Archives for October 2011

October 2011 - Page 8 of 9 - Money Morning - Only the News You Can Profit From

Death of Steve Jobs Leaves Apple Without Its Muse

by

With the death of Steve Jobs, Apple Inc. (Nasdaq: AAPL) must now devise products without any guidance from the man whose vision built the company into the tech powerhouse it is today.

Though Jobs stepped down as CEO of Apple in August, he stayed on with the company as chairman of the board.

Now Apple will have to rely on a corporate culture modeled on his personality and the acumen of current CEO Tim Cook..

Needless to say, Cook has enormous shoes to fill.

Jobs helped Apple's share price climb to $373 – a 9,020% gain since 1997 when he was named interim CEO. Back in August, Apple's market capitalization grew to $337.17 billion and it briefly displaced Exxon Mobil Corp. (NYSE:XOM) as the most world's largest company, but was unable to hold the lead.

"So far Tim Cook's move to CEO has been flawless, not surprising given Jobs groomed him for five years to take the role," Gene Munster, an analyst at Piper Jaffray & Co. (NYSE: PJC), told The Wall Street Journal.

Still, as capable as Cook may be, Jobs' "magic man" presence is irreplaceable.

"I believe the top is in for Apple and it will become a more "normal' company in the future," saidMoney MorningGlobal Macro Trends Specialist Jack Barnes. "Steve was an edge they cannot replace. While the company is rich and profitable, it has lost its prophet."

Ironically, Wall Street had little reaction to the death of Steve Jobs, with Apple stock essentially trading along with the market. News or rumors of Jobs' illnesses caused the stock to plummet consistently after he revealed he had pancreatic cancer in 2004.

To continue reading, please click here...

Load Up On Gold and Silver as Bernanke Dives Off the Deep End

by

I first thought U.S. Federal Reserve Chairman Ben Bernanke was being deceitful when he denied the existence of inflation – but now I'm beginning to think he's simply delusional.

Anyone who watched or listened to Bernanke's Oct. 4 congressional testimony must have reached the same conclusion.

"Persistent factors continue to restrain the pace of recovery," Bernanke said. Then the Fed Chairman promised to consider yet more stimulus "to promote a stronger economic recovery in a context of price stability."

The irony, of course, is that we don't actually have price stability, but Bernanke refuses to believe this – thus the added stimulus. And that says nothing of the fact that the first $2 trillion of "stimulus" did little or nothing for the overall economy.

This is the same kind of delusion that led the Fed Chairman to proclaim in 2007 that the "the impact on the broader economy and financial markets of the problems in the subprime market seems likely to be contained."

So, with a delusional central bank chairman, an anemic economic recovery, and every indication that prices across the board will continue to soar higher, there's really only one place to put any loose change you have lying around: gold and silver.

Bernanke's Blunder

Back in May, I said gold and commodity investments were attractive for two primary reasons:

  • First, global monetary policy was – and still is – very stimulative. Commodities, especially gold, tend to do very well when interest rates are well below inflation.
  • Second, rapid growth in emerging markets has created a new wave of middle class consumers. Those new buyers are increasing demand – and therefore prices – for industrial commodities.

Of course, following the market turbulence of the past few months, the picture has changed somewhat. While growth in China and other emerging markets remains quite rapid, it appears to be slowing a bit. That has dented demand for industrial commodities. Prices have dropped as a result. Copper, for example, has fallen to about $6,900 per metric ton, from more than $10,000. However, unless the emerging market economies go into a full-blown recession – and I don't expect they will – I would anticipate some recovery here.

On the other hand, monetary policy has gone in the opposite direction – becoming even more stimulative. Bernanke intends to keep short-term interest rates near zero until mid-2013 and he's undertaken a $400 billion "Operation Twist" program to bring down long-term interest rates. Both of these measures have increased monetary stimulus at a time when inflation is already running close to 4%.

That brings us to this week, when Bernanke decried the progress in the economy and indicated that the Federal Open Market Committee (FOMC) would consider even more monetary stimulus – even though three of the group's members are solidly opposed to the idea.

