Month: December 2011

London Gold Market Report
from Adrian Ash
BullionVault
Thurs 29 Dec., 06:20 EST

The WHOLESALE MARKET gold price fell further on Thursday in London, hitting its lowest London Gold Fix since 8th July at $1537.50 per ounce – 19% below Sept’s record high – on what dealers called “long liquidation” and “pressure” from the Eurozone debt crisis.

New laws in Japan were also blamed for forced sales during Asian trade, with bullion dealers obliged to report all physical transactions above ¥2 million ($25,600) to the tax authorities starting New Year’s Day.

Physical gold bullion flows in Europe are “very light – unsurprisingly for this time of year,” says Swiss refinery and finance group MKS.

“[A] few accounts [were seen] bailing out on the break of $1570” on Wednesday, MKS says, with “the rest of the move driven by illiquidity and forced sellers pushing themselves out as they push [the gold price] lower.”

On a closing-price basis, “Support sits at the trendline off the October 2008 low, currently at $1543,” says Russell Browne’s technical analysis for Scotia Mocatta, pointing to the uptrend in the gold price starting with the collapse of Lehman Brothers 3 years ago.

That support level is “followed by the September [2011] low around $1533,” reckons Browne.

The Euro sank 1.5¢ on Wednesday after new data showed the European Central Bank’s balance-sheet swelling to €2.7 trillion last week on making the first of its “unlimited” three-year loan offers to commercial banks.

Thursday morning the single currency fell again to a 10-year low against the Japanese Yen.

“The market reaction is slightly incomprehensible,” reckons economist Jens Kramer at Germany’s NordLB in Hanover. “After that record liquidity injection it would follow that the balance sheet would swell.”

European stock markets crept higher this morning after finishing yesterday lower, but in the banking sector “The main problem…is not a lack of liquidity, but a lack of trust,” says Commerzbank’s Christoph Rieger, head of fixed-income strategy in Frankfurt.

“There are no central bank tools that would force banks to extend credit lines among themselves.”

“The interbank market remains broken,” agrees Richard McGuire at Rabobank’s London office, also speaking to Bloomberg.

“The amount of peripheral government debt banks hold raises questions about counterparty risks.”

Pushing higher on its official “benchmark” level again on Thursday, the interbank lending rate known as LIBOR is now suffering the widest gap between the lowest and highest interest rates charged since the peak of the first financial crisis in March 2009.

After Wednesday’s surprising low interest rate charged by investors to hold new short-term Italian debt, the yield demanded on a fresh €7 billion of 10-year bonds stayed high, just two basis points below the 7.00% level which analysts believe is “unsustainable”.

“We maintain that a liquidity squeeze brought on by the ongoing debt problems in the Eurozone would be one of the greatest threats to commodities,” says Marc Ground at Standard Bank today.

“Gold, along with the other precious metals, succumbed to the downward pressure from concerns over Eurozone liquidity.”

“Risk-off conditions in the short term are putting pressure on the gold price,” says another London dealer in a note, “but plenty of the insurance reasons to be long of gold remain in place – and look set to remain so in January.”

Silver prices today flirted with 12-month lows beneath $26.80 per ounce, as base metals fell with agricultural commodity prices.

US crude oil held just shy of $100 per barrel as the US Navy warned Tehran it will “not tolerate” any disruption of shipping through the Strait of Hormuz, which Iran has threatened in retaliation at new international sanctions.

Ten-year UK government bond yields slipped again below 2.00% – the record low breached for the first time ever last week.

Adrian Ash
BullionVault

Gold price chart, no delay   |   Buy gold online at live prices

Formerly City correspondent for The Daily Reckoning in London and head of editorial at the UK’s leading financial advisory for private investors, Adrian Ash is head of research at BullionVault – winner of the Queen’s Award for Enterprise Innovation, 2009 and now backed by the World Gold Council market-development and research body – where you can buy gold today vaulted in Zurich on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2011

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There has been a noticeable trend of stronger US economic data over Q4. Today’s last batch of US numbers for this year may show the US economy go into 2012 on a high note.

