.

I typically use the spot price as an indicator to value companies, rather than speculating on the price of the commodity.

TGR: We’re starting to see predatory financings: institutions acquiring huge equity positions for relatively little cash. You call it “pawnshop lending.” What do these deals tell the investment community?

HI: These are lenders of last resort. A couple of companies—and I won’t shame any publicly—specialize in giving people just enough rope to hang themselves with the ultimate idea of eventually owning the company or its primary asset outright through a default on the debt. Clearly, companies don’t do this by choice; they are forced into it.

Companies forced into pawnshop lending tend to have lower-grade, lower-quality projects. If they had more of the good stuff, they might get better funding from the markets.

Given the current commodity price climate, the overall financing climate, lack of interest from the buy side and incremental deals, we are seeing more pawnshop lending.

TGR: In general, what should investors expect next in 2014 if we start to see more pawnshop lending? How will the market react?

HI: If I were a shareholder and my company was on its last leg, I would debate what to do: Infuse additional equity through a capital raise and maintain my stake? Sell my stake with the belief that it may or may not work out? Hang on tight, hope for the best and not participate in any additional raises? I think the third choice is probably the toughest one to do.

TGR: Brokered financings are declining in favor of non-brokered private placements. What’s behind that trend?

HI: Three things. First of all, there is a lack of interest from institutional investors for anything mining related right now. Second, companies save money going the non-broker route. And, finally, private placements are sometimes so small that some brokers don’t get them on their radar screen.

TGR: Is this hurting the brokerages?

HI: Absolutely. Some of the smaller boutiques shut down their mining business in 2013.

TGR: That happened at Casimir Capital Ltd.’s Canadian office, which was mostly a resource-based outfit. Are the U.S.-based brokerages pulling away from mining, too?

HI: I don’t know of any U.S.-based offices shutting down, but I do know of two other shops in Canada that have sharply curtailed operations or just shut down altogether.

TGR: Typically, junior mining companies raise cash by issuing more shares, but when financings become too dilutive, companies look at other options. What are your preferred alternatives for cash-hungry juniors?

HI: Many get funding through some sort of silver or gold stream. I’m usually not in favor of that because the streaming doesn’t go away. I prefer gold or silver loans. Once the loan is repaid it’s no longer an issue, plus you don’t dilute shareholders.

The next best choice is to sell shares. That does dilute existing shareholders, and you’re diluting the management team. That’s something companies generally try to avoid.

TGR: But hundreds of juniors have that problem.

HI: Correct. I heard people quoting statistics at the March 2013 Prospectors and Developers Association of Canada convention that 20–25% of the juniors on the TSX.V would be out of business by the end of the year because they don’t have the cash to fund their office space.

TGR: What is your investment thesis for making money in this environment?

HI: I look for three things in a company: An asset with ideally high grades in geopolitically safe areas and an experienced management team. That sounds simplistic, but those three factors will help increase the success rate quite a bit.

I’ve preached the virtues of good management teams for a long time. If we look at the trends over the past year, companies with good management teams and proven decisionmaking abilities have outperformed those that just can’t seem to get it together.

A good project has accessibility and infrastructure. A good location has minimal geopolitical risk. A good management team can get things done. If a project is in the permitting phase, how advanced and how likely of success is the permitting process? We look at current balance sheets. Lately, some management teams are trying to raise equity without a compelling need for it. I understand having a war chest at the ready, but you can overdo it.

TGR: Going back to your thesis, if a promising junior with a project in West Africa came to Euro Pacific to raise money, would you turn it away for jurisdictional reasons?

HI: No. If you can find a company that hits on all three points, that’s terrific. But most of the time, something is going to fall short.

I’m flexible as to what we really look for when I believe in the story. That sounds very simplistic and ad hoc, but if you brought me a decent company with a decent project, I’d be very willing to listen to you. If nothing materializes, so be it, but at the very least, I’d be willing to listen. My gut feeling is most analysts and bankers are the same way.

TGR: You deal with European investors. What’s their attitude toward this sector now?

HI: It’s actually somewhat better than it is in the United States. European investors, in general, tend to take a buy-and-hold approach; they don’t pay too much attention to what happens quarter by quarter.

Some companies in my coverage universe have smaller and fewer price swings just because—I’m making numbers up—20–30% is owned by, for example, 10 Swiss or German families who have no intention of ever selling a single share.

TGR: Some Canada-based analysts are rolling back their 2014 target prices, sometimes as much as 25%. Are you doing the same?

HI: We’ve lowered target prices on many companies, largely because we use NAV models for most of our company valuations. With the gold price declining as it did in 2013, we have lowered our NAV, which translates into quite lower price targets over the course of the year. This holds true for pretty much everything in our coverage universe.

TGR: What do you say to people who don’t see the value in gold, who don’t see it appreciating any time soon?

HI: Gold has been a store of value for thousands of years. I think it is wrong to say that it is going through a bust right now and will never come back.

Here is a quote that I love: “Be fearful when others are greedy; be greedy when others are fearful.” That’s not a bad way to look at it.

If you can get fire sale prices on these equities—those that will survive the current environment—I think you may do quite well.

TGR: Let’s talk about your coverage universe and some of the equities you’re following.

HI: I recently visited Pershing Gold Corp. (PGLC:OTCBB) in Nevada. Its mill is more or less ready to flip the switch.

I spent a whole day with the management team. Although we do not have coverage, a price target or any valuation numbers on Pershing Gold, I would not be surprised to see it moving forward over the next couple of years, or quarters, for that matter.

We also cover Endeavour Silver Corp. (EDR:TSX; EXK:NYSE; EJD:FSE), a silver company headed by Brad Cooke that has a couple of projects in Mexico. This is a company with good management, people who have done this before. However, there is still a lot of “hate” for its El Cubo project, a mine it bought in 2012 from AuRico Gold Inc. (AUQ:TSX; AUQ:NYSE).

That acquisition took longer than everybody anticipated and has been a gray area for Endeavor. However, the turnaround has been progressing nicely. Once we’re in a rising environment for the silver price, all of Endeavor’s projects should look quite good.

TGR: Do you have another silver name in Mexico?

HI: I’ve been to visit only one of Great Panther Silver Ltd.’s (GPR:TSX; GPL:NYSE.MKT) mines. CEO Bob Archer has seen silver cycles before, and I think the management team knows what it’s doing. Its Topia plant is not making a whole lot of money at current prices, but even in the challenging environment of FY/13, there should be some cash flow from that site. Great Panther also is cost cutting wherever it can. Even if we were to hit only $24–25/oz silver, Great Panther should start making decent money again.

