Archives for February 2012

February 2012 - Page 2 of 11 - Money Morning - Only the News You Can Profit From

What Apple is Signaling about a Market Top

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by Guest Author by Albertarocks

Global Economic Intersection Article of the Week

When a general stops leading his army mass surrender usually soon follows.  Very often when an index begins to lose leadership from its general the entire complex soon finds itself in big trouble. If there was ever an index that had a singular more important hard-core heavyweight leader than the Nasdaq 100 has in AAPL, I’d like to know what index that was.  AAPL now makes up a full 17% of the market capitalization of the entire $NDX.  So obviously when an enormous corporation like AAPL starts to take a bit of a bruising, it behooves us to take a real close look at what’s going on.  (Click on picture for larger image of apple face.)

Follow up:

The enormity of the effect that AAPL has on the entire $NDX can’t be overstated. Only last April its weighting had been reduced from 22% to 12%. Today, only 10 months later, that weighting has made another astonishing burst back up to 17%. The only other heavy hitters in any index that I’m aware of which even comes close to having the weighting that AAPL has, are Simons Property Group which makes up approximately 10% of IYR (real estate ETF) and IBM which makes up about 12% of the DOW. With a market cap. of $446 billion, AAPL is now slightly greater than twice the size of IBM. The bank account? With $98 billion cash on hand, AAPL now sports a cushion 6 times that of IBM. If AAPL really wanted to buy something nice they could certainly afford it. May I suggest Greece?
Before we dive in, just a few notes for clarification. I don't mean to insult anyone here, but it has come to my attention that there are some people whose eyes glaze over when dealing with a chart that is made up from a ratio. There's nothing to it really. In fact, all currency crosses are the same thing… just a ratio:

a) When viewing ‘any’ ratio chart, think of it as a ‘leadership gauge’. In all cases, what we’re really doing is dividing the component on the left side of the ratio (the ‘numerator’), by the component on the right side. In this particular instance, AAPL is the 'numerator' and is 'the component being judged' for leadership and not the Nasdaq. But of course the ultimate goal of any division operation is to generate the "quotient". It answers the question "How many AAPLs can we buy with one unit of NDX?" We then put that quotient on the chart in the form of the ratio itself… the candlesticks. What we're really after is to reveal what the ratio is doing and what it means for the broader index itself. The purpose of this study is not to discern when to buy or sell AAPL, but the NAS.

b) In order to improve the ‘viewability’ of a ratio-style chart, I’ve changed the way I display them from the method I used to employ, in order to make them far less "busy".. Rather than to overlay the two individual comparators behind the ratio itself, I’ve placed them in the upper section of the chart in separate panels so that they appear as individual line charts. But the all-important ratio, the subject of our focus, is still shown in the heart of the chart as candlesticks. In every ratio chart, any indicators that are displayed pertain to the ratio itself and not to either of its components.

Again, I apologize to those who already understand how ratios charts work, but out of respect for our friends who have been a bit reluctant to admit they didn't know, I just wanted to offer that bit of clarification. We start by taking a look below at the weekly chart of the ratio between Apple and $NDX:

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Abandoning the Welfare State in Europe?

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When thinking about current economic problems in Europe, it is clear that we have had a problem with the adjustment in the euro zone. Some countries saw productivity rise faster than wages, other experienced the opposite. So, price levels are now “wrong” in the sense that current account balances are not sustainable. Germany net exports too much, the periphery still net imports too much. It seems now that the Troika is pushing ahead its agenda of abandoning all those ineffective structural rigidities. Here is the Economonitor:

The Greek minimum wage is apparently a point of contention between the Troika (ECB/EU/IMF) and the Greek government. The NY Timescites competitiveness gains as a rationale for the minimum wage cut:

The goal of any pay cuts would be to help make Greek workers, who are generally less productive than workers elsewhere in Europe, able to compete more effectively inside the euro zone, where countries share a common currency that does not allow devaluations to help even out differences in labor costs.

Huh? See below. The going line seems to be that the Greeks are lazy. They earn minimum government-negotiated wages without actually doing a whole lot because they’re uncompetitive. This is wrong; the data do not support this view.

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Investing In Silver: How to Buy Silver Coins and Bars

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For investors who want to capture the coming move in silver, buying silver bars or coins is still one of the best options.

