October 2012 - Money Morning - Only the News You Can Profit From
2013 Bond Market Forecast: Where to Find the Best Yields
The reality for the 2013 bond market in the United States is that interest rates are forecast to remain low throughout the year and continuing until 2015. The Federal Reserve has made this clear – and that is not good news for Treasuries and investment-grade corporate bonds.
In the case of corporate bonds, issuers have been loving the low interest rate environment gifted to them by Ben Bernanke. Issuing commercial paper is cheap these days; again, good for the issuer, not investors.
That means the question becomes why would investors want to own the iShares iBoxx $ Investment Grade Corporate Bond Fund (NYSE: LQD), the largest investment-grade corporate bond ETF? LQD has a trailing 12-month yield of less 3.9%.
By comparison, income investors could grab 70 basis points of added yield by owning individual companies found among LQD's holdings, like the common stock of ConocoPhillips (NYSE: COP) or Verizon Communications Inc. (NYSE: VZ). Also in LQD are shares of AT&T Inc. (NYSE: T), which yield 5.1%.
Of course, higher yields and superior income are available with junk bonds, an asset class that is most easily tapped through ETFs.
However, U.S.-focused junk bond funds come with their own set of issues investors need to consider. Namely, the time to have bought these funds has come and gone. Chasing yield and capital appreciation in high-yield bonds at this point is risky business. Outflows from the corresponding ETFs indicate the smart money is taking their profits and moving on.
Luckily, there are credible alternatives to U.S. corporates and Treasuries for income investors looking to fill out the bond portions of their portfolios.
Finding those alternatives is not hard at all, it is just a matter of leaving the U.S.
Why Silver Prices in 2013 Will Continue to Perform
If asked to name the top performing commodity of the past decade, not many would answer silver because of its notorious volatility.
Yet, according to Lloyds TSB, silver prices have delivered the best gains since 2002.
Lloyds data shows that the shiny metal soared 572% over the past decade, beating gold's rise of 428%, which was second best among commodities.
Lloyds said silver beat gold because "[I]n addition to being perceived as a safe haven investment, high demand for industrial uses has also contributed to the strong rise in the price of silver."
The key question for precious metals investors is whether silver will continue to be a good performer in 2013.
Money Morning's Global Resource Specialist Peter Krauth thinks so. He forecasts that silver prices will hit "north of $60 per ounce" by spring.
If his forecast is on target, it bodes well for both holders of silver bullion and coins as well as for holders of ETFs such as the iShares Silver Trust (NYSE Arca: SLV).
Here are five key factors that show why Krauth's forecast for silver prices in 2013 could be right on the money.
Silver Prices in 2013: New Industrial Uses
One positive for silver has to be the aforementioned industrial uses.
At last month's Denver Gold Forum, the CEO of silver producer Hecla Mining (NYSE: HL) Phil Baker made an interesting observation.
He said there was a parallel to what happened to silver usage at the turn of the 20th century to what is happening today. At that time, photography became a major driver of demand of the silver market.
This time though Baker believes it will not be one industry solely driving demand, but a myriad of new users of silver looking to take advantage of the metal's unique properties (such as electrical conductivity) in the electronics and medical fields among others.
Silver's expanding usage in a large number of industries may help to offset the general weakness in the global economy.
Investment Demand for Silver
Another factor favoring silver prices is the continued investment demand for the precious metal from the average person around the world, due in large part to central bank policies.
India's Demand for Gold to Boost Prices Before Festival Season
With the U.S. markets taking a break thanks to Hurricane Sandy along with the upcoming U.S. presidential election, it's been a quiet gold marketplace.
On Wednesday, markets returned to action and December gold prices rose to a week high on the Comex of $1,720.40.
But even without activity in the States, gold prices have a major catalyst from another part of the world: India.
This year, India's demand for gold has been off as authorities blame the metal for the country's economic problems, higher gold import fees and a lower Indian rupee.
But Indians don't stay away from gold for long – especially ahead of festival season.
Festival season in India, which includes Diwali and Dhanteras, starts in November. Weddings will also take place during this period with gold jewelry included in dowries.