TGR: Mexico introduced a new royalty regime on earnings before interest, taxes, depreciation and amortization (EBITDA). Does that change how you look at the companies operating there?

HI: The mining tax was not a surprise to anybody, despite how the media tended to spin it.

On the margin, yes, the tax is a negative. However, the Mexican government actually took the companies to the negotiation table since it wanted to keep Mexico somewhat competitive in the world. Everyone realized that if the government just came in and started charging exorbitant taxes, nobody would want to invest and the government wants to keep investment in the country going.

Frankly, I’m more concerned about some of the drug wars throughout the country and the overall geopolitical risks facing Mexico than its tax regime.

TGR: Do you have any specific information about the direct impact of drug cartel activity on the mining industry?

HI: I’ve had firsthand experience being stopped by the army with machine guns because the mining site happens to be located in the same area as where the cartels grow their drugs.

TGR: Are there any other equities you’d like to tell us about?

HI: I visited Fortuna Silver Mines Inc.’s (FSM:NYSE; FVI:TSX; FVI:BVL; F4S:FSE) Caylloma project in Peru. The family that runs the company has a long history in the mining space. The CEO, Jorge Ganoza, is a third-generation miner. Simon Ridgway is also behind the company and serves as board chairman.

Overall, Fortuna did reasonably well in 2013. The stock held up fairly well, by which I mean it was down less than some others. I attribute that to its cash-cow project in Mexico, helped by another decent cash-flow project in Peru. Plus, the management team realizes that times are tough and it is doing all it can to cut costs and increase cash flow.

TGR: What has been done to cut costs?

HI: There have been layoffs at the corporate and the mine levels. Management is also picking and choosing the veins to be followed to maximize cash flow.

TGR: Can you give us a reason to believe in the junior mining equities in 2014?

HI: If you believe that quantitative easing will continue in some form, and you believe in the price of the underlying commodity, you may see a leveraged impact on the share price this year. This is especially true for companies with high-grade projects in good locales with good management that can get funding to move their projects into production.

If you buy an ounce of gold, and it goes from $1,200 to $1,400, that’s great, but if you buy a share at $2 and it goes to $10 because of good management, aided by that increase in the spot price leading a project to become a mine, that’s a whole lot better.

If you believe, as I do, that a lot of these companies are undervalued at current prices, and you think that the price of the underlying commodity will increase, you’re buying leveraged investments on what you believe in. Just realize that leverage cuts both ways.

TGR: Indeed it does. Heiko, thanks for your time and your insights.

Heiko Ihle joined Euro Pacific Capital in November 2011 as a senior research analyst covering companies in the Mining and Engineering & Construction industries. Prior to joining Euro Pacific, Ihle spent more than six years with Gabelli & Company, more than five of which as a research analyst. While at Gabelli, he was awarded second place in the 2010 Financial Times/StarMine Top Analyst Awards for the Engineering & Construction space. A native of Germany, Ihle received his bachelor degree in finance and management from the University of Illinois at Chicago in 2004 and his MBA from the University of Miami in 2006. He has been a CFA Charterholder since 2010 and is currently a member of the CFA Institute and the Stamford CFA Society.

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DISCLOSURE:
1) Brian Sylvester conducted this interview for The Gold Report and provides services to The Gold Reportas an independent contractor. He or his family own shares of the following companies mentioned in this interview: None.
2) The following companies mentioned in the interview are sponsors of The Gold Report: Pershing Gold Corp., Great Panther Silver Ltd. and Fortuna Silver Mines Ltd. Streetwise Reports does not accept stock in exchange for its services or as sponsorship payment.
3) Heiko Ihle: I or my family own shares of the following companies mentioned in this interview: None. I personally am or my family is paid by the following companies mentioned in this interview: None. My company has a financial relationship with the following companies mentioned in this interview: Endeavour Silver Corp. 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.
4) Interviews are edited for clarity. Streetwise Reports does not make editorial comments or change experts’ statements without their consent.
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By Mitchell Clark, B. Comm.

The great thing about noodles is that they’re cheap—and this is also what makes a restaurant chain selling noodles a very good investment opportunity.

Restaurant stocks should always be on any speculative investor’s radar. Consumers’ tastes change, disposable incomes change, and so on…but there is always fervor to eat out, especially at the right price point.

The latest buzzword in the world of chain restaurants is “fast casual,” a combination between a fast food quick-service outlet and a sit-down casual restaurant. There’s going to be more and more of these types of chains coming to the market, and there have already been some hot (and expensive) initial public offerings (IPOs) in this sector recently.

Among several fast casual restaurant stocks that recently listed, Noodles & Company (NDLS) out of Broomfield, Colorado just opened another 12 locations in its 2013 fourth quarter, bringing its total corporate-owned locations to 318, with 62 additional franchised restaurants.

Typically, developing restaurant stocks that can offer the most capital appreciation potential on the stock market are those with a large number of corporate-owned locations. This enables management to keep full control over operations, while improving the concept as business conditions and geographic locations dictate.

Noodles & Company came to market selling 5,357,143 shares at $18.00 a share with an overallotment of 803,571 shares. Illustrating the speculative fervor for restaurant stocks at the time, the company’s shares opened around $36.00, and then proceeded to appreciate to $47.00 a share before consolidating for the rest of 2013.

Recently, the company announced preliminary fourth-quarter results that came in just shy of the Street’s estimates.

Fourth-quarter 2013 sales are expected to be approximately $91.5 million for a gain of 17.4% over the fourth quarter of 2012. Comparable restaurant sales are estimated to gain 4.3% for corporate-owned locations. The company franchised an additional four restaurants in the most recent quarter.

Like many newly listed stocks, there are a lot of high expectations built into the numbers for this company, and last year was perhaps the most ideal time for a company to sell shares to the marketplace.

Noodles & Company sold off on its preliminary fourth-quarter numbers, and I think speculative investors should now put this growing chain on their radar. IPOs are almost always overpriced, but that doesn’t mean that the underlying companies aren’t growth stories.

IPOs often sell off on corporate developments that don’t quite meet or exceed Wall Street’s expectations. But IPOs often retrench in price after listing, and even more often, speculative investors can pick them up at better prices than recently traded.

Trading stocks that are new listings is all about managing expectations and risk—both those related to what the Street is looking for and those achieved by the underlying business. (See “Two Old Restaurant Stocks Offer Investors Growth.”)

Restaurant stocks come and go, but when the action in the broader market is decent, they can often turn out to be very good moneymakers for risk-capital speculators.

