Archives for May 2012

May 2012 - Money Morning - Only the News You Can Profit From

U.S. Housing Market Flooded by Short Sales

Home sweet home has been anything but for scores of Americans these past few years, and the picture hasn't brightened much to date.

The housing market is still hurting and the foreclosure fiasco continues to loom despite record-low mortgage rates.

Homes in some stage of foreclosure accounted for more than one in four home sales during the first quarter of 2012, RealtyTrac reported today (Thursday).

Distressed properties that were either in default, scheduled for auction or bank-owned made up 26% of all residential sales during the first quarter. That was up from 22% in the prior quarter and 25% from the same period a year earlier, according to Thursday's data.

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Here’s the Deal with Gold Prices

Gold prices have slipped, and investors keep wondering how low they’ll go. Money Morning Chief Investment Strategist Keith Fitz-Gerald joined Fox Business’ “Varney & Co.” to discuss the factors keeping gold down. Fitz-Gerald said these two reasons are the main drivers behind lower gold prices. In this video he explains if those factors are long-term or not. He also discusses with host Stuart Varney how Europe may handle its debt crisis, how the strategies will further affect gold – and how the current market and economic statistics could influence election 2012.

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What's Next for Silver Prices

Silver prices got a boost yesterday (Wednesday), giving brief relief to their three-month downtrend.

The white metal rose on short covering and bargain hunting purchases. As gold touched on a new low for the year before rebounding, silver closed in on $27.983 for the July contract, up 19.2 cents.

But silver priceshave dropped in 16 of the last 21 trading sessions through Wednesday.

So why the volatility?

Here's what's weighing on silver – and why a price rally is still to come.

The Bears are Out

It hasn't been a pretty marketplace and as we enter the summer months.

We've seen Facebook fall flat with its IPO, questioned whether Greece will leave the Eurozone and asked if Spain is in more serious trouble than initially thought.

The troubles have weighed on silver prices. Silver spiked to over $35 an ounce in late February, but has since slipped back near $28 an ounce, where it started the year.

Just in the last month, the Global X Silver Miners ETF(NYSE: SIL) has fallen almost 19%.
The month isn't quite over yet and there are still hurdles for silver prices to face. The U.S. economic growth numbers just released Thursday showed first-quarter growth slowed to 1.9%, down from a previous estimate of 2.2%. The latest U.S. employment numbers will be released Friday.

This data combined will give a preview of what the Federal Reserve policymakers could hash out at their June meeting.

And should Spain ask for a bailout of Greek proportions, metals could drop in the short-term as investors run to the safety of the dollar.

But the long-term silver prices outlook remains bullish, as we told you a few weeks ago.

"The long-term bull market is still very strong," Charles Morris, who oversees about $2.5 billion at HSBC Global Asset Management, told Bloomberg News earlier this month. "Silver spends more time going nowhere than it does going up, but when it goes up it tends to do it very quickly."

Silver's next upside breakout has been forecast to come between $29 and $30 per ounce, where it's trading now.

What will help boost the metal higher?

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Gold Mining Stocks: Now is the Time to Buy

There are lots of reasons you should own some gold. Despite taking a recent breather, gold prices are still up by 139% in the last five years.

Even so, shares of gold mining stocks have suffered lately, hurt mainly by higher energy and exploration costs.

In fact, the stocks of the large gold miners have become nearly as undervalued as they were during the 2008 financial crisis.

The last time shares of these big gold producers were this cheap, they rallied by 283%.

At these levels, that means it's time to take a closer look at shares of big gold miners – while they are still a bargain.

Here's what you need to know…

The Gold Bull Market is Not Over

A number of factors point to higher prices for gold:

  • Real interest rates remain in negative territory. Sitting in cash right now is a losing proposition.
  • The austerity movement in Europe is being replaced with more fiscal easing. The European Central Bank may have to print trillions of euros of debt to keep the Eurozone intact.
  • The odds of more fiscal stimulus in China and the U.S. have increased, as two of the world's largest economies struggle to gain traction.
  • Despite healthy demand and rising prices, global production of the metal rose just 0.7% annually from 1999 through 2011.

Combined with aggressive gold-buying binges by China and other foreign governments moving away from the U.S. dollar, the stage is set for the price of gold to rally.