Economic News

USD – US Data to Close out the Year on a High Note

There has been a noticeable trend of stronger US economic data over Q4. Today’s last batch of US numbers for this year may show the US economy go into 2012 on a high note. This afternoon we’ll get pending home sales, unemployment claims, and the Chicago PMI. Last week’s housing data was mixed with existing home sales failing to meet market expectations while new home sales showed a strong 315k report. The uptick in previous manufacturing surveys hints that the Chicago PMI may come in stronger than the 60.4 consensus forecasts. Strong data could take the USD off of its yesterday’s highs, though the downtrend for the EUR/USD remains firmly intact. The EUR/USD has support at 1.2870, the 2011 low. Resistance is back that the broken trend line from the mid-December low at 1.0370.

EUR – EUR/USD Yawns after Successful Italian Debt Auction

Italy succeeded in raising EUR 9Bn in 6-month bills and is now only paying 3.25% versus 6.50% paid in November’s auction. It’s a significant difference for short term funding needs though the benchmark 10-year BTP yield continues to trade near 7% which indicates the pressure remains on Italy. In another sign that tensions are running high in European financial markets European banks parked EUR 452 Bn in the ECB deposit facility, a record for this year. This suggests banks are not using funds from the LTRO to buy sovereign debt but rather European banks remain risk averse.

The market’s reaction to the successful Italian debt auction was almost nonexistent with the sharp declines in the EUR/USD coming about at the opening of the North American trading session.

Today there will be another Italian auction and investors will be eyeing its results. The EUR/AUD traded at a fresh all-time low while the EUR/CAD continues to move lower. The next support for the EUR/CAD is found at 1.3080, from the mid-January low, followed by the 2011 low of 1.2775.

JPY – Deflationary Pressures Continue to Plague Japan

Yesterday Japan released a batch of economic data that failed to live up to expectations. The most worrying piece of data is the core CPI data numbers which show deflationary pressures are potentially having a negative impact on the Japanese economy. The core CPI data showed a -0.2% y/y decline over the month of November after prices fell in October by -0.1% y/y. The Tokyo core CPI improved slightly, falling by -0.3% after a -0.5% y/y drop in over October. Also worrying is disappointing industrial production that declined -2.6% m/m. Consensus forecasts were for a drop of only -0.7%. Household spending plummeted by 3.2% y/y. Perhaps this is a sign Japanese consumers are delaying purchases on anticipation of additional price declines.

The US Treasury report signaled out Japan and not China for its currency market intervention. Despite the harsh rhetoric the move doesn’t signal a policy change for the US which hasn’t participated in a JPY intervention since the earthquake/tsunami in March.

The USD/JPY has continued its decline for the fourth consecutive day following the batch of poor data. The pair failed to make a break of 78.20 at its falling trend line from the 2007 high and is looking to test the initial support of 77.15 off of the December low. A break here opens the door to the November low of 76.55.

Crude Oil – Iranian Threats Fuel Crude Oil Price Increases

Spot crude oil prices have steadily climbed on the Iranian threat to close the Strait of Hormuz should western nations impose sanction the Iranian oil industry. Comments on Tuesday from Iran’s first vice-president did little to reduce tensions when he said if the west imposes sanctions on the Iranian oil industry then Iran will close the Strait of Hormuz. A majority of Middle East oil passes through this waterway and the US Department of Energy considers the Strait of Hormuz as, “The world’s most important oil chokepoint.” The Iranian threat to close the strait is not a new one but the renewal of the tough talk and a US led strike on Iranian nuclear facilities has helped to push crude oil prices higher by almost $10 since the mid-December low.

Spot crude oil has run into a resistance line from the November and December highs which come in at $101.60. A break here and the next resistance level is found at $105.50 from the mid-April low.

