July 2012 - Money Morning - Only the News You Can Profit From
Rising U.S. Food Prices are About to Eat Away at Your Savings
As U.S. households prepare for Recession 2013 , they'll have trouble saving as one constant expense is starting to take a sharp climb: food prices.
Higher U.S. food prices are the last thing the country needs as 2013 is set to bring with it a painful bunch of tax increases and the ominous fiscal cliff, but U.S. consumers need to understand that their grocery bills are about take a much bigger chunk out of their wallets.
You see, the United States is in its worst drought since the Dust Bowl. Farmers for months have been grappling with the effects, which are trickling down to your local store shelves.
"In 2013 as a result of this drought we are looking at above-normal food price inflation," U.S. Department of Agriculture (USDA) economist Richard Volpe told the Associated Press. "Consumers are certainly going to feel it."
This "Lab" is So Fast You Get Results Before You Leave the Doctor's Office
Thanks to the Web and smartphones, we're used to receiving the data we need in the snap of a finger.
In the real world, that means you can be driving through a remote stretch of highway and find out who won the 1960 Olympic gold medal in fencing before the next song starts playing on the radio.
But when it comes to medical tests, the scene is still best described as "hurry up and wait."
Even in our fast-paced, high-tech society, it can take several days to find out if you have the markers for cancer or a stroke. Or for that matter a deadly disease.
That leaves many patients waiting, worrying, and wondering for days or even weeks. In some cases, lives are even lost.
That's why I'm happy to report that a key U.S. research lab has developed a breakthrough medical testing device that can speed up the results of your lab tests.
It is so fast, you'll get results before you leave the doctor's office.
Sandia's "Lab on a Chip"
As its name implies, the SpinDx system uses a spinning disk inside a portable instrument – much like a CD player – to manipulate blood samples.
Researchers say it can measure a patient's white blood cell count, analyze key protein markers, and process up to 64 tests from a single sample.
And all in a few short minutes…
Another 1.7 Billion Reasons to Avoid Facebook Stock
As if there weren't enough factors to make Facebook (Nasdaq: FB) stock unattractive, there's a flood of free shares about to hit the market that could make it even harder to raise the share price.
In two weeks comes the first expiration of "lock-up" agreements, meaning certain investors barred from selling their shares will then be able to do so. Typically employees and big investors are required to hold shares for a certain time period after an IPO. This is done to reduce selling pressure and the chance of a mass exodus as soon as the stock starts trading.
But now some of those investors' shares will be freed up, and they want to cash in.
Editors Note: Why Facebook’s “Big No-No” Could Lead To Its Big Collapse Click here.
Nearly 1.7 billion shares of Facebook stock will enter the market over the next few months, starting in mid-August. That is more than four times the number of shares now floating on exchanges.
"It's like a train coming around the corner toward shareholders, so they better get out of the way, Francis Gaskins, president of research firm IPOdesktop.com, told the Los Angeles Times.
The first batch of 268 million shares will be freed up in mid-August, followed by 192 million more shares in mid-October, and a whopping 1.2 billion shares will be let loose in mid-November.
Granted, a slew of those shares will not be sold, but the fresh torrent of shares to be set free far outnumbers the 421.2 million shares Facebook sold in its fabled IPO.
Gold Prices Waiting to Rally on Central Bank Decisions
Last week it was earnings reports taking center stage, this week it's policy statements from the U.S. Federal Reserve and European Central Bank (ECB).
What comes out of the central banks could have a huge impact on the gold market. Gold prices have been on the rise – 2.5% last week – and could keep going depending on what the central banks deliver.
Gold prices on Monday saw their fourth consecutive day of increases. The August contract rose 0.1% to $1.70 with a $1,619.70 settlement price, thanks to market participants buying on optimism from this week's Fed action.
A two-day meeting begins today (Tuesday) for the Federal Open Market Committee (FOMC). After its conclusion Wednesday, market watchers will be waiting with bated breath on whether a third round of quantitative easing (or QE3 as it is fondly called) will take place.
If that isn't enough, there's Thursday's meeting over in Europe with the ECB. They're also set to make a monetary policy decision.
Let's take a look at these two potential actions that could drive up the price of gold.
The Power of Today's FOMC Meeting
The Federal Reserve announces what will happen with interest rates eight times a year at FOMC meetings. FOMC meetings are scheduled well in advance and receive a great deal of attention from the media and markets, but it wasn't always this way. It was not until 1994 that the Federal Reserve started publicizing the actions of the FOMC.
Now the FOMC announcements have become trading opportunities.
In fact, under Federal Reserve Chairman Ben Bernanke, the Federal Reserve has become the most influential market maker in history.
Bob McTeer, the former president of the Dallas Federal Reserve, wrote in Forbes that investors are so glued to Fed actions they even react when minutes are released from an FOMC meeting – even when the meeting's outcome was already known.
"It used to be "buy on the rumor, sell on the news' or vice versa. Now it seems to be "sell on the news and sell again on the same news in slightly greater detail,'" wrote McTeer.
How to Protect Your Portfolio Against One of Wall Street's Greatest, Best Kept Secrets
"Can't anybody tell the truth anymore?" an exasperated Bob J. asked me at a recent cocktail reception.
"Evidently not" I told him.
Bob had seen me earlier that afternoon on Fox News. I appeared on the show to respond to a new study on corporate earnings by Professors Ilia Dichev, Shiva Rajgopal of Emory University and John Graham of Duke.
The study found that a full 20% of publicly traded companies lie about their earnings.
The shocking thing is that the figure wasn't much higher. Twenty percent strikes me as abnormally low. Earnings manipulation is one of Wall Street's greatest, best-kept secrets and has been for years.
