Month: August 2011

By David Banister, markettrendforecast.com

Let’s clarify the SP 500 situation here: (Sent to my paying subscribers on August 16th)

Consider subscribing so that you will be consistently informed, have 24/7 Email access to me with questions, and also get Gold and Silver forecasts on a regular basis. Subscribe now with a 33% discount coupon ahead of our rate increase. www.markettrendforecast.com for details.

The lows at 1101 were a convergence of fibonacci weeks, months, sentiment bottoms and VIX extremes along with major insider buying all at the same time.

We rallied up in 5 waves from 666 to 1370 Bin Laden highs.  At that level we had re-traced 78.6% of the entire 2007 highs to 2009 lows, a common turning point.  Since then, we have had a 3 wave decline, also common for correcting a 5 wave move to the upside.  The decline halted at 1101, an exact 38% fibonacci retracement of the 666 lows to 1370 highs.  This is what I call a “fibonacci intersection”. The same thing happened in July 2010 at 1010 on the SP 500, where a huge bottom formed.

The rally since 1101 was a 5 wave rally, this is an early BULL SIGN.

A correction of this 103 point 5 wave rally would be normal, but the lighter the correction the more Bullish.  So far the correction is only 23% of the 104 point rally with a gap fill at 1180.

Let’s review:

13 fibonacci month’s from the July 2010 bottom to August 2011 bottoms

7 Times in history we had the SP 500 double ina short period of time, and in every case it retraced 27-40% of the price movement from lows to highs. We just retraced 40% of our SP 500 double, historically very high retracement.

At 1101 we had 38% fibonacci ABC correction of the Bull leg from 666 to 1370

In 1974-77 we had the SAME pattern, which I outlined for everyone last week.

13 Fibonacci weeks correction from the Bin Laden 1370 highs to 1101 lows. 1370 was a 78% fib of the 07 highs and 09 lows. 1101 is a 38% fib of the 666 lows and 1370 highs. Thats what I call a Fibonacci intersection. The same thing happened in July 2010 at 1010 lows.

Insiders with massive buying, corporate buybacks announced.

VIX at extreme levels

Fear gauges at extreme levels.

5 wave impulsive rally from 1101 to 1204 ensued… now a pullback is due. Same thing happened last summer 1010 to 1130, pullback to1040 in 3 waves, then another 5 waves up.

What am I telling everyone?

Stop yelling fire in an empty theater….

This is options expiration week, trading this week is notoriously difficult…

The Bear case is crowded, the Bull case is not.

I’m leaning bullish as long as I keep seeing this type of confirming price action.

I’m watching 1165 on SP 500 as a pivot low worst case, but as long as we see price action above that I like the set up for a while yet on the long side.

(But Dave, the textbook for Elliott Waves doesn’t agree with you… good, that’s why I use other indicators)

Consider subscribing so that you will be consistently informed, have 24/7 Email access to me with questions, and also get Gold and Silver forecasts on a regular basis. Subscribe now with a 33% discount coupon ahead of our rate increase. www.markettrendforecast.com for details.

Aug. 17 (Bloomberg) — Simon Derrick, chief currency strategist at Bank of New York Mellon Corp., talks about the outlook for the euro after the leaders of Germany and France rejected calls for a joint-borrowing plan to stem the region’s debt crisis. He speaks with Linzie Janis on Bloomberg Television’s “Countdown.” (Source: Bloomberg)

By Kris Sayce

“We believe that we have reached the point where we can confidently state that interest in gold investing has reached the level of a speculative bubble. Prudent investors should be very wary of having substantial investment exposure to this precious metal in their portfolios.” – ‘The Gold Bubble’, Wells Fargo, August 2011

You can read the full six-page report by clicking the link above.

As you know, we always encourage investors to be prudent. That may seem strange coming from a guy who tips speculative small-cap stocks.

But that’s why we always tell our Australian Small-Cap Investigator subscribers to only invest what they can afford to lose.

Punting on small-cap stocks is highly speculative. But it can also be highly rewarding. And when the market goes your way, it’s lots of fun too.