Any aggressive equity market portfolio would be well served by having some exposure to this sector. Restaurant stocks were a favorite of the famous money manager Peter Lynch, and this investment theme has not gone out of style. (See “How Peter Lynch Got It Right 20 Years Ago.”)

This article “Fast Casual” the New Buzzword Among Risk-Capital Speculators was originally published at Profit Confidential

Article by Investazor.com

Today was a pretty interesting trading day. The European and American stock markets rallied to new highs on mixed economic data release from both sides. The US dollar surprised with a sustained rally throughout the trading hours and while Gold and Silver stood still.

The economic calendar showed today an European Trade Balance slightly under estimates, at 16.0B and a lower than expected PPI (0.4%, but an increase in the core PPI% – 0.3%) followed by the Empire State Manufacturing Index, published at 12.5 (beating the 3.2 estimates) for the United States. These publications wouldn’t have been enough to move the market that munch in the positive grounds.

The FOMC member, Evans, had some interesting things to say in his current speech. He is backing up his bass, Janet Yellen (the new Federal Reserve chairman). Evans said that he has confidence that the US economy is picking up the pace and that signals of a reviving are already here. He believes that the QE tapering will continue in January and that it could get more aggressive in March.

In the Beige Book it was written that the economy is expanded at moderate pace in most regions. The retail sales are up in three-quarters of districts, manufacturing growing steadily in most districts; also two-thirds of districts reported increases in hiring and some expect a pick-up in growth.

These are pretty good motive for the dollar to rally. Less Quantitative Easing means that it will be fewer dollars at the same demand, in a raw logic. This usually ends up with an increase in the price of the instrument, which actually happened. The dollar gained until now 0.56% in front of the Euro; 0.42% in front of the cable (GBP); 0.56% in front of the aussie (AUD); 0.08% in front of the loonie (CAD) and 0.5% in front of the kiwi (NZD).

In these conditions the stock market should have plunged. But this wasn’t the case, on contrary they rallied. We could tend to believe that just like before the economic crisis, started in 2008, strengthen of the US dollar triggered rallies in the stock market. But I don’t believe that this would be the case, at least we should wait some time before getting to such conclusion. Today the rally on the stock market could have been triggered by the World Bank, which raised its growth forecast as the richest nations strengthen.

Dow Jones Industrial +0.75%; S&P500 +0.51%; NASDAQ Composite Index +0.75%; EUROSTOXX +1.58%; DAX +2.03%; FTSE100 Index +0.78%; NIKKEI225 +2.50%; Hong Kong Hang Seng Index +0.49%.

The rise of the US dollar doesn’t help the commodities market. A strong dollar usually triggers drops in the price of the most traded commodities. As the Dollar Index gained 0.46% today, the price of gold, silver, and agricultural commodities dropped.

Cred Oil WTI +1.56%; Crude Oil Brent +0.69%; Gold -0.67%; Silver -0.95%; Wheat -1.99%; Corn -1.33%;

The post 15 January Wrap UP – Why did the Markets Rally? appeared first on investazor.com.

By John Mauldin – Outside the Box: The Demographic Cliff and the Spending Wave

For today’s Outside the Box, my longtime friend Harry Dent is letting us have a look at chapter 1 of his latest (and I would say his greatest) book, The Demographic Cliff: How to Survive and Prosper During the Great Deflation of 2014-2019. Harry’s grasp of the impact of demographics on economies and investments is unexcelled and unambiguous. We all know that demographics really matter, but Harry has looked deeper and harder and understood better than any of us.

One of the key insights Harry brings to us is the concept of the Spending Wave. In other words, it’s not just when you and the rest of your generation were born that matters, it’s when you spend. At what age does your spending peak for housing or for child rearing or travel? Harry and his team have developed really good numbers on all of this, and from that data they have been able to consistently predict major macroeconomic trends. Harry summarizes the recent decades and the coming ones like this:

The demographic climaxes in average peak spending led to the rising boom from 1983 to 2007, then the slowdown in 2008 that will carry on until 2020 until trends bottom out and 2023 before trends turn up again. These numbers won’t predict stock crashes and swings in the markets in between, but the big picture is undeniable.

There is a lot more to Harry’s thesis than we can fit in an Outside the Box – chapter 1 alone runs 35 pages, and I can only bring you the first 10 here. So to help you bring Harry’s work into immediate focus – and because I always like to compare notes with Harry – I recently asked him to sit down with me and talk over what we can expect to see in 2014. Some interesting ideas emerged at the intersection among demographics, debt, and deflation – three of the “Killer D’s” that were my topic in last week’s Thoughts from the Frontline – and we also looked at potential great trades for the coming year.

Our conversation, moderated by Mauldin Economics publisher Ed D’Agostino, is available right here.

I write this note from the airport lounge in Riyadh, Saudi Arabia, at the beginning of a long 24 hours to get back to Dallas. Riyadh was a fascinating exclamation point on my foray into the Middle East. When visiting a new country or region, I try to arrive with as few expectations as possible … and then absorb.

I have to say that my hosts, the MASIC group, treated me as well and as with as much genuine hospitality as anyone has done in any of the 60+ countries I have visited over the years. Sometimes that can be person-specific, and certainly the family that owns MASIC spent a lot of personal time taking care of me and the other speakers; but I also observed here how people in general are treated, and I found myself appreciating a tradition of hospitality that I had heard a lot about but never had the opportunity to experience first-hand.

Oddly enough – and I have to admit this observation was a bit outside the scope of my expectations – I found a good deal of similarity between a nation with a “country” Bedouin cultural heritage and the cowboy culture and mythos I grew up with in West Texas. The differences are also apparent and were somewhat jarring at times, but somehow the overall sense of the people was strangely familiar. These are people who, once they are your friends, treat you with a deeply felt sense of honor and acceptance. Where I grew up in Texas, the meaning and value of a handshake was drummed into me at an early age. I think a handshake might have value here as well. Just my impression.

I have a great fascination with Japan and the Japanese culture, but I am not sure I will ever understand it very well, except perhaps in an intellectual sort of way. Here, I got the sense that the gulf of personal understanding was not as wide. Big differences in style, yes. But then the world thinks all Texans wear cowboy hats and boots.

The MASIC group that invited me is an old Saudi business that has grown quite large, yet the family is clearly quite involved and is dealing with many of the very same issues that large family firms in the US confront. And is dealing with them more openly than many.

I’m afraid I often learn a lot more from the people I meet on these trips than I impart to them. On this occasion I laughed a lot more than usual – and had some quite serious conversations as well.