Technical News

EUR/USD

The weekly chart is telling. After a break of the support line from the January and October lows the pair rose back to this line where it turned into resistance at 1.3200 as often occurs with previously broken trend lines. Weekly stochastics are oversold though the monthlies may still have room to run. 1.2670 will be an important support level as the triangle pattern from the 2008 and 2010 lows on the monthly chart is found here. Below this support there is the 2008 low of 1.2520. Resistance is located back at the 20-day moving average of 1.3215, and the December 9th high of 1.3430, which coincides with the 38% Fibonacci retracement from the October high to the December low.

GBP/USD

In a similar fashion cable has weekly stochastics which are oversold while the monthlies continue to decline. Over the course of December sterling has failed multiple times to establish a beachhead above the 1.5770 resistance. The October low of 1.5270 is the initial support though market participants will likely eye the rising trend line from 2009 which is found at 1.5110. A break of the 1.5770 resistance could spur a bout of short covering where the bears may regroup near the November 18th high of 1.5890. This level coincides with the 61% retracement of the October to December move. Only a break of the October high at 1.6165 would turn the technical sentiment from bearish to bullish.

USD/JPY

The USD/JPY is testing the downward sloping trend line from the 2007 high which comes in this week at 78.30. A break here and the USD/JPY would most likely encounter selling pressure at the October high of 79.50 and the July high of 81.50. The 100-week moving average at 83.30 is an additional level that long-term players will be watching for confirmation of a bullish technical move. That being said the long term trend remains to the downside and the pair has support at the December low of 77.15, and the November low of 76.50, before the pair’s all-time low.

USD/CHF

A monthly close above the 20-month moving average at 0.9385 would confirm USD strength. This will put in play the 2011 yearly high of 0.9780, and the December 2010 high of 1.0065. The technical level that stands out the most is 1.1140, off of the long-term downtrend line from the 2003 high. Initial support is back at 0.9065, with the potential for a deeper move back to the pivot from October at 0.8565.

The Wild Card

USD/CAD

The weekly chart shows a triangle consolidation pattern has formed from the October high and low with the pair looking to test its rising support at 1.0130. Forex traders should note that a close here on a weekly basis and the pair could go onto test 0.9750, the previously broken channel line from May 2010. However, should the pair bounce at the support line of the triangle pattern the upper line comes in at 1.0420, while the triangle consolidation pattern has a measured move of roughly 700 pips.

Forex Market Analysis provided by ForexYard.

© 2006 by FxYard Ltd

Disclaimer: Trading Foreign Exchange carries a high level of risk and may not be suitable for all investors. There is a possibility that you could sustain a loss of all of your investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with Foreign Exchange trading.

Central Bank News has launched the 2012 Global Central Bank Calendar, providing dates of the scheduled monetary policy meetings for over 20 of the major central banks around the world.  The central banks featured in the table span the key developed market banks such as the US Federal Reserve, the ECB, and also features many key emerging market central banks such as the Banco Central do Brasil, Bank Indonesia, and others.  The central bank monetary policy meeting calendar complements the other central banking resources available on the Central Bank News website.

Other resources available on the Central Bank News website include a listing of the current level of the key monetary policy interest rates for 85 central banks, a global central bank website directory, a central bank official inflation targets listing, a listing of currency codes and exchange rate policies, and a listing of required reserve ratios.  Along with maintaining these resources, Central Bank News provides regular updates on global central banking and monetary policy developments.

www.CentralBankNews.info

By The Sizemore Letter

Sears Holdings Chairman Eddie Lampert

A well-respected value investor buys an old American company in decline, promising to restore its fortunes.  Alas, the recovery never comes.  The economics of the industry have changed, and the company cannot compete with younger, nimbler rivals.  The company ceases operations, but the value investor holds onto the shell to use as an investment vehicle.

Could this be the future of Sears Holdings (Nasdaq: $SHLD) under Eddie Lampert?  Maybe; maybe not.  But it was certainly the case for Warren Buffett’s Berkshire Hathaway (NYSE: $BRK-A).