But, as we see it, gold is none of those things. We’ll explain why in a moment. But before we do, just remember your editor has a gold bias. We have a big chunk of our wealth tied up in the stuff.

7 Reasons to sell gold

Right. Let’s get down to brass tacks. Why does Wells Fargo put gold in “speculative bubble” territory?

It gives seven reasons. They are:

1. Volatile price movements
2. No income
3. Greater fool dependence
4. Central bank activity
5. Inflation fighting properties are overstated
6. Warren Buffett’s view on gold values (By the way, Warren Buffett’s firm happens to be the largest shareholder in Wells Fargo)
7. And… wait for it… [adjusts collar and coughs] “You can’t eat gold”!

Actually you can. We once saw someone do it on a cooking show. It was a very thin gold leaf.

And Goldschläger – Swiss cinnamon schnapps – has gold flakes in it. So bottoms up to that!

That aside, we don’t get why the anti-gold brigade always uses the inedibility of gold as a reason not to own it. It’s just silly. But Wells Fargo goes further:

“Gold doesn’t readily produce cash flow, doesn’t provide shelter, can’t be eaten, nor does it provide efficient clothing.”

Er, OK. But there’s a million-and-one other things that applies to.

Such as, Google shares – or any other non-dividend paying growth stock. It doesn’t pay a dividend… you can’t shelter in a Google share… you can’t eat a Google share… and nor can you turn a Google share into a nice frock.

Or what about a 10-dollar note in your wallet? It doesn’t produce cash flow, you can’t live in it, you can’t eat it (we’ve never seen a plastic-coated banknote used by any celebrity chef in a recipe), and it isn’t the latest in wearable fashion.

Yet that doesn’t mean cash isn’t useful. And it doesn’t mean you should never buy shares in growth stocks… even though [darn it] you can’t eat, dwell in or wear the things.

But Wells Fargo’s anti-gold rant is fine by us. It makes us even more convinced gold isn’t in a bubble (remember our bias though).

Spot the bubble – gold or stocks?

Although we’ll give them some advice. Next time they try to prove gold is in bubble territory, they shouldn’t produce a chart that shows… the opposite.

To back their argument that gold is a poor hedge against inflation, the Wells Fargo team used the following chart:

The chart shows since 1985, U.S. stocks are up 500%. Compared to a measly 100% gain for gold. Both are returns after inflation.

Which got us thinking: if gold is a “speculative bubble” after a 100% inflation-adjusted gain over 26 years, what does that tell you about stock prices which are up over 500%?

Look, Wells Fargo has fallen into a classic trap. First, it shows they don’t understand gold. And second, they’re comparing returns of two completely different asset classes.

Price rises alone can’t be used to prove a bubble. Just because stocks are up 500% doesn’t mean they’re in a bubble any more than gold being up 100% means it’s in a bubble.

Put another way, it’s not the comparative price rise that’s important; it’s the reason behind the price rise that counts.

As we see it, gold is a prudent investment. Sure, it can be volatile. As Wells Fargo points out:

“[D]uring six short months in 2008, gold lost more than 30 percent of its value. In the 1980s, in a little more than two years, the price of gold dropped approximately 65 percent.”

Excuse us for a moment while we glance at the above chart again… what do we see? That’s right. Huge share price volatility. And if we remember rightly, in six short months in 2008, the stock market lost more than 30 percent of its value too.

But that’s fine. Stocks are supposed to go up and down. And so is gold. Both will find and lose favour at different times.

The important thing to remember is that by itself, gold isn’t volatile. As Wells Fargo points out, gold doesn’t do anything… it’s just there. So how can something inanimate be volatile?

One single reason to buy gold

The answer is political. Central bank interference creates volatility. And that’s reflected in the gold price.

The chart below shows this perfectly:

While currencies were fixed to a set weight of gold or silver, the price was stable. That was mostly the case (although not entirely) until the early 1970s.

But as soon as gold backing of currencies stopped, paper or electronic money could grow without limit. That resulted in the gold price taking off.

In other words, it’s not that the gold price has risen to a speculative bubble, but rather paper money has been devalued into the ground. Remove the interference and you’ll remove the volatility in the price of money and gold.