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Options Trading Strategies: Slash Your Risk and Make Money

If you feel like Alice in Wonderland when you start to look into options trading strategies, you're not alone.

Even so-called "experts" struggle with options. It gets even uglier when they attempt to bring it down to earth for their readers.

Yet, if anyone can do it, I can.

I've written six books about options, and have been trading options myself for more than 35 years.

It means that I have already made every mistake in the book so you don't have to.

So why should you learn about and invest in options?

Done right, you can use options to create a virtual cash cow – often quickly, and often with very little risk.

Options Trading in Action

Consider the case of the SPDR Gold Trust (NYSEArca: GLD). A year ago, GLD shares were trading for about $130.

Say you felt pretty confident GLD was going to go up in the next 12 months. You could have gone "long" GLD by buying 100 shares.

Of course, you'd have to be ready to plunk down about $13,000 for them. But if you had that kind of cash you would have done pretty well.

A year later, GLD was trading at $160, and your 100 GLD shares were worth $16,000. That's a nice 23.7% gain.

But you would have done even better if you had used options.

Let's say, instead, you bought one $135 call. (A "call" is just a bet on the price of GLD going up from $130; the same thing you're betting on when you buy the stock.)

A year ago, GLD calls were trading at $9.00. So you would have spent about $900 to initiate the trade. Yet by the expiration month, the price of the calls had risen to $28.00.

That means the price of the option "contract" you bought was now worth $2,800-giving you a 300% gain on the very same price move in GLD.

Now where I come from, 300% is much better that 23.7%. That's the power of options.

And there's more…

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Robotics Gives the Paralyzed a Miracle

When it comes to breakthroughs in the fast-moving robotics field, the mainstream media is once again bringing up the rear.

A few weeks ago, the major news outlets were abuzz with details about how two patients paralyzed from the neck down used their minds to control robots.

No doubt, this is a worthy breakthrough. On the other hand…

I first wrote about a similar case back in early January, four months before The New York Times picked it up.

In a story about life-changing gains in the tech sector, I told you about the case of Matt Nagle, a Massachusetts man whose life took a turn for the worse after being paralyzed from the neck down.

To his delight, he had learned to surf the Web, send e-mails, make a robot move its hand and play video games — all with the power of his own mind.

In fact, I got so much great feedback on that and stories like it, I decided to launch the Era of Radical Change.

I mention this not to brag, but to remind you that you really will learn about key trends in cutting-edge tech long before the general public if you take the time to subscribe.

And that's clearly true when it comes to robots.

Staying Ahead of the Curve in Robotics Stocks

Just two weeks ago I wrote to tell you how a new series of smart machines will have a profound impact on the world around us.

Here's what I said:

"Robots of all sizes are already capable of doing some very complex tasks: They can perform surgery, hair transplants, and even climb inside the human body – through the mouth – to "eat" stomach cancers."

You may recall that I also told you to keep an eye on Heartland Robotics, a startup based in Boston I believe is a good IPO candidate. The firm says it will produce a range of machines that will serve as "the PC" of robots.

And today, I'd like to tell you about another startup that's pushing the boundaries of the robotics revolution.

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EU Calls for "Banking Union" to Ease Eurozone Debt Crisis

Blame the tumultuous tumble in equities Wednesday on Europe.

World markets were shaken as worries over the Eurozone debt crisis, in particular the Spanish banking system, again rattled investor confidence.

The Dow Jones was down 160 points, the S&P 500 fell 19 and the Nasdaq lost 34.

Sending shivers through markets Wednesday was a statement from the European Central Bank (ECB) saying it had not been consulted on the bailout for Spain's No.4 bank Bankia, and that such a recapitalization could not be provided by the Eurosystem. Spanish lender Bankia announced last week it needs $23.8 billion in state aid.

Also weighing on markets was Spain's debt downgrade late Tuesday by independent ratings agency Egan Jones. The move sparked more questions about the ailing country's ability to fund bank bailouts that could balloon to some 100 billion euro.

A number of other Spanish banks have recently been downgraded by various rating agencies. The woes hanging over Spain and its sickly banking system shoved the euro down to a near two-year low Wednesday of around $1.24.