The entire Middle East is in the midst of great change, in a world that is changing even faster. I am forcibly reminded on trips like these that the world is simply unprepared for the rapidity and scale of change that is going to happen over the next 20 years. The jobs we will have in 20 years will be quite different from the ones we have today. Think 1850 to 1950 in the US – but compressed into one lifetime.

And yet I was asked some of the right questions during my stay here, which is more than I experience on many trips. All too often, we humans we want to figure out how to protect ourselves from unwanted change rather than trying to make the change work for us.

British Airways is calling my flight, so it is time to hit the send button. Among other little problems, their seat ate my brand new iPad on the trip out here, so my plan to sit and read on the return flight to London has gone by the wayside. Sigh. I look forward to being on American from London and having wifi for nine hours. Maybe I can catch up a little with my email inbox.

I will write this week’s letter from Tampa, as I have to make a quick trip there to meet with some medical research teams, along with my friend and colleague Patrick Cox. There are fascinating discoveries being made, and I have an opportunity to talk with a newly forming group that is working on the types of changes we all want. What a fascinating world I have stumbled into, where I seem to have a front-row seat to watch all sorts of stupendous changes unfold. Have a great week.

Your once again running to the gate analyst,

John Mauldin, Editor
Outside the Box[email protected]

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The Demographic Cliff Around the World

By Harry Dent
(An excerpt from chapter 1 of The Demographic Cliff: How to Survive and Prosper During the Great Deflation of 2014-2019)

One simple indicator warned of the crashes in Japan from late 1989 forward and in the United States in 2008. It’s called the Spending Wave.

The wave is not a function of stock valuations, but of consumer spending patterns over the course of their life cycle. It’s about the predictable things people do as they age.

Demographics tell us a typical household spends the most money when the head of the household is age forty‐six—when, on average, the parents see their kids leaving the nest. Reading these numbers is no different from life insurance actuaries predicting when the average person will die and, based on that, making projections decades ahead.

Essential to understanding broad economic trends is the recognition that new generations of consumers enter the workforce around age twenty and spend more money as they raise their families, buy houses and cars, borrow, and so on. You may peak at a different age, likely in your early fifties if you are more affluent and went to school longer (as your kids probably did or will, too). The demographic climaxes in average peak spending led to the rising boom from 1983 to 2007, then the slowdown in 2008 that will carry on until 2020 until trends bottom out and 2023 before trends turn up again. These numbers won’t predict stock crashes and swings in the markets in between, but the big picture is undeniable.

In 1989, stocks in Japan peaked dramatically at 38,957 on the Nikkei. A major real estate peak followed in 1991. Despite unprecedented monetary stimulus since 1997 (there’s that QE—quantitative easing—again), more than two decades later stocks remained down 80 percent in late 2012. Likewise, twenty‐two years later, real estate is still down 60 percent from the peak, and commercial real estate by even more. Real estate has never bounced back significantly, even though, from 1999 forward, a new— but significantly smaller—generation began to reach the right age to buy houses.

Did you know that almost all of the money spent on housing occurs between ages twenty‐seven and forty‐one? In Our Power to Predict in 1989, I predicted Japan would see a twelve‐to‐fourteen‐year downturn, while the United States and Europe would see their strongest decade in history. Only demographic indicators could anticipate such a powerful shift in the global economy.

After two lost decades in a coma economy, in early 2013 the Japanese government announced that it would implement the most aggressive stimulus program in history to turn things around. Stocks advanced dramatically in response into mid‐2013, but we can’t know for how long, given that the advance is based on a desperate monetary policy meant to fight dire debt ratios and demographic trends. Since Japan’s first demographic slowdown was over in 2003, why wasn’t the last decade more prosperous?

The world’s economists simply have not come to terms with not only what happens when the largest generation in history reaches its spending peak, but also what it means when that generation is followed by a smaller one. We need to consider hard questions, such as what happens when Japan, most of the countries in Europe, the North American countries, and even China face shrinking workforces and reduced population growth. And what happens as more people retire than are entering the workforce? How does that affect economic growth and commercial real estate? What happens when more homes go onto the market as people die than there are younger buyers to buy them? Such a situation has not occurred before in modern history, and it will have a powerful effect on economics. We’ve seen it already in Japan, which I will cover in chapter 2.

The Best Leading Indicator

The best indicator? People do predictable things as they age. That’s it in a nutshell. So, let’s look at how demographics drive economic trends, from the macro to the micro, in modern middle‐class economies.

Only since 1980 have we had clear and detailed annual surveys from the U.S. government on how consumers spend, borrow, and invest over their life cycle, down to very small sectors (remember my reference to potato chips? Sales of those peak at age forty‐two for the average household). But with great volumes of such data, it is possible to forecast the most fundamental economic trends.

Consider that the Consumer Expenditure Survey (CE) from the U.S. Bureau of Labor Statistics measures more than six hundred categories of spending by age—and spending really changes in different areas according to age. The average family borrows the most when the parents are age forty-one, typically the time of their largest home purchase. They spend the most at age forty‐six, although more affluent households reach that peak later, between age fifty‐one (top 10 percent) and fifty‐three to fifty‐four (top 1 percent). People save the most at age fifty‐four and have the highest net worth at age sixty‐four (and later for more affluent households). Predictably, as we live longer these peaks slowly move up in age. The Bob Hope generation, born in increasing numbers from around 1897 to 1924, reached their spending peak at age forty‐four in 1968, meaning their boom was a forty-four‐year lag on the birth index from 1942 to 1968.

The average person enters the workforce at age twenty, an average of those who complete their education with a high school degree at age eighteen and those who graduate from college at age twenty‐two. Typical Baby Boom couples got married at age twenty‐six (though that age is rising, presently hovering around twenty‐seven‐plus). That’s when apartment rentals peak, too, and the average kid arrives when his or her parents are ages twenty‐eight to twenty‐nine. That stimulates the first home purchase at about age thirty‐one—as soon as people can afford it! As the kids first become teenagers, parents buy their largest house, between ages thirty‐seven and forty‐one. (Why? Parents and kids both need more space in this difficult period of adolescence. You want the kids to be way over there and you way over here—and the kids agree!) We continue to furnish our houses, and thus spending on furniture overall peaks around age forty‐six, which, again, is also the peak in spending for the average household.

A sample of some key areas of consumer spending out of the broad survey. Does this resemble your life pattern? If not, it’s likely because you are more affluent and peak a bit later in these areas.

