2010 September
Money Morning Mailbag: Junk Silver "Math" Points the Way to Profits
[Editor's Note: Our recent articles on investing in silver have been well read and widely circulated. Tuesday's report on "junk silver" - for which we'd received dozens of requests - has been just as popular. However, one reader posed several solid questions. This follow-up story addresses those reader queries.]
Just after we published our special report on "junk silver" earlier this week, a Money Morning reader posed the following two questions:
- How many troy ounces of silver is contained in a bag of new coins?
- What should investors expect the total weight of the average bag of junk silver to be?
Let's take a look…
Six Stocks That Should be on Every Investor's 'Don't Buy' List
With more than 8,790 publicly traded stocks on U.S. exchanges and another 7,000 or so listed on the OTC Bulletin Board and the pink sheets, it's not particularly difficult to find stocks you wouldn't want to buy. It's not even that hard to find stocks with numbers so bad they're good short-sale candidates.
What's really hard is recognizing companies whose shares seem like they might be bargains, but that actually have subtle or hidden problems. These stocks truly belong your DO NOT BUY list.
A good example is Bank of America Corp. (NYSE: BAC). The financial sector was among the leaders as the market rallied from its July lows, but BAC didn't add much to the advance. In fact, after a brief bounce, it tumbled to a 12-month low of $12.18 on August 30 – a far cry from its October 2007 high of $52.71. Still, it looks like the stock built a solid technical base during the early September market upsurge and could be poised for a breakout if its earnings, due out Oct. 20, beat expectations.
Question of the Week: U.S. Federal Reserve Keeping Low Rates Does More Harm Than Good
[Editor's Note: Last week we asked readers if the U.S. Federal Reserve should keep interest rates near zero, as it has for almost two years. Some of our readers' responses are listed below - along with next week's question, "Is a Gold Price of $5,000 an Ounce Attainable?"]
After their meeting last week, U.S. Federal Reserve policymakers said they are more worried about deflation than inflation and vowed to look for ways to help along an economy that is experiencing worrisomely slow growth.
In fact, the central bank's rate-setting Federal Open Market Committee (FOMC) said it plans to keep the benchmark Federal Funds rate at its record-low level unchanged between 0.00% and 0.25% for the 20th consecutive month. And, using its go-to line – central bank policymakers said rates could remain that low for "an extended period."
In the near term, that appears justified. Core inflation is running at only 0.9%, below the Fed's comfort-level target of 1% to 2% – where it says the inflation rate needs to be for price stability. Fed Funds futures at the Chicago Board of Trade (CBOT) now show that traders believe there is a 54% chance the Fed won't increase short-term rates until its November 2011 policymaking meeting.
U.S.-China Tension Evident in Futile House Currency Bill
The U.S. House of Representatives today (Wednesday) will vote on legislation that would let the U.S. government take punitive actions against countries that undervalue their currencies.
The bill isn't likely to have any tangible impact on U.S. policy, but it's yet another manifestation of the growing friction between the world's two greatest economic powers.
The Currency Reform for Fair Trade Act (HR 2378) is the apparent result of increasingly harsh rhetoric towards China's currency policy, which U.S. lawmakers say keeps the yuan undervalued. It is a relatively toothless measure that will likely have no effect on U.S. policy, but instead serve as a rallying cry for Congressional lawmakers looking to win votes ahead of November's midterm elections, and perhaps, U.S. officials heading to a Group of 20 (G20) summit the very same month.
Exchange-Rate Risk: The Unseen Enemy of U.S. Investors
[Editor's Note: In Part II of his "Currency Matters" series, retired hedge-fund manager Shah Gilani looks at the growing exchange-rate risks most U.S. investors don't know they face. In the final installment of this series, Gilani will outline specific strategies investors can use to manage risk.]
When specialty-chemicals-maker H.B. Fuller Co. (NYSE: FUL) announced its third-quarter results earlier this month – with earnings and revenue coming in well below expectations – company shareholders suffered an 8% haircut in a single day.
Rising raw material costs appeared to be the headline reason for turbulence at the company. But there was another culprit – a frequent flier in cases of earnings shortfalls, but one that often remains unseen and misunderstood.
I'm talking about exchange-rate risk.
U.S. investors don't realize it yet, but the level of exposure to exchange-rate fluctuations facing big American companies – as well as those based overseas – is steadily increasing. So what happened to H.B. Fuller – and its shareholders – is going to occur with increasing frequency. And in many cases, the fallout will be much more severe.
To better understand the rising exchange-rate risks facing U.S. investors, please read on…
More Investors Betting Ireland Will Go the Way of Greece
The cost to insure Irish bonds against a government default jumped to a record yesterday (Tuesday) after Standard & Poor's said the cost of bailing out nationalized lender Anglo Irish Bank Corp. could exceed $47 billion.
Contracts on credit default swaps (CDS) on Anglo Irish bonds rose 1.5 basis points to 937.5, implying a 56% probability of default within five years, after earlier climbing to an all-time high of 960.5.
Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements. Increasing prices signal deteriorating credit quality.
Special Report: Though it's Called "Junk Silver," the Profits Aren't Trash
[Editor's Note: A sizeable number of Money Morning readers responded to our recent articles on silver, rightly pointing to "junk silver" coins as a viable silver investment. The article that follows is an introduction to junk-silver investing. Given that silver yesterday hit its highest price level in 30 years - and that prices are expected to head even higher - the timing couldn't be better.]
Despite its name, junk silver is not junk.
Indeed, the term "junk silver" is actually a misnomer, since this form of silver investing has provided excellent returns over the past decade. Junk silver consists of U.S. quarters, dimes, and half-dollars minted before 1965, since coins struck before that time contain 90% silver and 10% copper.
But junk silver's real attraction is that it offers investors the best of both the two possible investing extremes that seem to be attainable right now:
- First and foremost, during intense bull markets in silver – like the one we're experiencing right now – junk silver tends to outshine (and outperform) silver bullion.
- But if some of investors' darkest fears are realized, and the U.S. government's overenthusiastic printing of money were to transform the greenback into so much worthless paper, then 90% of U.S. silver coins would be used for the purpose they were originally minted – as money that can be spent.
Let's take a closer look.
To understand the basics of junk-silver investing, please read on…
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