$5,000 Gold – $150 Silver

So far the only thing the Fed's loose monetary policy has succeeded at doing is pushing gold and silver prices steadily higher.

To continue reading, please click here...

Three Reasons the China Currency Bill Will Backfire

by

A Senate bill that aims to restore American jobs by punishing China for its undervalued currency may resonate with a frustrated American public, but it won't work.

In fact, instead creating jobs, the bill is more likely to trigger a damaging trade war with China and increase retail prices for Americans – further hurting the consumer spending that has already been undermined by high unemployment.

"This move is idiotic on so many fronts, I don't know whether to laugh or cry," said Money Morning Chief Investment Strategist Keith Fitz-Gerald.

The Chinese have already threatened to retaliate, and Fitz-Gerald says there are three other reasons why China currency the bill will backfire:

  • Tariffs on Chinese goods will raise prices for consumers in the United States, particularly at such retailers as Wal-Mart Stores Inc. (NYSE: WMT) and Target Corp. (NYSE: TGT).
  • China holds $3.2 trillion in foreign reserves, much of it in U.S. securities, while U.S. national debt is over $14.7 trillion.
  • And China's exports to the United States account for only 4.8% of the country's gross domestic product (GDP).

"The U.S. Senate has decided to put partisan showboating on the back burner just long enough to craft a bipartisan showboating bill," said Money Morning Chief Investment Strategist Keith Fitz-Gerald.

Five Republican senators joined 14 Democrats in co-sponsoring the China currency bill.

Of course, it's easy to see why shortsighted Senators like the China currency bill, which would impose a tariff on imports from countries that fail to address their undervalued currency.

The United States and other countries have long complained that China keeps the yuan undervalued to make its exports cheaper. The $273 billion of U.S. debt China racked up is clear evidence that the country isn't exactly playing fair.

Furthermore, supporters of the legislation say it would bring home between 500,000 and 2.25 million job, boost U.S. exports, and reduce the federal budget deficit by $850 billion over 10 years. And unlike the stimulus packages of the past several years, it would cost the U.S. Treasury nothing.

But these proponents of the legislation are also guilty of overlooking some fairly important points. The most obvious is that over the past three years the U.S. Federal Reserve has seriously weakened the dollar through its loose monetary policy. And as our largest creditor, China has absorbed the brunt of that devaluation.

To continue reading, please click here...

Yamana Gold Inc. (NYSE: AUY) Shines On as Gold Prices Continue to Climb

by

You'd be hard-pressed to find a better investment than one that is fully funded through organic growth the way Yamana Gold Inc. (NYSE: AUY) is.

Yamana has no net debt, which means it has grown to the point it is self-funding its future development. This is a testament to the quality of the company's assets and management.

It's also extremely rare in the gold mining sector.

You see, gold mines take large capital investments and years of development to reach a positive growth point. But Yamana is already past that point, and its profits and share price will soar as it continues to expand.

Just look at the last time I told you Yamana Gold was a "Buy." It was one year ago and Yamana was trading at $11.26 a share. Since then it's climbed 15% while other stocks have tumbled. And that's just the beginning. Yamana will keep climbing as the share price gradually starts to account for the company's growth outlook.

So if you didn't buy Yamana Gold Inc. following my last recommendation, you should do so now as the company rakes in profits without worrying about debt (**).

Yamana Gold Inc.

Yamana has spent the last decade building a diverse portfolio of low-cost mining locations. The company currently operates six mines, with 50% of its production coming from Chile, 30% from Brazil, and 20% from Argentina.

This global operations mix has big benefits for Yamana. First, it reduces the geopolitical risk threatening some of the company's competitors. And secondly, the low expenses grant Yamana a negative production cost of $80 per ounce, once byproducts are sold and taken into consideration.

This means that with an average sell price of $1,509 an ounce, Yamana enjoys an average cash margin of $1,589 an ounce in what is normally an extremely expensive sector to produce.

I absolutely love this cash margin, which will get even fatter with Yamana's projected production increases.

To continue reading, please click here...

