Archives for June 2013

June 2013 - Page 3 of 16 - Money Morning - Only the News You Can Profit From

Different Fed Chairman, Same Bad Monetary Policy in 2014

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One of these economic alchemists may likely assume the job of Ben Bernanke. If so, pray for us.

Last week, President Obama indicated that Federal Reserve Chairman Ben Bernanke will likely step down in January when his term ends. After taking office in 2006 under then-President George W. Bush, Bernanke has facilitated the greatest economic transfer of wealth from America's grandchildren to banks and foreign nations in the name of sustaining the Keynesian vision of the economic stimulus.

But with Bernanke's departure, it is unclear just who will take the reins of the Federal Reserve, and what policies they will seek to maintain or discard five years after the height of the financial crisis.

Here are the five top contenders that we expect to make Obama's shortlist for next Fed Chairman. And each one of them should give us a great deal of concern due to their commitment to the same tired economic theory and policies that they are convinced will eventually work if we just keep doubling down.

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Why We Won't See the End of QE for a Very Long Time

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When U.S Federal Reserve Chairman Ben Bernanke strongly hinted at a press conference last week that the end of QE was on the horizon, the markets went into a tailspin.

The more than $2.5 trillion that the Fed's bond-buying program – known as quantitative easing, or QE – has pumped into the financial system is credited with fueling the current bull market.

But while you can't blame investors for getting nervous at the thought of the end of QE, there's really nothing to worry about.

In fact, the Fed's policy-setting FOMC (Federal Open Market Committee) is now caught up in a trap of its own making – something known as a "liquidity trap." It happens when easy money policies like the Fed's zero interest rates and QE still fail to get people and businesses to spend money.

The trap is that you can't reverse the policy without discouraging spending even further, threatening to push the economy into recession (and spooking the markets, as we saw last week), while continuing it will remain ineffective.

"The biggest fear of the Federal Reserve has been the deflationary pressures that have continued to depress the domestic economy," Street Talk Live radio host Lance Roberts wrote in a recent column. "Despite the trillions of dollars of interventions by the Federal Reserve the only real accomplishment has been keeping the economy from slipping back into an outright recession."

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Why U.S. Home Prices Have Been on a Tear

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In another sign the housing recovery is genuine, home prices soared the most in more than seven years in April in 20 U.S. cities.

The S&P/Case-Shiller index, released today, climbed 12.1% from April 2012, marking the biggest year-over-year increase since March 2006, and rose 2.5% from March to April.

“The recovery is definitely broad-based," David M. Blitzer, chairman of the S&P's index committee, said in a news release. "Recent economic data on home sales and inventories confirm the housing recovery’s strength."

Experts cited an improving job market, low mortgage rates, high demand and a shortage of housing on the market.

Meanwhile, new home sales rose a bit less than expected in May but climbed a whopping 29% compared with May of last year.

All 20 cities in the S&P/Case-Shillert index, which includes metropolitan areas, showed year-over-year increases in home prices.

San Francisco posted the biggest gain, 23.9%, followed by Las Vegas, at 22.3%. Atlanta, Detroit, Los Angeles, Miami, Minneapolis, Phoenix, Portland, San Diego, Seattle and Tampa showed double-digit gains.

Homebuyers in Bidding Wars

Home prices in Dallas increased 7.4%; in Washington, D.C., 7.2%; and in Cleveland, 4.8%. The smallest increase was in New York, at 3.2%.

Even with the increases, home prices aren’t rising fast enough to price buyers out of the market. Indeed, competition for homes has led to bidding wars in some places, including Los Angeles, Boston, San Francisco, Seattle, Washington, New York, Miami and Phoenix.  

And home prices haven’t even approached levels seen during the housing bubble.

Celia Chen, an analyst with Moody's Analytics, told Money Morning that home prices still remain 26% below peak bubble levels.

“The recovery’s alive and well,” Jed Kolko, chief economist at the real estate site Trulia.com, told Money Morning. “Prices continue to rise, new home sales are up and delinquencies and foreclosures are falling.”

Higher prices have also rescued many underwater homeowners.

Kolko noted an extraordinary statistic: It’s cheaper to buy than to rent in the top 100 U.S. housing markets.