Here's why…

Like gold, investing in silver is a great hedge against inflation and financial turmoil alike. It's why demand for silver is increasing at an astonishing rate.

In fact, says Money Morning Global Investing Strategist Martin Hutchinson, "If silver were to match its 1980 peak, adjusted for inflation, it could climb as high as $150 an ounce."

For savvy investors who hold physical silver in bars or coins, that move would deliver roughly a 328% gain from today's spot-prices.

Investing in Silver Coins

Of the two, buying silver coins is a bit more challenging because there are so many different ways to purchase them – including rare coins.

But while rare collectible silver coins are often attractive and sometimes bring in big prices when sold, their value is quite subjective, as they are tied to a number of largely intangible factors like scarcity, wear and quality of appearance.

Rather than becoming a rare coin collector, most investors would be better off purchasing bullion coins if their intent is to ride the silver bull market.

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Has the Housing Market Finally Bottomed?

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It was the most atrocious bubble in U.S. history pushing tens of millions of Americans into financial misery.

Even today, the last of the lawsuits have yet to be filed.

But five years later it's finally coming back.

The housing market has bottomed and there's money to be made on its return.

The evidence of this case continues to build.

Signs of a Housing Bottom

For instance, the National Association of Homebuilders' Housing Market Index rose five points to 29 in February marking its fifth consecutive monthly increase.

Admittedly, 50 is supposed to be a neutral level for the index. Even still, the current level of 29 is up 20 points off of the low, and is the highest it has been since 2007.

Then there are housing starts, which rose in January to an annualized 699,000 units.

Again, that's not very impressive compared to 2005's total of 2,068,000. But it's still a hell of a lot better than 2009's average of 554,000 and 2010's 586,000.

Incidentally, there's some important data in the details here. Multi-family starts were 175,000, up more than 70% over 2009, while single-family starts of 508,000 were only modestly above the 2009 average.

Meanwhile foreclosures in January 2012 were down 19% from a year earlier.

Since the "robosigning" scandal and the delays that followed it now seem to have passed through the system, that decline suggests that the level of troubled mortgage borrowers is also trending downwards.

The bottom line: Housing has found a bottom and is trending back up again.

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Amazon.com Inc. (NASDAQ: AMZN) Will Get Burned by the Fire

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Amazon.com, Inc. (NASDAQ: AMZN) has lost its focus.

The pioneer of clicks for sales has decided it wants to be the next Apple Inc. (NASDAQ: AAPL).

But there's a big difference between selling other people's products for a profit on a Website and becoming the provider of custom hardware solutions for retail buyers.

This transition isn't going to end well.

The Amazon Fire is a chopped-down tablet designed to compete with the iPad. There is a world of difference between the two products and where they are in their lifecycles.

Amazon is selling its Fire tablet for half the price of the iPad, which looks great on the surface. When you compare exactly what each product brings to the table, though, it's obvious the iPad 3 (due in mid-March) will douse the Fire.

The iPad 3 will have a slew of hardware enhancements over the last iPad, and while iPad 2 was a generational upgrade over the original, it still caught the world by surprise.

The tablet market has tried before to build a better-valued product to compete with the iPad, which is where the Amazon Fire comes into play.

The reality is that the Fire is a first-generation equivalent to the iPad but with smaller physical size and limited features.

The Fire is easily two years behind the curve in the Apple-equivalent build cycle of features for same purchase price. Two-year-old technology is an eternity when you're competing against the best product designers on the planet.

This is important because the bar continues to rise, and Apple can start to sell a similar product with a premium feature set at a slight markup, destroying Fire's niche.

This weakness is a terminal issue in my opinion.

When you think about it, Amazon is subsidizing the construction and sale of the Fire, with estimated losses on each unit, as it deploys them around the world to users.

This makes me wonder when the pain of the Fire will cause Amazon to adopt a less volatile business plan.

So it's time to sell Amazon.com Inc. (NASDAQ: AMZN) (**). The Fire will continue to burn investors in Amazon for quarters.

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U.S. Housing Market: New Home Sales Decline Has a Silver Lining

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Another comforting sign for the U.S. housing market come today (Friday) as new home sales data for January exceeded forecasts, another bullish sign for home improvement-related stocks like The Home Depot Inc. (NYSE: HD).