Holiday Retail Sales Set to Slide Amid High Unemployment and Low Consumer Confidence

by

Holiday retail sales – which account for almost 40% of retail revenue, worth $453 billion in sales last year – are in jeopardy.

Consumer spending continues to be restrained by an unemployment rate that has stayed above 9% for 26 of the past 28 months. Furthermore, rising food and gasoline costs, fears of a new recession, the loss of equity from the housing collapse, and mountains of leftover credit card debt have prospective purchasers tightening their purse strings.

And adding to consumers' woes, income fell for the first time in almost two years in August, dropping a seasonally adjusted 0.1%, according to the U.S. Commerce Department.

Now the International Council of Shopping Centers (ICSC) said it expects holiday retail sales to be up 3% this year, down from the 4.1% increase last year, and markedly lower than the 5%-plus gains seen in prosperous economic times.

"This holiday season is going to be challenging," Ken Hicks, chief executive of Foot Locker Inc. (NYSE: FL), told The Wall Street Journal.

Consumers are definitely not in much of a spending mood. The 45.4 September reading of the Consumer Confidence Index, although it was up slightly from August, is far below the 70.4 level it had reached in February. The index usually is over 90 in a thriving economy.

Even more damning, Americans are almost universally pessimistic about the U.S. economy. In a recent CNN/ORC International poll, 90% of Americans said economic conditions were "poor," up from 81% in June.

Another survey, conducted last month by AlixParters LLP, found that 41% of consumers planned to spend less on holiday shopping this year. That's up from 31% last year.

"Consumers are very apprehensive and cautious in spending, and we expect that to continue," Diane Swonk, chief economist at Mesirow Financial, told USA Today.

Competing for Dollars

That means holiday retail sales will be captive to bargains and deals more than ever this year, particularly at discount and mid-level retailers.

To continue reading, please click here...

The Gold Price Conspiracy Uncle Sam Doesn't Want You to Know About

by

Is it really so preposterous to believe the United States and Europe would conspire to keep pole position in the global financial system?

I don't think so – and neither does China.

That much was revealed in a diplomatic cable recently uncovered by Wikileaks.

According to the 2009 cable from the U.S. embassy, China believes the United States and Europe have, as a matter of policy, suppressed the price of gold to discourage its use as a reserve currency.

And there's a pretty compelling case to be made for a gold price conspiracy.

The Gold Price Conspiracy

The cable summarized several commentaries in Chinese news media sources on April 28, 2009.

"The U.S. and Europe have always suppressed the rising price of gold," it reads. "They intend to weaken gold's function as an international reserve currency. They don't want to see other countries turning to gold reserves instead of the U.S. dollar or Euro. Therefore, suppressing the price of gold is very beneficial for the U.S. in maintaining the U.S. dollar's role as the international reserve currency."

According to the cable, China believes that by building its gold reserves, it can not only safeguard itself against the declining value of the dollar, but encourage central banks around the world to expand their gold purchases, as well.

"China's increased gold reserves will thus act as a model and lead other countries towards reserving more gold," the cable said. "Large gold reserves are also beneficial in promoting the internationalization of the RMB."

Now, if all we had were the Chinese claiming the U.S. and Europe were suppressing gold prices, it would be easy to disregard as superficial propaganda.

But in fact, there's evidence that supports this claim.

In the decade between 1999 and 2009, central banks – dominated by the West – were net sellers of gold in every single year. And that's despite the fact that gold in that time soared from $250 an ounce to $1,200 per ounce – a nearly 400% gain.

Then there's the infamous "Brown Bottom."

Between 1999 and 2002, Gordon Brown, then U.K. Chancellor of the Exchequer (and later Prime Minister), decided to sell nearly half of his nation's gold reserves. At the time, just the advance notice of these substantial sales drove gold's price down from $282.40 an ounce to $252.80.

Those gold sales yielded an average price of $275 an ounce, raising a total of $3.5 billion. Today, those 395 tons of gold would be valued more than $19 billion.