In fact, CFOs I've met over the years have told me they could routinely swing things within 5-10% of the target earnings per share (EPS) if needed – a figure in line with the one cited in the study.
But lie is a big word.
As I noted during my interview, there are all kinds of reasons why companies manipulate the numbers, beginning with the terribly flawed system itself.
As appalling as this thought may be, the system actually encourages this kind of behavior.
Under the current system, the law requires quarterly performance reports when many publicly traded companies actually operate in business cycles that are 1, 3, 5, or even 7 years long.
This creates a disincentive to report what's actually happening and an incentive to "lie" about the numbers or at least "fudge" them, depending on your perspective. And, the longer the business cycle, the more a company must make estimates about quarterly results with the risk, of course, that things don't turn out as management expects.
So while some companies may have lost their ethical and moral compasses, what they are doing is entirely legal.
Why Companies Lie About Earnings
Having spent more than 20 years in the markets, I believe the reason for this comes down to three biggies, for lack of a better term. Companies may "lie" to boost stock prices, smooth earnings and jack up compensation packages.
Virtually every publicly traded company draws on reserves and engages in all kinds of financial hocus-pocus in an effort smooth things out.
Take Boeing Co. (NYSE: BA), for instance.
Glass-Steagall is a Dream Worth Revisiting
There's a dream keeps returning, like rain to the sea.
There's a fire ever burning in the souls of the free.
There's a lifetime of learning that it's all been in jest.
And at the end of your journey, it's like you never left.
~ Dave Mason
Those lyrics are great. They apply to a lot of things in life.
That includes me seeing the legendary Traffic singer/songwriter and guitarist Dave Mason, after last seeing him 10 years ago.
He was once again at The Stephen Talkhouse in Amagansett, New York. I saw him with some old friends two weeks ago.
Besides being a legend, he's a really good man.
He's supporting Wounded Warriors and other projects, like Work Vessels for Veterans, which helps support veteran entrepreneurs trying to get their business dreams off the ground.
I urge you all to contribute and to help the incredibly brave men and women in our armed forces who sacrifice so much and get so little in return.
But I digress… although it is for a good cause. We can never do enough for our troops!
There's another dream that's returning today. And it is one that many of you have been actively dreaming about.
It's the return of Glass-Steagall.
Like rain to the sea, the fallout from the implosion of too-big-to-fail banks that poisoned our capital markets and economy may, God willing, help resurrect the Depression-era legislation that separated commercial banks from investment banks.
I've been calling for that for years now. And almost all of you are soldiering with me in that camp.
Oil Prices: Three Factors to Watch this Week
Oil prices took a break today (Monday) from their four-day streak of gains. Crude for September delivery ended 35 cents lower, or 0.4%, to $89.78 a barrel on the New York Mercantile Exchange.
But there are a few catalysts that could propel energy higher this week.
The recent resurgence in oil prices – up about 14% in the past month – has trickled to prices at the pump, too.
For the third consecutive week last week, the Energy Information Administration (EIA) reported the U.S. average retail price of regular gasoline jumped seven cents to $3.49 a gallon. The national average diesel fuel price increased nine cents to $3.78 per gallon.
Money Morning Global Energy Strategist Dr. Kent Moors warned a few weeks back of this expected oil price climb. He said "the gasoline and oil markets have certainly been oversold and remain so to this day," adding that "the rebound is likely to be greater there than in the energy sector as a whole."
It appears that rebound has started. Here are three factors that could fuel the oil price climb this week.
Planets Align for Stock Market Crash in 2013 − If Not Sooner
Of all the tools one might use to predict a stock market crash in 2013, planetary alignments and solar particles are not, for most people, the first options that spring to mind.
But market analyst Arch Crawford has applied his arcane "astro indicators" for 35 years with surprising success.
You see, Crawford has forecast market crashes before. His astro indicators helped him predict the stock market crash of 1987, as well as the crash following the 9/11 attacks and the crash of 2008.
Now Crawford is speaking up as something just hit his radar again.
One of Crawford's most reliable indicators crossed a threshold on July 18. That means he sees another major stock market crash hitting at some point between now and March 2013.
"Between 18th of July and the end of February , I believe the markets worldwide will crash," Crawford told GoldSeek Radio last week. "And that's because that if any one of them falls, it's going to take a bunch of others into a black hole."
The Weird Science of Arch Crawford
It's easy to write off Crawford and his unusual methodology, but he doesn't use his astro indicators exclusively; he's also an accomplished technical analyst.
He worked as a technical analyst early in his career at Merrill Lynch, which is when he noticed a correlation between some astrological models he'd been studying and his technical charts.
Eventually Crawford evolved a method for predicting market behavior based on both technical analysis and astro indicators. The more they agree, the more confident he is in his predictions.
Hulbert Financial Digestranked hisCrawford Perspectivesthe best stock markettimer for the period between Oct. 1, 2007 and Oct. 31, 2009. Timer Digest has placed him first in 1987, 1994 and 2008, and second in 2002.
Today, as Crawford looks at his array of indicators, many point to a 2013 stock market crash, although it could happen before then.
Silver Prices Ready for QE3
Recent economic data might be enough to get the U.S. Federal Reserve to finally commit to more stimulus measures, which in the past has delivered a good run for silver prices.
The United States last week reported economic growth of just 1.5% for the second quarter of 2012, down sharply from the rates posted for the previous two quarters.
As a result, the Dow Jones Industrial Average jumped as traders anticipate more economic stimulus from the Federal Reserve, either at the Federal Open Market Committee (FOMC) meeting this week or when Chairman Ben Bernanke speaks at Jackson Hole in late August.