But the one reason why we buy gold – because the interference won’t go away.

Granted, we don’t have seven reasons to counter Wells Fargo’s argument. But like Jason Segel in the movie Bad Teacher, we don’t need seven reasons. Because the one argument we have is “the only argument we need Shawn!”

The upshot is: if you think central bankers will stop devaluing paper money then sure, go ahead, sell your gold – or don’t buy it if you don’t own any.

But if, like your editor, you believe central bankers can’t help themselves and will keep inflating for as long as they can, well, our message is ignore the gold bubble rubbish and keep prudently buying gold whenever you can.

Cheers.

Kris Sayce
Money Morning Australia

Original Article: Return of the Gold Bubble Monsters

We have seen reports over the last year which painted the Russian ruble (RUS) as one of the better performing currencies. The value of the RUS even gained as much as 15% against the US dollar (USD) earlier in the year. But these days, as investors appear to be fleeing towards traditional safe-haven assets, the ruble is beginning to experience broad declines. Are we seeing a trend reversal in the global economy, or is it something specific to Russia?

As one of the largest emerging market economies, Russia was benefiting from the speculative growth shifts over the last 3-5 years. Technologists and innovative organizations have even written on the growing need to focus new endeavors on the high growth economies of BRIC (Brazil, Russia, India, and China). What today’s uncertainty is now doing is pulling these speculative growth shifts away from those nations.

What appears to be happening is not so much an intrinsic decline in the value of Russia’s economy, but rather a move away from the more speculative, and therefore riskier, assets by international investors.

This is supported by the very recent downturn in Russia’s stock market. To underscore this point, consider that the RTSI Index has lost over 22% of its value over the last two weeks. The RUS is obviously affected by these investment shifts. Without something to address global uncertainty, it doesn’t seem likely that the RUS will recover its former uptrend in the near future.

Read more forex trading news on our forex blog.

Demand for Canadian securities took a dive in August, with today’s report showing a C$3.46B downturn in the foreign purchase of domestic stocks, bonds, and money-market assets. The move has so far taken a large bite out of the value of the Canadian dollar (CAD) in forex trading.

The Canadian economy has been teetering on an edge these past two weeks with highly optimistic housing data offsetting downturns in consumer spending and a global manufacturing slowdown. Today’s investment news underscores the loss of appeal for North American markets during this time of financial stress. The CAD will likely continue to take losses until other data can support renewed interest.

Read more forex trading news on our forex blog.

An interesting twist in an unfolding story apparently took place today after the release of the Bank of England’s (BOE) Monetary Policy Committee (MPC) minutes. Over the last year-and-a-half, the MPC has gradually seen a few votes shift in favor of lifting the nation’s interest rates. Today all votes turned unanimously in favor of holding rates at their current target.

Spencer Dale and Martin Weale, the two MPC members who have voiced opposition to the dovish views of the committee for the past year, capitulated in this month’s vote, citing sluggish growth in demand and a shaken international financial system as catalysts for their change of heart. The British pound (GBP), as a result, was seen trading significantly lower as market bears poured into other assets and went short on sterling.

Read more forex trading news on our forex blog.

Aug. 17 (Bloomberg) — Steven Saywell, head of foreign-exchange strategy for Europe at BNP Paribas SA, discusses the outlook for the franc following an announcement by the Swiss National Bank regarding additional liquidity measures. He speaks with Owen Thomas on Bloomberg Television’s “On the Move.”

Video courtesy of ForexCT – A leading Australian forex broker, liscensed by the Australian Securities & Investments Commission, offers the MetaTrader4 and PROfit Platform to retail traders. Other services include Segregated Accounts, Trading workshops, Tutorials, and Commodities trading.

The SNB initiated another round of liquidity measures to weaken the Swiss franc. Instead of opting for more severe policies such as a currency peg to the euro or setting a floor beneath the EUR/CHF the SNB chose to increase the liquidity measures it provides to the financial system. The initial reaction by the market was to buy the CHF but a euro rally and a relative improvement in market sentiment has helped to push back speculators, giving this round to the SNB. The question then is what will happen to the CHF when markets tighten up in a “risk-off” mode?