Unless you’re a history buff or a dedicated Buffett disciple, you might not have known that Berkshire Hathaway was not always an insurance and investment conglomerate.  It was a textile mill, and not a particularly profitable one.  It was, however, a cash cow.  And after buying the company in 1964, Buffett used the cash that the declining textile business threw off to make many of the investments he is now famous for, starting with insurance company Geico.

So, when hedge fund superstar Eddie Lampert first brought Kmart out of bankruptcy in 2003, the parallels were obvious.  With its debts discharged, the retailer would throw off plenty of cash to fund Lampert’s future investments.  And even if the retail business continued to struggle, Lampert could—and did—sell off some of the company’s prime real estate to retailers in a better position to use it.  Lampert sold 18 stores to the Home Depot (NYSE: $HD) for a combined $271 million in the first year.

That Lampert would use Kmart’s pristine balance sheet to purchase Sears, Roebuck, & Co.—itself a struggling retailer—seemed somewhat odd, but his management decisions after the merger seemed to confirm that his strategy was cash cow milking.   Lampert continued to talk up the combined retailer’s prospects, of course.  But his emphasis was on relentless cost cutting, and he invested only the absolute bare minimum to keep the doors open.  Sears Holdings didn’t have to compete with the likes of Home Depot or Wal-Mart (NYSE: $WMT). It just had to stay in business long enough for Lampert to wring out every dollar he could before selling off the company’s assets.

The strategy might have played out just fine were it not for the bursting of the housing bubble—which killed demand for the company’s Kenmore appliances and Craftsman tools—and the onset of the worst recession in decades.  With retail sales in the toilet (and looking to stay there for a while), there was little demand among competing retailers for the company’s real estate assets.

It’s fair to blame Lampert for making what was, in effect, a major real estate investment near the peak of the biggest real estate bubble in American history.  But investors  frustrated by watching the share price fall by more than 80 percent from its 2007 highs have no one to blame but themselves.   Anyone who bought Sears when it traded for nearly $200 per share clearly didn’t do their homework.  They instead were hoping to ride Lampert’s coattails while somehow ignoring the value investor’s core principle of maintaining safety by not overpaying for assets.

Lampert is a great investor with a great long-term track record, and there is nothing wrong with paying a modest “Lampert premium” for shares of Sears Holdings.  If you like Lampert’s investment style but lack the means to invest in his hedge fund, Sears may be the closest you can get.  But at $200 per share—or even $100—the Lampert premium had been blown completely out of proportion.  The same is true of Buffett, of course, or of any great investor.  As the Sage of Omaha would no doubt agree, there is a price at which Berkshire Hathaway is no longer attractive either.

This brings us back to the title of this piece—is Sears the Next Berkshire Hathaway?

I would answer “yes,” but not necessarily for the reasons you think.

Everyone assumes that Buffett’s decision to buy Berkshire Hathaway was a typical Buffett stroke of genius.  Nothing could be further from the truth.  In fact, Buffett revealed in an interview last year that Berkshire Hathaway was the worst trade of his career.

We like to think of Warren Buffett as the wise, elder statesman of the investment profession, but Buffett too was young once and prone to the rash behavior of youth.  He had been trading Berkshire Hathaway’s stock in his hedge fund; he noticed that when the company would sell off an underperforming mill, it would use the proceeds to buy back stock. Buffett intended to sell Berkshire Hathaway its own stock back for a small, tidy profit.

We've all been there, Warren.

But due to a tender offer that Buffett took as a personal insult, he essentially bought a controlling interest in the company so that he could have the pleasure of firing its CEO.  And though it might have given him satisfaction at the time, Buffett called the move a “200-billion-dollar mistake.”

Why?  Because Buffett wasted precious time and capital on a textile mill in terminal decline rather than allocate his funds in something more profitable—in his case, insurance.  Berkshire Hathaway will still go down in history as one of the greatest investment success stories in history.  But by Buffett’s own admission, he would have had far greater returns over his career had he never touched it.