With a "pent-up' demand for gold in India, it has the potential next year to hit new highs — past $2,000 an ounce, reported Emirates 24/7.
On Tuesday, trading in the December gold contract on the Multi Commodity Exchange (MCX) closed 0.01% higher to 31,097 rupees per 10 grams, after seeing a 30,968 rupee low–a level not seen since August, reported Reuters.
Stock Market Today: Why Post-Sandy Trading Could Be Volatile
The stock market today reopened after having its first two-day weather-related shutdown since 1888. While most of New York is still in clean up and recovery mode following Hurricane Sandy, investors are back in action in what is expected to be a busy remainder to the week.
Here are the latest headlines:
- Traders try to play catch up- The NYSE's two-day closure resulted in delayed earnings and economic reports, and unluckily came at the end of the month. Investors and especially traders will be trying to make up for the lost time, leading to higher volume due to unfulfilled trades from Monday and Tuesday. Besides the volume, volatility could be high as traders close out their books for the month. Also, for some mutual funds today is the end of their fiscal year, meaning more losses could be taken to offset capital gains. "The two-day delay is really the perfect storm in terms of when it occurred. To happen in the heart of earnings season and just a week before an election is rather unfortunate," Ryan Detrick, senior technical analyst at Schaeffer's Investment Research told Yahoo! Finance. "Had this happened during the boring summer months it wouldn't have mattered as much, but with so much happening currently, the odds of some huge volatility on big volume is very good. Throw in the fact this is the end of the month and the end of the year for some hedge funds, volume today could be in line with what we normally see on expiration Friday once a month as firms close their books on the year."
Quantum Continues to Incur Loss – Analyst Blog
Quantum Corp. (QTM) reported second quarter fiscal 2013 adjusted loss per share of 3 cents, which is slightly better than the Zacks Consensus Estimate of loss of 4 cents a share. The adjusted or non-GAAP earnings per share exclude amortization of acquisition-related intangible assets, but include stock-based compensation expense. Revenue Total revenue for the second […]
Mixed 4Q for Schnitzer Steel – Analyst Blog
Schnitzer Steel Industries Inc. (SCHN) posted fourth-quarter fiscal 2012 (ended August 31) adjusted earnings per share of 10 cents, outstripping the Zacks Consensus Estimate of a loss of a penny per share. The adjusted earnings exclude a restructuring charge of $5 million (or 12 cents a share). Including that impact, the Oregon-based company posted a […]
Sunoco Logistics, LP (SXL) – Bull of the Day
Buoyed by a continued robust operating performance and favorable growth prospects, we are maintaining our Outperform recommendation on Sunoco Logistics Partners (SXL). Recent results have been driven by strength in its crude pipeline system and terminals facilities. Importantly, the partnership has grown its cash distribution for 29 consecutive quarters. With its stable fee-based revenue, geographically-diverse […]
The Fiscal Cliff's Biggest Surprise Could Be a Rising U.S. Dollar
My grandmother Mimi had a saying that was as blunt as it was uncouth. "When the stuff hits the fan," she used to say, "it will not be evenly distributed."
This one came up often when she sensed that world events were about to take a turn for the worse.
You've heard me mention Mimi before. She was widowed at a young age and went on to become a savvy global investor long before people thought to look beyond their own backyard.
Mimi never cared what Wall Street's "Armani Army" had to say.
Instead, she preferred to travel widely to see for herself what the real story was. Having grown up in the midst of the Great Depression, she believed that people were the ultimate indicator and that governments were the penultimate contrarian influence.
If she were still alive today, I think she'd encourage us to take a good hard look in the proverbial "mirror" especially with regard to the looming fiscal cliff making headlines the world over.
And I don't think she'd waste any time with the doom, gloom and boom crowd either.
She was always on the hunt for opportunity when everyone else was running from chaos. Thanks to her, it's a habit that remains firmly ingrained in me today.
Not One but Three Fiscal Cliffs
And that brings me back to the "fiscal cliff."
In my mind, this is a misnomer. There isn't really a singular fiscal cliff . As I explained earlier this summer to Sheryl Nance of Forbes there are actually three.