In the downward phase of spending, some sectors continue to grow and peak. College tuition peaks around age fifty‐one. Automobiles are the last major durable good to peak (that’s around age fifty‐three), as parents buy their best luxury car after the kids have left the nest and they don’t need a boring minivan anymore. Some get fancy sports cars. Some get big pickup trucks. These are in fact the sectors doing the best in 2013 before they peak after 2014. But then their vehicles last much longer as they have nowhere to drive without the kids, so car spending plummets thereafter.

Savings rise most from age forty‐six to fifty‐four and continue to grow, though more slowly, toward a net worth that peaks at age sixty‐four, one year after the average person retires at age sixty‐three. Spending on hospitals and doctors peaks between age fifty‐eight and sixty. Vacation and retirement home purchases peak around age sixty‐five. People travel more from age forty‐six to sixty, after their kids leave the nest, but then they begin to find it too stressful. They finally choose to just go on cruise ships and be stuffed with food and booze with no jet lag or customs hassles. That peaks around age seventy. Then there are the peak years for prescription drugs (age seventy‐seven) and nursing homes (age eighty‐four).

I have highlighted only some key areas: the data can tell you much more, such as when consumers spend the most on camping equipment, babysitting, or life insurance.

The peak in overall spending in Figure 1‐2 is at age forty‐six and revolves around kids’ getting out of school and the need for spending dropping for parents so that they can both enjoy life more and save for retirement. Spending on furniture peaks here as well. But note that there is a plateau between age thirty‐nine, when home buying starts to peak, and age fifty-three, when auto spending peaks. Then spending drops like a rock all the way into death! This is a big deal that governments, businesses, and investors are not anticipating as the massive Baby Boom generation ages in one country after the next.

If you want to reduce middle-class economies down to one important factor, this is it: consumer spending by age. Most economists assume consumers are more like a constant and that business and government swings drive our economy. In fact, consumers are 70 percent of the GDP, and business investment only expands if consumer spending is growing and the government taxes businesses and consumers for its revenues; hence, it follows consumer spending indirectly as well.

The difference in spending patterns between a nineteen‐year‐old, a forty‐six‐year‐old, and a seventy‐five‐year‐old is huge. How much did you earn and spend yourself at age eighteen or nineteen? How much did you earn and spend when you bought your largest house and then furnished it in the years to follow? How much do seventy‐five‐year‐olds spend . . . and do they borrow money? Consumers are anything but a constant when generational cycles are shifting the age concentrations significantly—especially the unusually large generations like the Baby Boomers. Note that some individual spending sectors can be very volatile, such as in acquiring items like motorcycles, which are largely purchased during the male midlife crisis years between forty‐five and forty‐nine, or RVs (recreational vehicles) that are largely bought between age fifty‐three and sixty.

In the big picture, what makes this consumer spending cycle so powerful is the fact that people are born (and immigrate) in clear generational waves. These are the two ways that you become a worker and consumer in a country like the United States—workers represent “supply” of goods and the same people as consumers represent “demand.” Hence, new generations drive both as they age into their peak spending years—and that’s precisely what causes a broad boom in our economy, which happened from 1942 to 1968 and from 1983 to 2007.

A century ago, immigration was the largest driver in the U.S. economy. New arrivals were the biggest factor in what I call the Henry Ford generation, which powered the economic boom that bubbled into the Roaring Twenties. More recently, we have for two decades predicted that immigration will fall sharply again from 2008 forward, when declining spending by Baby Boomers was also pushing us toward the next great depression between 2008 and 2023. We’ve seen that happening, with the drop‐off from Mexico especially apparent. Along with declining births since 2007, U.S. population is simply not going to grow as fast as economists forecast by extrapolating past trends.

In the recent immigration surge from the 1970s into the 2000s, which peaked in 1991, the immigrants added more to the Baby Boom generation (born from 1934 to 1961) than to the Echo Boom (born from 1976 to 2007) to follow. The highest numbers of immigrants arrive around age twenty‐three (what is called the mode in statistics), with the average age at thirty. The new arrival usually enters the workforce and starts producing and consuming. Hence, immigration has an immediate impact on the economy, unlike new births (the latter arrivals require eighteen to twenty‐two years to enter the workforce and become productive).

Looking back to the late 1800s, you can see that immigration is anything but constant. There were two major peaks in immigration: the first in 1907 with a major drop-off after 1914; the second was around 1991 with a major drop-off beginning after 2008. Note that immigration dropped to near zero in the 1930s after the greatest surge in American history.

When my outlandish forecasts back in the late 1980s for a Dow of 10,000 by 2000 started to look a bit too conservative, I realized that I wasn’t adjusting for immigrants, which I did in 1996. I developed a bell curve for the age of immigrants over decades of data using a computer model to determine when immigrants were actually born on average so I could add them to the birth index as if they were born here. And at Dent Research we make our own future forecasts for immigration taking into account the business cycle instead of the normal straight‐line projections of economists.

Note how much larger the Baby Boom was than the Bob Hope generation before it. The Echo Boom hit similar levels of births at its peak in 2007. But the last is a smaller wave as a generation, and from 2008 into the early 2020s, births are going to tend to fall more than rise due to a bad economy, just as they did in the 1930s and the 1970s. Note that it’s also necessary to adjust the birth index for immigrants to get the total size of each generation. When legal and illegal immigration during the Baby Boom generation is added, the Baby Boom towers higher still.

We found that, when adjusted for immigrants, the Echo Boom generation never reaches the growth numbers of the Baby Boom generation. Hence, it is the first generation to be smaller than the one before it. This pattern is consistent throughout the developed world, with the exception of Australia and the Scandinavian countries. Many European and East Asian countries have no Echo Boom generation at all.

Not everyone recognizes the subtleties of this. In print and broadcast journalism—a May 2013 article in Barron’s, for example, and on air at CNBC—we’re told that the millennial or Echo Boom generation is larger than the Baby Boom generation. By habit, I cringe when I hear broad statements concerning demographics (too often the speaker hasn’t done in‐depth research and reaches wrong conclusions). In this case, the statement is partly true, partly not.

The easy part—and the one that economists usually get right about demographics—is that the populations of most developed countries are aging and that rising entitlement burdens will fall on the younger generations. How will the lower spending and earnings levels of a smaller generation affect the economy? Take a good look at the Japanese economy, which went into a coma after Japan fell off the Demographic Cliff between 1989 and 1996: Japan has had zero inflation and GDP growth for the last two decades (see chapter 2).