"I believe that the markets have not yet fully priced in a Greek exit, nor the full implications of a Spanish default – both of which remain distinct possibilities in my mind," said Money Morning Chief Investment Strategist Keith Fitz-Gerald. "Until they do, expect trading to be an unholy mess of rallies driven by hopes for further bailouts, and short, sharp declines driven by the absence of the same."

Now the EU has a new bailout plan.

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Good News for Natural Gas Stocks

Finally-encouraging news for beaten down natural gas stocks.

The fossil fuel welcomed words from the International Energy Agency (IEA) Tuesday that gushed about the boom in unconventional natural gas over the next two decades. The agency said the incoming supply increase would let the United States and other countries enjoy cheaper energy and shift the export reliance away from the Middle East.

IEA Chief Economist Faith Birol told Reuters that growth in shale and other new available forms of natural gas could mirror gains made in conventional gas in Russia, the Middle East and North Africa combined.

"Unconventional natural gas will fracture the status quo and will be a complete game changer with major geopolitical implications," Birol said.

Over the past years, high natural gas prices were a driving force behind new ventures into previously unavailable, unconventional gas reserves including tight-gas, shale gas and coal-bed methane resources.

But recently, ample stores and waning demand have weighed on natural gas prices, taking the commodity down to record low levels.

However, things are about to change.

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Gold Prices: Making Sense of the "Death Cross"

Gold prices have tumbled 16% since last summer and, more recently, suffered a "death cross" leading many investors to question whether or not gold's bubble has popped.

If you're not familiar with the term, a death cross is what it's called when the 50-day moving average of the price of a traded instrument – in this case gold – crosses the 200-day moving average from above.

I disagree.

I think that the 16% drop since last September is simply based on a corresponding decrease in speculative interest at a time when the dollar has become the best looking horse in the glue factory.

Traders are simply moving currencies as the euro comes apart.

This isn't hard to understand when you consider that the dollar and gold have an inverse relationship. If one rises, the other traditionally falls.

I don't expect that to last much longer.

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Oil Price Forecast: Expect Oil Prices to End the Year Higher

Forecasts for oil prices in the second half of 2012 and on into 2013 are varied, but there's one point on which virtually all agree: Oil prices won't be going down.

One reason is that oil prices have already dropped substantially in recent weeks.

In fact, oil futures – as measured by the July New York Mercantile Exchange (NYMEX) contract for West Texas Intermediate (WTI) crude – closed below $90 per barrel last week, the lowest level for an active contract since October 2011. That's down $17 a barrel since the beginning of May.

Two factors have contributed to the decline in oil prices:

  • A modest increase in U.S. crude supplies – up 3.8% in April from March levels and 1.5% from a year ago – primarily due to continued low demand as a result of the slower-than-expected economic recovery.
  • Increasing strength in the U.S. dollar – the global pricing currency for crude oil – due to safe-haven buying in response to continued concerns over Eurozone instability.

Oil Prices Continue to Climb

Longer-term, however, both of those situations should stabilize, and then reverse – meaning current oil price levels will likely serve as a base for a rebound in the second half of the year, continuing into 2013.

Even so, the leading "official" sources for oil-price forecasts aren't projecting major spikes, either.

The U.S. Energy Information Association (EIA), in its most recent report issued May 8, predicted prices for WTI crude will average about $104 a barrel for the rest of the year, and that costs to refiners for all crude – domestic and imported – will average $110 a barrel.

The WTI number is down $2 a barrel from March estimates, but $9 a barrel higher than the 2011 average, while the refiners' cost figure is up $8 from 2011.

The American Petroleum Institute (API), a trade organization of more than 500 oil and natural gas companies, didn't issue price forecasts for crude in its most recent (May 18) report, but noted that increased domestic production, slightly higher crude oil stocks (374.8 million barrels) and lower imports in April should serve to keep prices stable to modestly higher going forward.

API also expressed optimism that rising crude production in North Dakota, which hit 551,000 barrels per day in March, and a possible reversal of President Obama's rejection of the Keystone Pipeline project could keep price hikes in check for the remainder of the year.

Such optimism wasn't nearly as prevalent among many private analysts and industry commentators.

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