At the same time, the inventory of houses available for sale has begun increasing as higher prices have prompted more homeowners to list their homes and more homebuilders to construct new homes.

And one of the nation’s largest homebuilders, Lennar Corp. (NYSE: LEN) reported today it beat analysts’ estimates for the three months through May as prices and sales increased.

Lennar Chief Executive Officer Stuart Miller said on a conference call today he wasn’t too concerned about rising interest rates.

“Interest rates are moving higher in the context of economic improvement,” Miller said. “We’re looking at a supply shortage, so that means that even in the context of rising rates and a better economy, we’re likely to see price increases and rental increases.”

Last week, a new survey of homebuilder confidence from Wells Fargo Bank and the National Association of Home Builders reached its highest level since 2006, and housing starts climbed 6.8% in May and 28.1% year to date.

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How to Invest in Oil in 2013: The New U.S. Profit Plays

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The latest annual Statistical Review of World Energy from energy giant BP PLC pointed out how the U.S. energy landscape has changed in just a few short years – which changes how to invest in oil for maximum profits.

In the Review, BP said that the expansion of both oil and natural gas production in the United States was the fastest in the world in 2012.

In fact, U.S. oil production in 2012 grew at the quickest pace since BP began keeping track of the global oil scene in 1965.

The increase of about one million barrels per day was due, of course, to the exploitation of unconventional sources such as shale and tight oil.

Pair the increasing production numbers with where oil prices will be trading in the near term, and we get a clearer picture of how to invest in oil in 2013… here's why.

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The Massive Wave of Chinese Investment in the U.S. is Coming to a City Near You

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By Diane Alter, Contributing Writer, Money Morning

There's a new wave of investment occurring across the United States – and the "who" behind it makes this a very interesting story…

Faced with an economic slowdown at home, Chinese companies are pouring money into U.S. businesses at a record clip.

From energy to aviation to entertainment, Chinese investment in the U.S. swelled to a record $6.5 billion last year.

But that's just the beginning of this Chinese "invasion."

According to Rhodium Group, which conducts detailed tracking of Chinese investments in the U.S., new business investments are now on track to top that gigantic figure again in 2013.

"We are in the midst of a structural growth story that will transform the China-U.S. investment relationship from a one-way street into a two-way street," Thilo Hanemann of Rhodium told CNBC.

A major reason behind this investment trend: U.S. technological development.

A December 2012 U.S. Treasury Department Committee on Foreign Investment report said it "judges with moderate confidence that there is likely a coordinated strategy among one or more foreign governments or companies to acquire U.S. companies involved in research, development, or production of critical technologies for which the United States is a leading producer."

A finger wasn't directly pointed at China, but the inference was clear.

"Chinese companies are looking for management prowess and technology upgrades when they make acquisitions," Ben Cavender, a senior analyst at China Market Research Group, told The Wall Street Journal.

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Futuristic Quantum Computing Is Ready To Take Off

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A conventional, binary processor can perform some incredibly complex calculations at blistering speeds, measured in FLOPS: floating point operations per second.

The fastest "conventional" processor array running today is China's Tianhe-2, which has achieved speeds of 33.86 petaFLOPS. This is 33 x 1015 floating point operations per second. There are plans to achieve exaFLOP speeds within the next five years or so; 1 x 1018 floating point operations per second.

Are you still with me? Okay, take a breath.

These projects are usually undertaken by governments, and can be quite expensive. James Bamford reported that the U.S. National Security Agency, for example, is said to have requested an exaFLOP capable computer by 2018.

We can only wonder what they'll use it for…

But quantum computing takes all this output, all of this incredible performance, and turns it on its ear.

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How to Invest in Precious Metals in 2013

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Anyone thinking about how to invest in precious metals right now has been watching the plunging prices of gold and silver.

Both metals are firmly in bear market territory. By the end of last week, gold was down about 27% from its 52-week high of $1,803 and silver had cratered by a whopping 43%.

But the recent downward slide in the price of silver and gold has once again revealed to investors the most important fundamental fact about precious metals – they're incredibly volatile. Swings of 50% in value in a single year are not unheard of.

But the fact remains, there are a host of good reasons why you should know how to invest in precious metals and why they are important to a diversified portfolio.

Precious metals offer unique protection against inflation and insurance against financial or political disasters.