Taking a close look at the data, it’s clear that the Echo Boom generation does exceed the Baby Boom generation in sheer numbers. In the United States, the birth rate for the Echo Boom group started at a higher level, and its rising birth span of thirty‐two years (1976–2007) was longer than that of the Baby Boom group, at twenty‐eight years (1934–61), as Figure 1‐6 shows. Baby Boomers total 108.5 million adjusted for immigration, compared with 138.4 million Echo Boomers. But the more important point from my research: the peak immigration‐adjusted births of the Baby Boom generation are still substantially higher and have a bigger overall wave.

The key to demographic trends and forecasting is reading the wave—namely, the rising wave of births and growth—and distinguishing the relative size of the acceleration of each generation. The Baby Boom is like a ten-foot-tall wave coming onto the beach, whereas the Echo Boom is a five-foot-tall wave. A surfer can instantly tell you the difference! Although the Echo Boom wave is wider in its scope, the Baby Boom wave is taller and greater in magnitude and peak numbers.

In the next boom, from about 2023 forward, the number of households needed to keep the economy going by spending and borrowing money, buying homes, investing, and other economic activity simply will not grow as fast or to the same levels. Yes, many (but not all) developed countries will experience a boom driven by demographics about a decade from now, but it will not be as strong as that precipitated by the rising spending and borrowing of the Baby Boomers.

Growth is more likely to come as a result of technological advances, especially those that will increase longevity and working years, which could help compensate for the lower number of workers. Such areas as biotechnology, robotics, nanotechnology, and new energy sources that are cleaner will be the drivers, but it will be a long time before they affect the economy broadly, because it takes decades for new innovations to gain momentum. For example, the automobile was invented in 1886, but only began to move into the mainstream U.S. economy from 1914 to 1928.

Harry Dent’s new book, The Demographic Cliff: How to Survive and Prosper During the Great Deflation of 2014-2019, is available here.

And here again is the conversation between Harry Dent and John Mauldin, moderated by Ed D’Agostino.

 

 

By Michael Lombardi, MBA

In New York last week, 1,500 people lined up for 50 apprenticeship positions as painters and decorators. These are union jobs, and only 500 applications are being accepted. Some hopefuls lined up in front of the District Council 9 office for days in extremely cold weather. If they are able to get the job, they will receive $17.20 an hour during the first year. After one year, they may get hired as a full-time employee. (Source: Eyewitness News, January 10, 2014.) This equates to about $37,000 per year considering one would work 40 hours a week.

Hold on a second: I thought the jobs market was strong in the U.S. economy? How come we are seeing such massive lines for a very small number of jobs?

What I just mentioned above is not an isolated event. I have reported other events like this in these pages before—a large number of people applying for very few jobs. It’s a fact that continues to be ignored: the U.S. jobs market remains bleak and the better-paying jobs are just not there.

In the entire year of 2013, the total non-farm payroll jobs market grew by 2.03 million jobs. But the majority of these positions were created in low-paying jobs.

Retail trade jobs in the U.S. economy increased by 358,400 last year—about 18% of all jobs created in 2013. The well-paying sectors of the jobs market, such as construction and manufacturing, didn’t see as much growth: constructions jobs increased by 98,000 and manufacturing jobs in the U.S. economy increased by 63,000 in 2013. Together, the higher-paying jobs made up less than eight percent of all the jobs created in 2013. (Source: Federal Reserve Bank of St. Louis web site, last accessed January 13, 2014.)

When the phenomenon of low-paying work prevails in the jobs market, consumer spending eventually becomes a victim, as personal disposable incomes decline as people pay a higher percentage of their income towards necessities like rent.

Looking at all this, I must ask the question I have been asking for the past four years: has quantitative easing really worked? In 2013, the Federal Reserve printed $85.0 billion a month in new money—a total of $1.02 trillion in money out of nowhere.

Sadly, I believe quantitative easing failed (if you don’t include the effects of making the big banks stronger and pushing the stock market to new highs). We saw a spur of retail jobs in the U.S. jobs market created in 2013, but that’s about it for the average American Joe.

In a speech at the American Economic Association’s 2014 Annual Meeting, the president and CEO of the New York Federal Reserve said, “We don’t understand fully how large-scale asset purchase programs work to ease financial market conditions.” (Source: “Remarks at the American Economic Association 2014 Annual Meeting, Philadelphia, Pennsylvania,” Federal Reserve Bank of New York, January 4, 2014.) Trillions of dollars after, this is the sad truth.

With the jobs market facing hurdles and quantitative easing not working as expected, the picture of the U.S. economy going forward doesn’t look so bright, as evidenced by the worst seven-day start to year that the stock market has encountered since 2005. (See “Stocks Off to the Worst Start for the Year Since 2005.”) 2014 could be the year the stock market bubble bursts.

This article 1,500 Applicants for 50 Jobs? The Reality in America Today was originally posted at Profit Confidential

By George Leong, B. Comm.

From what I’m seeing, Europe and the eurozone appear to be in play once again, following years of torment and two recessions.

While there’s still a ways to go, you should put Europe on your radar, since a buying opportunity appears to be here. Now don’t go full-tilt and empty your capital into Europe. Instead, with the U.S. stock market facing some upside resistance, you may want to shift some of your investable capital to other regions of the world, including Europe and China. (See “China’s Macau Gambling Region: The Growth Opportunity” to learn about a small region in China that has high hopes.)

Now, I have been negative on Europe for years, but I saw some encouraging signs in 2013 after the eurozone emerged from its second recession.

The big attraction in Europe is the 800 million people living in the region who are armed with money to spend, similar to our domestic economy. For companies, Europe is a region that appears set to rally and may be a buying opportunity.

Some may question the slow growth in this region, but I say it’s better to buy at a time of misfortune than when everyone wants in—and that time of misfortune appears to be now.

OK, we still have unemployment in the double digits in the eurozone, but the confidence levels of its citizens are also on the rise, and this is good news; this means consumers will start to spend more, helping to drive economic renewal and gross domestic product (GDP) growth.

Just take a look at the region’s recent economic readings.

The GDP in the eurozone gained 0.1% in the fourth quarter. This is not a blow-out number by any means, but it’s a nice start for a region that was decimated by the global recession.

Britain—one of the top three regions in Europe (the other two being France and Germany)—is seeing growth in its industrial and manufacturing production. France reported a 1.3% jump in its industrial production. Even Spain, one of the less-fortunate countries, saw an impressive 2.6% increase in its industrial production, which was well above the estimated 1.2% growth.

If these readings are any indication, then it may be time to catch a ship across the Atlantic Ocean to the European continent.

Take a look at the chart below of the iShares S&P Europe 350 Index, which includes 350 of the top European companies. The index has been on the mend since June 2012, and it looks good.