You have to admit, it doesn't make a whole lot of sense to sell a solid asset whose price is moving steadily higher each year – especially when the United Kingdom's debt problem then wasn't nearly as bad as it is today.

The answer: Because there's a conspiracy afoot.

To continue reading, please click here...

A Guide to Getting Rich in a Bear Market

by

To most investors, just surviving a bear market is more important than finding the next jet-fueled growth stock.

But I want to let you in on a secret: Rather than just trying to survive, investors can actually thrive in bear markets.

In fact, I make a lot more money a lot faster in bear markets than I do in bull markets.

After all, stocks and most other asset classes typically fall faster than they rise, because fear is a much stronger motivator than greed.

So if you're not making money in a market like this one – where prices are falling, even plummeting – you're missing out.

It's time to change that. And I'm going to show you how.

Bear Market Funds

The best way to profit from a bear market is to use exchange-traded funds (ETFs) in conjunction with options.

Let's first look at the ETF component.

There are plenty of inverse ETFs that go up in price when markets go down. And for even more oomph, there are "leveraged" inverse ETFs.

You can use these funds to "short" stocks and commodities, without having to open an options account, or rely on a broker.

But remember to do your homework. Make sure you understand exactly what each ETF you're interested in actually represents. Don't just go by the name. Read each prospectus to learn how the fund's investments are allocated and how it's supposed to perform under various market conditions.

Also be sure to check the bid -and -ask spread to make sure it isn't too wide, and the average daily volume to make sure it isn't too thin. I don't trade any ETFs that trade less than 1 million shares a day, on average.

Another thing to keep in mind is that many ETFs make good short-term trading vehicles, but are bad long-term investments. That's because many ETFs don't track their benchmarks precisely. And if they are leveraged, the tracking error widens considerably over time.

Still, these are very versatile instruments. You can buy them in retirement accounts, they are margined the same way stocks are, they are liquid and tradable all day, and you can put in stop-loss and profit -target orders.

Exploring Your Options

The second way to profit from a bear market is through short selling.

I say that all the time and I'm surprised how many people think it's wrong to short stocks.

Trading to make money in a bear market has nothing to do with what's good for the U.S. economy or for America. It's simply a matter of what's good for your net worth.

The old notion that it's un-American to short stocks comes from Wall Street's institutional elite. They don't want the public shorting stocks. In fact, they don't want the public even selling stocks. Why? Because Wall Street wants buyers lined up to pay for the stocks that it is selling short.

To continue reading, please click here...

Increased Volatility Will Lead to Short-Term Buying Opportunities

by

Last week we said goodbye to a September that logged one of the worst monthly market performances on record and scared many investors away – but the increased volatility has created buying opportunities, if you know what to look for.

The Dow Jones Industrial Average fell 6% last month, far exceeding the average 1.07% September loss the index has seen since its 1896 launch. The Standard & Poor's 500 Index tumbled 7.2%.

The poor performance rattled investors' nerves and was reflected in the CBOE Market Volatility Index (VIX). The VIX – the "investor fear gauge" – over the last three months had its biggest quarterly increase ever, climbing 160% to 42.96. In the same quarter the S&P 500 fell 14%, its biggest drop since 2008.

While some investors interpret the increased volatility as a signal to run, the decline is actually presenting one-of-a-kind opportunities for investors.

The VIX has only pushed past the 40 mark 3% of the time in the past 20 years, and each time it has preceded a stock rebound. Average returns after the VIX passes 40 are 3.2% for the following three months, according to Bloomberg News data.

"A very high VIX level suggests investors have given up, they're out of the way, and that's a great entry point," James Paulsen, chief investment strategist at Wells Capital Management, told Bloomberg. "It's a contrary sentiment indicator, so when the VIX surges, it says bearish sentiment verging on panic is surging. And the market's a good buy."

Another reason for investors to buy: October is not September.

September might be the market's worst month, but in October the Dow has averaged a 1.36% gain over the last 20 years, according to Bespoke Investment Group.

Good to hear, since we've just finished the market's worst-performing third quarter since 1928.

To continue reading, please click here…

To continue reading, please click here...