- The massive adjustments headed our way as tax and spending cuts expire and come into effect beginning in 2013. You may know it as taxmegeddon.
- The debt debacle and the near complete lack of any sort of credible financial consolidation plan that will affect everything from interest rates to collateral requirements and the US credit rating – again.
- And politicians who simply don't understand that issues 1 and 2 are already dramatically impacting the economy long before the theoretical limits of spending come into play. Profits are declining and 61% of companies that have reported through Monday October 22nd have failed to meet expectations. Hiring is slowing and top line revenue is increasingly hard to come by.
Together, they constitute a massive threat to the U.S. economy that could push our beleaguered "recovery" to the breaking point. (And I use all the sarcasm I can muster with that because our recovery isn't anything close to what's needed.)
Many believe this is a moot point because Congress will get down to business in November after the Presidential Election takes place. The hope is that some sort of budget agreement will be reached and that the US economy will then be positioned for stronger growth in 2013.
Yeah and I suppose the tooth fairy will show up, too.
Hurricane Investing: Is it Wise to Search for Profits from Sandy?
Every time a huge weather system affects large parts of the country, investors hunt for related profit opportunities – and in the case of Sandy, that means "hurricane investing."
With airline flights being cancelled across the country and businesses closing down due to Hurricane Sandy, the short-term economic impact is immediately obvious. Estimates for the total costs of the storm damage range up to $20 billion, with New York and New Jersey absorbing the bulk.
As a result, the traditional sector groups will be immediately punished: insurers, airlines, retailers and refiners. Insurers are expecting losses of up to $5 billion due to the damage to automobiles, homes and businesses on the East Coast.
But even with this estimate, it is not so clear if there are any surefire investment opportunities resulting from Hurricane Sandy.
That's why Money Morning Chief Investment Strategist Keith Fitz-Gerald explained yesterday it's often best to let go of those opportunities, and remain focused on your long-term investment goals.
Election 2012: Why America Should Fire Congress
There's more to Election 2012 than a neck-and-neck presidential race: the U.S. Congress.
The 112th Congress is up for its biennial performance review, and by all accounts -including its own – it has done a terrible job.
A damning record of failure and incompetence makes it clear why America should fire Congress next week.
"Worst ever? In the modern era, there's not even much room for debate," said USAToday in a recent editorial.
"With power split between the Republican-controlled House and Democrat-led Senate, lawmakers made no discernible progress on major national problems such as exploding entitlement costs, immigration and climate change," USAToday continued. "Not only that, they ran from what in prior years would have been routine legislation."
Polls show that Americans have been more dissatisfied than ever with their "do-nothing Congress."
Gallup's approval rating for Congress, measured monthly, fell to an all-time low of 10% in February, rose into the teens over the spring and early summer before hitting 10% again in August.
Each May Rasmussen Reports conducts a poll that specifically asks people whether they would vote "to get rid of the entire Congress and start over again" if such a thing were possible, or to keep the entire Congress.
This year 68% said they would vote to dismiss the entire group of lawmakers, up from 62% in 2011 and 57% in 2009. Just 12% of those polled said they'd keep this Congress, and 20% were undecided.
Election 2012: Do-Nothing Congress Has No Excuses
Many members of Congress admit they have done a poor job, though they tend to blame the opposing party rather than take responsibility.
"We have spent virtually the entire year avoiding doing serious business because the majority doesn't want to take any difficult votes," Senate Minority Leader Mitch McConnell, R-KY, said last month. "It is really quite embarrassing that the Senate is so dysfunctional."
Meanwhile, Senate Democrats blame the Republican House.
"The Senate has produced bipartisan bills on issues from farm policy to postal reform to China currency," Brian Fallon, a spokesman for the Senate Democratic leadership told The New York Times. "But it takes two chambers to pass a law, and the other side of the building considers compromise a dirty word."
Both sides point fingers, but bipartisan cooperation is part of their job description. And their bosses – you and me – expect results, not excuses and fingerpointing.
"Most people just don't understand why Democrats and Republicans can't get together and split at least some of their differences," Larry Sabato of the University of Virginia's Center for Politics told Reuters.
Why to Fire Congress
So what exactly does a do-nothing Congress look like?