            Chart courtesy of www.StockCharts.com

If you are looking for areas to plant some capital in Europe, stick with the stronger countries, such as Germany, the United Kingdom, and France.

Some exchange-traded funds (ETFs) that may be worth a look and could possibly prove to be a nice addition to your portfolio are: iShares Europe (NYSEArca/IEV); iShares MSCI Germany (NYSEArca/EWG); iShares MSCI United Kingdom (NYSEArca/EWU); and iShares MSCI France (NYSEArca/EWQ).

Of course, if you would rather play Europe via individual companies, you can do so through multinational stocks with good exposure to these regions; here I’m talking about the likes of The Procter & Gamble Company (NYSE/PG) or The Coca-Cola Company (NYSE/KO).

At the end of the day, it may be time for you to consider taking some profits out of U.S. stocks and shifting some capital to Europe.

This article Time to Start Shifting Your Investment Strategy Overseas? was originally posted at Profit Confidential

Trading can be one of the most frustrating things a trader will experience in their life. Despite what most people think, a person’s chances of success in the market does not come down to their IQ level, in fact studies have shown some of the biggest losers in the market are doctors, dentists, engineers, mathematicians etc.

The reason is simple, the markets require a different mindset from everyday life. Logic that we’ve learned from our upbringing has the opposite effect in the markets. For example; ‘The more advanced, or complicated something is, the better it will work’. Or, ‘the harder I work, the more results I will get’. These are common logic paradoxes that trap a lot of new traders and have them spiralling out of control from day 1.

What you need to realize is the simple approach works better in the market. There are all these traders out there loading up their charts with indicators or ‘magic’ chart analysis tools, and all that’s doing is bringing in unnecessary variables into the traders system. Quite often all these extra variables will conflict with one another. It’s time to stop the pain, remove these indicators, clean up your charts and start trading with the raw price action.

Make the switch to price action

Once upon a time, fundamental analysis ruled the markets. Traders would only take trades based off economic data like interest rates, GDP data and job reports. Technical analysis was considered ‘voodoo’ and any trader who took part in it was considered crazy.

Today, the tables have turned. Technical analysis dominates the industry, and it’s hard pressed to find traders who are die hard fundamental analysts. Even if you do find one, you will likely find they also use technical analysis mixed in with their trading as well.

The reason for this is simple, technical analysis works. It is far superior, it allows you focus what the market is doing ‘NOW’ in relation to its past rather than what you ‘THINK’ the market should be doing based on economic data.

Many systems are created from technical analysis, which opens up the opportunity for traders to turn the market into an endless stream of opportunities. This leads to frustrated traders who keep jumping from system to system looking for that miracle indicator or trading robot. All they do is continuously bleed out their money to these exotic systems when the real answer has been staring them in the face all along – Price action.

What is Price action?

Price action is the ‘language’ of the market, learning this language is the best approach to understanding market movements. Price action is one of the best trading methodologies out there, and is often regarded as the ‘king’ of all trading systems.

‘Price’ is the single most important piece of data on your chart, it allows you to get into the ‘mind’ of the market to anticipate what’s going to happen next on the charts. You see, the market is full of people who are built just like you and me. Some are millionaires, some are just ordinary people. But we are all doing the same things over and over to generate income from the markets. What this does is create re-occurring patterns in the market which present themselves time and time again.

As a price action trader you can capitalize on these trading opportunities by looking for the individual candles that signal these moves before they happen.  It’s easy to do this without the need to use external variables like indicators, or economic data.

So price action is the art, or skill of reading plain price charts to identify patterns which have continuously worked in the past, that you can use to anticipate future price movements. Price action trading is ‘the’ edge in the markets.

Benefits of Trading with Price Action Strategies

For a start, you don’t ever have to worry about complicated indicators again. Indicators make a chart looks too ‘busy’ and in some cases make the chart look like the control panel for the next NASA space mission.

Indicators lag behind price anyway, providing you with second had information and usually won’t signal you into a move until it’s over. The whole idea is to keep your trading simple, logical and stress free. The best way to do this is trade with price action on a clean chart to provide you with better clarity in the markets.

Because price action is the simple approach to the market, it’s very easy to learn. The high school dropout could learn to trade with price action and have just as good of a chance as everyone else to do well.

Simple strategies are the most effective in the market and the simplicity of price action makes it one of the most powerful ways to approach the market.

The Pin Bar

The Pin Bar is the most common price action signal used by traders today. They are powerful reversal indicators which also are diverse with the way they can be traded. Pin bar reversal signals can be used to enter in with a trend, signal a complete market reversal and even used to identify breakout traps.

The Pin Bar has a small body and a long upper, or lower wick producing from the body, making them very easy to spot on the charts. It demonstrates the market has moved to a certain area on the chart where the move has terminated and been rejected. This signals a shift in the balance of power between the bulls and bears.

When pin bars are approached correctly they can produce very high return trades. It’s best to trade pin bars with the core market pressure, or trend momentum. The Pin Bar Reversal is one of my favourite price action trading strategies, and I know once you discover it’s potential, you will fall in love with it too.

Conclusion

If you’re looking for a trading system that is logical, effective and a stress free way to trade the market, look no further. I consider price action trading to be the ‘holy grail’ of trading strategies in today’s markets.

Nearly every trading system will benefit from a good foundation of price action knowledge, and to be honest, once you start trading with it, you will wonder how you ever managed without it.

About the Author

Graham from ‘The Forex Guy’, is a very passionate Forex trader that specializes in price action trading. If you would like to learn more about price action, then feel free to check them out and discover some more of their price action strategies.

By George Leong, B. Comm.

If you don’t believe China is the world’s largest auto market, then you probably have never been to Beijing or Shanghai, where the traffic gridlock makes Congress here seem pretty lax.

Despite the Chinese government’s ongoing efforts to regulate the number of vehicles on the country’s roads, especially in the bigger megacities, the Chinese auto market continues to be a major growth market for many foreign automakers, including General Motors Company (NYSE/GM) and Ford Motor Company (NYSE/F), which I have discussed in the past. (Read “Where to Find the Best Potential Growth in the Automotive Industry.”)

The statistics don’t lie. In 2013, sales of vehicles in the country surged a staggering 13.9%, according to the China Association of Automobile Manufacturers. The growth was welcomed by Chinese auto sellers, given that growth stalled to 2.45% and 4.33% in 2011 and 2012, respectively. The folks at General Motors and Ford are probably salivating at these numbers.

For a more conservative approach to play the Chinese auto market, you could keep things in the U.S. and play the growth through General Motors and Ford. Or, if you are willing to accept the higher risk, you could look to U.S.-listed Chinese companies to play the market directly.