So, in a word, “yes.”  Sears probably is the next Berkshire Hathaway.  And investors who buy Sears at a reasonable price will most likely enjoy enviable long-term returns as Lampert’s plans are eventually realized.   But Mr. Lampert himself will almost certainly come to regret buying the company—if he doesn’t already.

If you liked this article by Sizemore Insights, you’d probably enjoy The Sizemore Investment Letter, our premium members-only newsletter. Click here for more information.

Dec. 28 (Bloomberg) — Bloomberg’s Megan Hughes reports on innovations and technologies from the Iraq war that have commercial applications. Hughes reports on Bloomberg Television’s “InsideTrack.” (Source: Bloomberg)

Apple’s (Nasdaq: AAPL) Next Big Bite

by Steve McDonald, Investment U Contributing Editor
Wednesday, December 28th, 2011

Someone has found a way to make 2.75 percent on almost all of the credit card charges in the world, and our friends at Apple (Nasdaq: AAPL) will be taking the biggest bite out of this digital money printing press.

In the United States alone there are 23 billion credit card transactions per year that total $1.9 trillion.

That means that the seven credit cards per person in this country and the 119 charges per person per year will be pumping gobs of cash into the pockets of those who know how to get it. No one has even begun to add up the possible numbers from the rest of the world.

The top five issuers, Chase, Bank of America, CITI, Capital One and Discover, have over $546 billion on their books as outstanding on their cards. That’s just the top five!

Do the math: 2.75 percent of $546 billion– it’s crazy.

This market is really heating up!

Currently a small company called Square has a gadget that clips into a smartphone and allows small merchants, those who in the past were either too small or too poor to process charges, to accept credit cards.

It’s been very successful.

In almost no time it crossed the $1-billion mark in charges. That’s pretty impressive, but they have to give away the device to small operators. And that’s not so impressive.

There have also been a few problems with verifying credit history for its users, but Square is reportedly on top of the problem.

Other biggies have made some headway, as well. Google (Nasdaq: GOOG), for example, recently introduced mobile pay with their Nexus S Android phone and Google Wallet platform.

The stakes got higher recently when AT&T (NYSE: T), Verizon (NYSE: VZ) and T-Mobile (OTC: DETGY.PK) announced a plan to team up with Discover Card and Barclays on a project called ISIS.

ISIS, and all the other mobile payer systems, use near field communication (NFC), which allows smartphones to talk to other computers and card readers.

The Economist described this market as one of the two biggest and most profitable new technology areas for 2012. Everyone is scrambling to get their piece of this digital goldmine.

Most have a great deal of work ahead of them, setting up bank and credit card relationships to make this work. The ones already in the market have received a lukewarm reception.

Enter Apple

ComputerWorld recently reported that Apple’s 161 million iTunes users are already using their accounts to buy music, and with their new NFC-enabled phones this built-in segment of the market will be able to buy just about anything with their accounts.

Think about it – the darling of tech lovers worldwide has a lock on 161 million credit card buyers and the system to allow them to pay via mobile phone is already up and running. The most stunning and immediately profitable part: This system is set up to bypass credit card companies and banks, just as PayPal has done on the web.

The only contact between Apple users and banks will be to replenish the funds in iTunes accounts. Besides already having a mobile pay system in place, bypassing banks and credit card companies allows Apple to put virtually all of the fees right in their pocket.

Think about it: 161 million iTunes users will simply swipe their NFC-enabled iPhone near a pay terminal and be on their way.

That’s what I call a market advantage, but here’s where this really gets crazy.

It-s easier to use your iPhone to pay for a cab in Nairobi than in New York. The Economist reported that the developing world has a huge head start on the developed world in mobile pay.

The reason? In the developed world, mobile payers are bickering with banks and credit card companies about who will own the customers, and it’s holding up the whole parade.

However big the already-working pay system at Apple, that excludes the banks and credit card issuers, and the 161 million iTunes accounts already set up and functioning, which should be coming into a much sharper focus.