Because of their widespread industrial applications, they have intrinsic value.

What's more, precious metals have a low correlation to stocks and bonds — a small percentage in a portfolio can reduce volatility and risk.

And unlike the greenback, you can't print more of them.

But in-the-know investors also realize that gold and silver aren't the only precious metals on the block. In fact, there are a number of other options.

Here's how to invest in precious metals and where you should be looking for treasure right now.

Now is the Time to Buy the "New Gold"

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On May 15, Christie's auction house sold a huge diamond to the Harry Winston firm for $27 million, setting a new record price for a colorless diamond in the process.

And while diamonds have been a girl's best friend long before Marilyn Monroe crooned those words, it's always been tough for investors to get into the game. Diamonds are considered one of those esoteric fields; an area of investing too small, complex, and exclusive to bother with for most.

Let's face it, up to now, there's much more subjectivity in rating diamonds than gold. And that makes it more challenging for investors if they want to hold the physical asset.

But it's worth the effort: Historically, diamonds have proven themselves to be very price stable – with a growth kicker. What's more, technology is making standardization of gemstones easier, making valuations more transparent.

That means diamonds are becoming an increasingly popular store of value.

According to the Financial Times, between 1999 and 2011, three-carat diamonds have risen in value by 145% while five-carat diamonds have risen 171%, as measured by the Rapaport Diamond Trade Index. The thinking is the relative price stability of diamonds is due to the fact that there's little speculative capital in this sector, estimated by some at no more than 1% of the market.

What's an Investor to do in Markets like These?

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keep calm and invest on

Legendary businessman Steve Forbes once said, "Everyone is a disciplined, long-term investor until the market goes down."

It's challenging to have the fortitude to hold on to investments during a one-day carnage event like last Thursday. Everywhere you looked there was red on the screen, as U.S. stocks lost 2.5 percent, commodity equities lost 3 percent and gold declined 5 percent.

Gold stocks took one of the biggest blows, falling about 7.5 percent.

So what should an investor do after a day like Thursday?

Stay calm and invest on, as I believe there is opportunity in picking up what the bears left behind.

Here are a few ideas to ponder.

Gold

Gold fell below $1,300 on Thursday, and based on our oscillator data, the yellow metal is now in extremely oversold territory. On an annual basis, bullion is down 2.6 standard deviations, which is the worst reading over the past 10 years.

This is the opposite reading that gold buyers had in the summer of 2011, when it was up 2 standard deviations, or at the $1,900 level.

Last week, before this market event occurred, I said that gold could fall another 10 percent, but that there could be a 30 percent upside over the next 18 months. You can see the upside potential in the chart, as gold appears due for a reversal toward the mean.

Investor Alert commentary - U.S. Global Investors
click to enlarge

However, short-term financial gold traders may be discouraged from acting on this bullish sign, as the yellow metal is now even more expensive to trade. After last Thursday's huge sell-off, the CME Group, the largest operator of futures exchanges in the U.S., decided to raise margin requirements on gold.As of the close of trading on June 21, the minimum cash deposit for gold futures will increase 25 percent to $8,800 per 100-ounce contract, reports Bloomberg.

This is the second increase in only three months. In April, the CME raised the initial gold margin requirement, which is what triggered the short-term liquidation out of financial gold ETFs and futures.

This isn't a typical move for the CME. Usually, the firm raises margins when prices are rising rapidly to cool down speculation or lowers margin requirements in an attempt to boost liquidity.

In contrast, cash buying of gold is increasing, and this is good news for two reasons: 1) Retail gold investors are not leveraged like futures gold traders, and 2) their buying tends to be stickier.

As we have always suggested, it is prudent to have a 5 to 10 percent exposure and to view gold as a long-term investment. It's important to rebalance annually or when the oscillator shows that gold has moved 2 standard deviations.

Why This Stock Market Sell-Off Will Continue

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A global stock market sell-off sent the Dow Jones Industrial Average down more than 200 points Monday in morning trading.

Money Morning Capital Wave Strategist Shah Gilani joined FOX Business' "Varney & Co." to answer the big question: Will the stock market sell-off keep going?

Watch Gilani's full interview to find out how two huge factors will keep pushing down markets that have been falling since Ben Bernanke triggered triple-digit losses last week.

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