North Dakota Edges U.S. Closer to Energy Independence… and Double-Digit Returns in a Flat Market
by Steve McDonald, Investment U Contributing Editor
Sunday, December 4th, 2011
Up first, the EU maybe offering the greatest bond trade of the decade, maybe the century.
How’s earning about 50% on a German or French bond?
Without getting too technical, I know most folks don’t really understand how bond markets function; here is why this is almost a guarantee.
If the euro and the EU are to survive, France and Germany are going to make it happen, it’s that simple. In order for them to make it happen their interest rates and debt levels have to go up.
When that happens, their bonds will drop in value. So, short the French and German 10 year bonds.
The Journal reported this past week that since September German 10 year yields have already jumped from 1.6% to 2.3%, and the French bond is up from 2.45% to around 3.83%. Those are big moves and it means the dollar value of these bonds is dropping as the yield is rising.
The relationship between yield and cost works just like a dividend paying stock.
Germany and France are the only EU countries that can afford to bailout the EU. If they do, which I think they will, maybe not in time to avoid real interim problems, but they will, their debt levels have to rise and with that their 10 year rates will also have to run up.
If they don’t bailout their EU neighbors’ the EU falls apart and bond rates will go crazy in the weak members and that will spill over into France and Germany. Both outcomes are possible but both lead to unavoidable rate increases.
Italy cannot survive with rates at their current level above 7%. In fact the Journal article stated that Italy has to have a rate of about 4.5% just to pay its interest. It has to come from somewhere and that somewhere is Germany and France.
A Euro Bond, backed by France and Germany, is the consensus solution to the problem according to the Journal, and that too will drive up German and French rates.
The bottom line, rates for the two most solvent members of the EU have to go up and shorting their bonds is how to make money on it.
Gold or gold miners
A Barrons’ article this past week quoted MKM’s leading technical strategist, Katie Stockton. She thinks gold is over sold, especially the miners.
Another analyst for the firm, Jim Stagger says there is a clear green light for precious metals after the recent multi month drop and he is on board with the miners over the metals as well.
MKM is very high on the small cap miners’ etf, symbol, GDXJ, over gold or paper gold. The chart with a 200 day moving average is on your screen now. As you can see the miners small cap etf is well below its 200 day average.
The chart on your screen now shows a comparison between the small cap miners and the gold etf, GLD. You can see the huge gap between the performances of the two for the past year. It’s no wonder MKM is so high on it.
And from another side of the gold universe, Jim Rogers, one of the most successful investors in the world, said in a CNBC interview, “don’t sell your gold” or your paper gold, the next 10 years will be as strong as the past ten years for the yellow stone.
His reasoning; governments are on a money printing rampage and that will erode the value of the paper and continue to drive gold prices for sometime to come. He was a little more cautious about when to buy though. He believes we will see a little more of a correction in price and he stated he would be very excited at or below $1600.
One other point he made that seemed worth mentioning. The paper gold market, etfs and other derivatives, he thinks will be more volatile going forward because of the convenience they offer. They are just a lot easier to sell than physical gold.
That’s worth keeping in mind.
Silk worms in Silicon Valley
Ultra thin flexible electrical circuits made with a solution extracted from silk worm cocoons may have medical applications.
The Economist ran an article this past week about a John Rogers of the University of Illinois, who has combined ultra thin silicon circuits with a solution made by boiling the cocoons of silk worms.
These circuits were implanted in the brain of an anesthetized cat. The silk portion of the circuit dissolved and left the metal circuit in place, and it was able to detect neurological activity better than existing implanted electrodes.
The next step for the process is to test to see if these circuits can detect seizures in dogs.
The possible applications for this research are beyond estimates. It is still years from applications in humans but looks to be a very promising technique.
Put this one on the back burner and watch for companies who buy up the rights to it. Being able to patch neurological paths in the brain might be the next giant leap for mankind.
Slap in the Face Awards
This week my favorite face slapper, our president, gets the award.
He has launched his 2012 presidential campaign, a year before the election, with two new 30 second TV spots. I guess he has a lot of time on his hands and has so little to worry about that he can focus on his reelection before he even has an opponent.
In the spots he states that the outcome of the presidential election is not about what he does between now and then, it’s about what his supporters do.
The direct quote is on the screen now.
“I need you to do me a favor. It’ll only take a minute. The 2012 campaign is underway, and the outcome will depend not on what I do, but on what you do”
Don’t you think it’s a little scary to have a president who admits his actions have nothing to do with his own re-election.
This administration has reached the Twilight Zone level of absurdity.
The worst part, the press won’t say a word about a blunder so screamingly blatant.
Article by Investment U