Personally, until this news hit the streets about mobile pay, I couldn’t justify the additional cost of a smartphone, never mind an iPhone. But I have to confess, this mobile pay thing has my interest piqued. Why carry credit cards when I have my phone with me anyway?

If I am considering buying one of these gadgets, the guy who never buys technology, the tidal wave of buying has to be right behind me.

Apple, as I have said before, is positioned to be the biggest thing ever in the business world. I know it looks like it already made its run, but I believe we’re witnessing the end of the infancy of the digital revolution, not the end of the run.

My previous call for a $600 Apple stands. The iPhone mobile pay market is just icing on the cake.

Good Investing,

Steve McDonald

Article by Investment U

2012 Predictions for Income Investors

by Marc Lichtenfeld, Investment U Senior Analyst
Wednesday, December 28, 2011: Issue #1674

Last week, I reviewed my brilliant (and a few, let’s call them sub-brilliant) market calls for 2011. As the year winds down, here are my thoughts for what lies ahead in 2012 for income investors.

Prediction #1: The “Crowded Trade” Chatter Heats Up

Many Wall Street pros are scoffing at buying stocks with solid dividends. I believe this is for two reasons:

• The first is that in order for the Wall Street machine to make money, and that includes the financial media, you need to be trading constantly, generating commissions and hanging onto every word as to which stocks will go higher and which are going to tank. If you’re investing in dividend paying stocks, chances are you’re in it for the long term. And the only people who make money off you are fee-based financial advisors, but you probably don’t need one of those to put Duke Energy (NYSE: DUK) in your portfolio and not touch it for the next 10 years.
• The second reason is because Wall Street is viewing these stocks incorrectly. They’re calling it a crowded trade, not an investment. Investors who tend to buy dividend stocks usually aren’t actively trading them. They’re not jumping into them because they’re hot. They’re buying the stocks because they provide a higher level of income than other available investments. Income investors are just that – investors, not traders.

Prediction #2: Dividend Stocks Will Outperform in 2012

No doubt, there are some traders in these stocks. Defensive names in healthcare, particularly big pharmaceuticals like Bristol-Myers Squibb (NYSE: BMY) and utilities have been very strong lately.

I expect a pullback at some point as traders exit and chase the next hot thing. But for the year, I believe stocks that pay a healthy dividend will continue to outperform as investors (not traders) search for yield in what should remain a very low interest rate environment.

Prediction # 3: MLPs Will Become Trendy

The investing story of the year could be MLPs (master limited partnerships). These are companies, the majority of which are energy related, that distribute nearly all of their profits back to unit-holders.

MLPs are different than regular stocks in that the unit-holders (not shareholders) are partners in the business. The company isn’t subject to a corporate tax because it passes its profits to the owners in the form of a cash distribution.

As a result, yields on these stocks are often higher than many other stocks. For example, Enterprise Products Partners (NYSE: EPD) yields 5.4 percent, while Energy Transfer Partners (NYSE: ETP) sports a yield of 7.8 percent.

What also makes these investments attractive is that usually most, if not all, of the distribution is tax deferred. When you receive a distribution from a MLP, it isn’t taxed as an ordinary dividend. It’s treated as a return of capital, which lowers your cost basis. So instead of paying tax on a dividend in the year it’s received, you pay capital gains tax when you sell the stock.

For example, if you buy a MLP for $30 and receive a $2 distribution, your new cost basis is $28. Next year, when you receive another $2, your cost basis falls to $26. If you sell the stock at $30, you will report a capital gain of $4, but you will not have paid any taxes on the $4 during the years you received them.

Because this is a tax-deferred strategy, MLPs usually belong in your taxable accounts, not your IRAs.

As always, with tax matters, consult your tax professional so that you completely understand the implications of owning a MLP.

If dividend stocks remain popular, their yields will go down and investors will widen their search for income. They’ll end up in MLPs, which will be the hottest sector of the year. By the fourth quarter, pundits will be using the “bubble” word.