Rather than secede control over its sovereign monetary policy to the European Central Bank the SNB chose a more conservative route and expanded its sight deposits from 120 bn to 200 bn. There have also been actions taken by the SNB in the money markets and rumors of intervention in the FX forward market. The initial reaction by the market was that of disappointment as expectations had been building for more severe monetary policy measures. This past weekend the Swiss press was swarming with headlines of an SNB plan to peg the CHF to the euro. Following the announcement the EUR/CHF came off of the 1.15 level to trade as low as 1.12. But an upswing in market sentiment and a euro bid helped the pair claw its way back to trade at 1.14.

The failure of the SNB to rule out a peg to the euro did two things; it kept FX speculators on their toes and did not eliminate any future options the SNB may take. This may bring further pressure on the CHF in the near term as market players feel the central bank may have lost a tad of credibility when it did not make its intentions clear to the market . It also allows for the use of the CHF as a safe haven should markets once again shift into “risk-off” mode as was the case last week. By leaving the option for a peg to the euro or a floor put under the value of the EUR/CHF the SNB still retains additional tools to address CHF strength. Note that the EUR/CHF has risen almost 15% from last week’s low through a combination of tough talk and policy tools. The cat and mouse game continues.

Read more forex trading news on our forex blog.

By DividendOpportunities.com

On August 8th, the S&P 500 took an 80-point dive. That was a buying opportunity.

Now, I don’t mean it was a buying opportunity in the traditional “stocks rise over the long term” idea, meaning you should buy on any dip.

Truth is, I don’t know if we’ve hit a bottom. We could see even more turmoil in the weeks and months ahead. For most securities, there is still plenty of risk.

But the buying opportunity I saw is one only seen in panics… and even then, only in a handful of income securities. In fact, just days ago it offered a chance to lock in an 8.7% yield from the security I’m going to tell you about — a yield 15% higher than it is today. And that’s to say nothing of the 12% capital gain investors have seen in just five days.

Take a look:

As you can see, this high-yield opportunity happened quickly. The security is already back to its pre-dip price levels and has soundly beaten the S&P 500. But those who took advantage are sitting on a double-digit gain and locked in unusually high yields.

But how could you have known it was a buying opportunity? After all, you can see from the chart that these shares were falling with the overall market. How would investors have known what lay ahead?

Well, the high-yielding security in the chart is the Nuveen Quality Preferred Income Fund (NYSE: JTP).

It’s a closed-end fund that holds a basket of preferred stocks. In fact, about 80% of the fund’s assets are in preferreds, while the remaining 20% are in debt securities. More than 85% of the assets in the fund are “investment grade quality” — meaning they carry a very low risk of default.

But look at what happened when there was a market panic. Skittish investors dumped shares without regard to their safety or what they were actually worth. So while the safe securities JTP holds were worth one price, the market price of the fund fell with the overall market. In this case, the shares traded at a discount of -11.5% to the value of the fund’s underlying assets on August 8th.

The result is clear. Once the market settled down, investors saw the disconnect and quickly scooped up the shares — leading to that 12% rise in the share price.

This same sort of scenario seems to play out every time there is a panic. Last week my colleague Carla Pasternak told you she was watching for it. We also saw it happen during the panics in 2008 and 2009, too.

Put simply, market panics usually lead to a chance to scoop up funds for a fraction of their actual value… and lock in higher-than-usual yields in the process.

You can watch the discounts of funds using CEFConnect.com. Search in the top right corner using the fund’s ticker symbol and you’ll be taken to a page showing the current discount.

If we see another downturn, it’s where I’ll be forming my shopping list for The Daily Paycheck.

Always searching for your next paycheck,

Amy Calistri
Chief Investment Strategist — The Daily Paycheck

P.S. — I own JTP as part of my Daily Paycheck portfolio. It pays monthly dividends, so it makes a great base for the portfolio I’ve built to pay me every day. If you’d like to learn how you can set up your own portfolio to pay you a dividend check every day, you can visit this link for more information.