New home sales in January fell 0.9% to a 321,000 annual rate. That pace is down slightly from the 324,000 pace set in December, but sales beat the expected rise of 315,000, according to a poll by Bloomberg News.

December sales were previously reported at 307,000 but were revised upward. Total 2011 home sales hit 304,000, down 5.8% from 2010.

But the dip in numbers isn't a bad sign.

"Don't read anything into the 0.9 per cent month-on-month fall in new home sales," Paul Dales, senior US economist at Capital Economics, told The Financial Times. "Sales only fell because December's estimate was revised up from 307,000. If all the revisions were concentrated in January, then sales would have risen by 8.1 per cent month-on-month. Moreover, sales are now at a level not seen for two years."

The supply of homes on the market fell to 5.6 months' worth – the lowest since January 2006 – compared with 5.7 months in December. The median price for a new home rose 0.3% to $217,100.

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Energy Investing is Worth Your Time and Effort

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Last week, I received a question that really stood out in my mailbox. It was a variation of similar questions that typically come in from. Now, we can't advise individuals on how to manage their money, but we can let them know the obvious secret about investing in the markets. The question had been sent […]

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Dodd-Frank Isn't Legislation; It's a Comedy

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In last week's Insights & Indictments, in my commentary on all the letters sent to the SEC about the proposed Volcker Rule, I not-so-casually commented that the Volcker Rule "shouldn't exist at all."

And then I called the parents of the Volcker Rule, the Dodd-Frank Act, a "joke."

Well, by the amount of comments I got back from I&I readers – right now, there are about 95,000 of you (and counting) – you'd think I was talking about something really controversial, like contraception, for heaven's sake.

Talk about passionate!

I understand that people get passionate about contraception. After all, without all that passion, we wouldn't need contraception.

But me being passionate about the birth of the Volcker Rule, which I said should never had been conceived, apparently caused a lot of to you think I crossed some moral line.

Not me! I'm not one to ever say anything controversial! And I'm certainly not the kind of guy to wade into the contraception debate.

But, if I was, I'd be a strong advocate for it.

The unwelcome birth of the Volcker Rule is a good example…

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President Obama's 2013 Budget: 5 Things You Should Know

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U.S. President Barack Obama's 2013 budget proposal will give Republicans and Democrats plenty to fight about.

The $3.8 trillion budget proposal, submitted to Congress, essentially follows the blueprint President Obama outlined in his State of the Union address.

That means fewer spending cuts and more taxes than Republicans will like.

So if you thought last summer's wrangling over the raising of the debt ceiling was nasty, watch the rhetorical Armageddon when those battles get re-fought in an election year.

President Obama's 2013 budget sets much of the agenda for the stormy election season ahead. (You’ll be hearing a lot about Washington’s economic policies in coming months. What you won’t hear is the truth behind those policies. And that truth could destroy your retirement. Take a look at this new report for details.) These points will help you make sense of the chaos.

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Will Gold be Paulson's Next "Greatest Trade Ever"?

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When famed hedge-fund manager John Paulson speaks, people listen.

And it's no wonder.

Paulson made his way into the financial history books thanks to what many now call the "greatest trade ever".

Paulson & Co. shorted the subprime mortgage market before the collapse banking a $15 billion gain.

So when Paulson went big again by buying gold in 2009 and 2010, investors took notice.

At the time he said, "As an investor, I became very concerned about having my assets denominated in U.S. dollars," Paulson told his audience. "So I looked for another currency in which to denominate my assets in. I feel that gold is the best currency."

In fact, Paulson's holdings in the SPDR Gold Trust (NYSE: GLD) make his firm the biggest stakeholder in this ETF, with a position currently valued at $2.9 billion.

So that begs the question….

Is Paulson still a gold bull?

In a recent letter to investors he wrote, "By the time inflation becomes evident, gold will probably have moved, which implies that now is the time to build a position in gold."

And he's not alone.

Recent filings showed that another legendary hedge-fund investor, George Soros, has nearly doubled his stake in GLD to 85,450 shares.

But "Bond King" Bill Gross's latest words and actions may well be the most significant of all.

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