Prediction #4: Apple Declares a Dividend

There are a lot of Apple (Nasdaq: AAPL) shareholders who are demanding that the company part with some of that $26-billion cash hoard. While Apple is still growing and innovating, it’s no longer a young company that must clutch its wallet like George Costanza at French Laundry (a $300 per person restaurant in Napa County, California).

Compared to other tech companies like Microsoft (Nasdaq: MSFT) and Intel (Nasdaq: INTC), which also have tons of cash but pay dividends, Apple has even stronger numbers and should be able to institute a dividend easily.

Intel and Microsoft paid dividends equal to roughly 20% of cash flow from operations. It seems like Apple should be able to do the same.

I wouldn’t be surprised to see $7 billion or so put to work on behalf of shareholders. Some may be used in a buyback with the rest paid out in dividends during a 12-month period beginning in 2012.

It will probably be some combination of a special dividend and a small regularly paid dividend that will increase over time.

My official prediction – a $4-billion stock buyback will be authorized with another $3.5 billion allocated for dividends, split evenly between a one-time special dividend and a quarterly dividend.

The quarterly dividend will start out at roughly $0.39 per share, and will increase over time.

There’s already heat on the board to pay shareholders something. If my above predictions come true and dividend stocks are hot while others are not, the board may feel additional pressure to pay a dividend in order to show up on the radar of income seekers.

Next year should be another good one for investors in dividend payers, regardless of what the naysayers think.

I hope 2012 is a happy, healthy and lucrative year for you.

Good investing,

Marc

Article by Investment U

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By The Sizemore Letter

For all of the gut-wrenching volatility, 2011 was actually a pretty good year if you managed to avoid financials and materials stocks.  Defensive stocks—particularly those that pay dividends—actually did quite well.

My best pick of the year, ironically, was a financial stock—credit-card giant Visa (NYSE: $V), the winner of InvestorPlace’s “10 Stocks for 2011” contest.  At time of writing, Visa was up a full 46 percent for the year, not including dividends.  (To see my follow-up pick for 2012, see “10 Stocks for 2012”).

In Visa, I saw a company supported by powerful macro trends—the shift to a global cashless economy and the rise of the emerging market consumer—whose stock price was temporarily depressed due to regulatory fears.  When the heavy hand of government proved to be a little less heavy, Visa exploded to the upside and has yet to slow down.

If only they could all be that way…

We now come to my biggest failure of 2011: Research in Motion (Nasdaq: $RIMM).

RIMM is down 51 percent from my recommendation price at time of writing.  When I originally recommended this stock, I knew the company had “issues.”  You don’t find companies as cheap as RIMM that don’t have at least a little something wrong with them.  Still, I thought—and still think—that the bearishness was ridiculously overdone.

I dedicated a fair bit of the last issue of the Sizemore Investment Letter to illustrating how ridiculously cheap RIMM was, and yet the stock has gotten significantly cheaper in just the past three weeks.  In the latest of a long string of disappointments, management announced that its new line of phones would not be out until late 2012 instead of the first quarter and cited the availability of key component parts as the reason for the delay.

Normally, I would understand how an announcement like that would send the share price down 11 percent in one day.  But given that the company trades for just 4 times already-revised-downward earnings and trades for 0.33 times sales and 0.68 times book value, it’s shocking that bad news still has any effect.  At current prices, RIMM could be cut up and sold for spare parts at a profit.  It really defies comprehension given that the company’s subscriber base continues to grow (now up to 75 million).

I continue to believe that RIMM has a bright future as a services company regardless of what happens with its handsets.  And I haven’t given up on its handsets either.  Even a mild improvement in the company’s fortunes could translate into a 200 percent gain or more.   But in 2011, none of this mattered.  RIMM was a classic value trap…and I walked right into it.

If I am to learn a lesson from this misadventure, it is that a cheap stock can always get cheaper—and that it pays to cut your losses early.

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