A small Chinese auto parts play that you should take a look at is Zhangzhou City-based China Zenix Auto International Limited (NASDAQ/ZX, $2.53, market cap: $131 million). The company designs and makes commercial vehicle wheels for China’s aftermarket and original equipment manufacturers (OEM) market.

            Chart courtesy of www.StockCharts.com

The company has been around a little more than a decade. Its products are of high quality, involving more than 430 series of tube, tubeless, and off-road steel wheels. Zenix is also working on diversifying its product line to include higher-priced aluminum wheels.

At this time, the company runs five plants that together manufacture more than 15 million wheel units per annum as of September 30, 2013.

The company is the largest maker of commercial vehicle wheels in China based on sales volume in both the aftermarket and OEM market, according to market research firm Frost & Sullivan. In China, the company makes wheels for more than 90 OEM automotive manufacturers. The aftermarket business in China is massive. Its network includes more than 5,000 distributors, comprising 23 tier-one distributors, 2,143 exclusive tier-two distributors, and 2,492 non-exclusive tier-two distributors. (Source: “Company Profile,” China Zenix Auto International Limited web site, last accessed January 13, 2014.)

Zenix also holds about 97 patents, including three invention patents, 74 utility model patents, 20 design patents, and 532 trademarks in China.

The company sells its wheels to more than 30 countries in North and South America, Africa, Europe, and Asia. The company’s biggest foreign market is India, where Zenix has business with TATA Motors.

The sole analyst covering the company estimates revenues to rise 11% to $680.77 million in 2013, according to Thomson Financial.

So with the massive growth in Chinese vehicle sales and each vehicle requiring four wheels, it’s a no-brainer to take a look at some of the auto plays in China like Zenix. However, investors should note that Zenix is a highly speculative contrarian play that could rally much higher if it can grow its business and execute.

This article My Favorite Chinese “Car” Company was originally posted at Profit Confidential

By Mitchell Clark, B. Comm.

So far this year, the NASDAQ Composite Index has outperformed the other large-cap averages, and this is a positive indicator.

At the beginning of last year, blue chips shot out of the gate with uncommon capital gains, and as confidence in the rally grew, investors slowly felt more comfortable with more speculative issues, which are often listed on the NASDAQ.

After a pronounced consolidation during the summer of last year, large-cap NASDAQ stocks, like Microsoft Corporation (MSFT), Juniper Networks, Inc. (JNPR), and even Intel Corporation (INTC), reaccelerated.

I view the price reacceleration in large-cap technology stocks as a combination of attractive valuations and yields and improved expectations for growth. Microsoft’s fourth-quarter sales are expected to grow some 10%.

While blue-chip strength is always helpful, large-cap technology stocks must be a big part of the long-term trend, as they are such a large part of the daily economy now.

The Russell 2000 Index of small-caps is also holding up extremely well and is another positive indicator for the broader market. While stocks are very much in need of a correction, it won’t happen without a major catalyst, and trading action among large-cap technology and small-caps is reason enough to expect more capital gains. The chart of the Russell 2000 Small Cap Index is featured below:

            Chart courtesy of www.StockCharts.com

Also not to be forgotten is the Dow Jones Transportation Average, which is still just a hair off its all-time record-high. Transportations stocks are always a leading indicator, and if you attribute any worth to the performance of airline stocks, their year-to-date performance is also a positive signal.

Given current information, a major retrenchment in the stock market would be a buying opportunity. With this in mind, the U.S. economy can experience its next technical recession within the context of a secular bull market. This is entirely possible this year.

But the positive dynamics for equities remain intact. Low short-term interest rates are a certainty this year. The health of U.S. corporations, especially brand-name large-caps, is extremely good and at a minimum; earnings maintenance is a high likelihood, as higher prices have demonstrated not to adversely affect demand.

And finally, while there has been frothy initial public offering (IPO) trading, countless blue chips are not expensively priced. Their stocks might be at all-time record-highs on slow prospects for growth, but valuations aren’t out of their norms yet for many of these companies. (See “If You Don’t Want to Leave This Market, Stick with These Proven Winners.”)

So, my 2014 outlook for equities is still positive given current data, especially if corporations can meet or beat consensus in the first half of the year.

Stocks are due for a correction, but technically, I don’t see it happening with the current relative price strength from the NASDAQ, Russell 2000, and transportation stocks.

I wouldn’t chase after any position in this market, and that goes for yields as well. But with corporate balance sheets in such strong shape and the cost of money being so cheap, increased dividends and share buybacks once again bode well for blue-chip stocks.

This article Why the NASDAQ Will Outperform the Other Major Indices in 2014 was originally posted at Profit Confidential

By HY Markets Forex Blog

The US dollar climbed against 15 out of 16 major peers on Wednesday, bouncing back from its two-week low against the euro, after two voting members of the Federal Open Market Committee (FOMC) hinted the central bank could end its quantitative easing program early.

The World Bank raised its growth forecast for the world’s biggest economy, while a gauge for future market volatility was close to a one-year low.

The greenback advanced 0.30% higher, trading at $1.3637 against the euro at the time of writing, while the World Bank raised its global growth forecast to 3.2% this year, 3.4% by 2015 and 3.5% the year after.

The US gross domestic product (GDP) is forecasted to increase by 2.8%, while Japan and the eurozone will expand by 1.4% and 1.1% respectively.

US Dollar – Fed Speakers

Philadelphia’s Federal Reserve (Fed) President Charles Plosser said he recommend the central bank should end its quantitative easing before late 2014. Plosser also said he forecast the unemployment rate would reach 6.2% by the end of the year.

Charles Plosser supports the Fed’s decision to scale-back its stimulus and commented on the labour marking performing better than expected.

Dallas Fed President Richard Fisher also supported the Fed’s December decision to begin to taper the quantitative easing program and said he would prefer the program gets eliminated entirely.

Fed chiefs for Chicago, Charles Evans and Atlanta Dennis Lockhart are expected to make their speeches today. In December, the Federal Reserve announced they will cut its monthly bond purchases to $75 billion from $85 billion.

Members of the Federal Open Market Committee (FOMC) will gather for their next meeting on January 28-29.

US Dollar – US Data

US retail sales rose 0.2% higher in December on a monthly basis, compared to 0.4% reported in November. The retail trade volume advanced 0.7% higher, picking up from the revised 0.1% rise reported in the previous month.

US businesses’ inventories advanced 0.4% higher in November, reports from the US Department of Commerce confirmed on Tuesday.

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