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Why Gold Bears Will Soon Find out They Are Wrong
There has been increased volatility in gold bullion prices as investors run from precious metals. According to data compiled by Bloomberg, gold bullion’s 60-day historical volatility reached 28.9% on June 13. This was the highest level since December of 2011. Average volatility over the past five years for gold bullion prices has been around 20%. (Source: Bloomberg, June 14, 2013.)
As the volatility continues in gold bullion prices, the fundamentals remain strong. Actually, demand for gold coins is unprecedented right now.
Aside from individual investors buying gold bullion, central banks continue to diversify their reserves into gold bullion as fiat currencies fail to protect their wealth. In spite of the decline in gold bullion prices, as has been well documented in these pages, central banks form Russia, Turkey, and Kazakhstan continue to add precious metals to their reserves.
Bullish stock advisors are forgetting that we are standing on the cusp of a global economic slowdown—an event that bodes well for gold bullion. It may be difficult for my readers to envision right now, but with the recent exodus by investors out of U.S. bonds, once the stock market starts declining, there will be few other “stores of wealth” for … Read More
Truth Behind 1Q 2013 Earnings and What’s Next for Stocks
This shouldn’t be a surprise to the readers of Profit Confidential.
According to an analysis done last week by the Wall Street Journal, in the first quarter of 2013, corporate earnings growth of companies in the key stock indices like the S&P 500 wasn’t really due to companies doing better. Rather, “research tax breaks” are what pushed 1Q13 earnings up for many S&P 500 companies. (Source: Wall Street Journal, June 14, 2013.)
Consider Intel Corporation (NASDAQ/INTC). The company spent $10.1 billion on research and development, which essentially lowered its effective tax rate from 28.2% in the first quarter of 2012 to 16.3% in the first quarter of 2013! This bolstered Intel’s corporate earnings.
Other big names in the S&P 500 like Google Inc. (NASDAQ/GOOG), Abbott Laboratories (NYSE/ABT), The Boeing Company (NYSE/BA), Yahoo! Inc. (NASDAQ/YHOO), and Xerox Corporation (NYSE/XRX) were able to use “research tax breaks” to also boost their corporate earnings.
While this technique helped companies boost 1Q13 earnings, profit expectations aren’t so rosy going forward.
Expectations for corporate earnings for the S&P 500 companies continue to drop. At the end of the first quarter (March 31), second-quarter corporate earnings were forecasted to grow at 4.5%. Now, corporate … Read More
Action in Dow Jones Transports, Utilities Signaling Caution
The equity market and other capital markets are gyrating on the rise in 10-year Treasury yields. There’s been a lot of unusual movement in currencies as well.
Speculation regarding what the Federal Reserve is going to do about quantitative easing and the lull between earnings seasons are definitely factors.
There is always equity market uncertainty in the weeks before the end of a quarter (though the Dow Jones industrials have held up well). Investor sentiment reflects the collective ambiguity of whether earnings will hold up. In a sense, there’s not enough data to keep equity market speculators happy with their bets. When speculators can’t justify their positions, capital markets get cranky.
Both gold and oil prices have been bouncing off the weaker U.S. dollar. There’s always churn before a quarter ends.
I repeat my view that an equity market sell-off could occur at any time and that investors who are long should not be surprised by some pronounced downside (I wouldn’t sell Dow Jones blue chips).
The correction that both Wall Street and many investors expected did not transpire. The willingness of institutional investors to be buyers has been robust.
The equity market was led this year by a … Read More
Small-Cap Stocks the Place to Be—If Economic Growth Is Real
Make no mistake about it. The wealth in America continues to rise as it is in other parts of the world. Fueling the creation of wealth has been the easy monetary policy, which has essentially pushed up the stock market to its record-highs.
Now the economy is also on the mend; albeit, it has largely been driven by the lure of easy money. Yet growth is growth. At this juncture, the growth, while somewhat muted, is there.
Cyclical stocks are faring well and will continue to do so as long as the economy continues to grow. These companies include the likes of General Electric Company (NYSE/GE), Schlumberger Limited (NYSE/SLB), and Cisco Systems, Inc. (NASDAQ/CSCO).
Yet to make the real big gains and increase the overall return of your portfolio, small-cap stocks are the place to have some of your capital working. The small-cap Russell 2000 index is leading the pack so far in 2013, up a healthy 16.25% as of Wednesday.
The reason is that small companies tend to perform well out of a recession and during economic growth.
The stock market has been seeing some shifting of capital into defensive dividend-paying stocks (read “Investors Down-Shift Risk, Search for … Read More
Housing Recovery Already Comes to an End?
The housing market simply isn’t improving at the rate many in the mainstream media are telling us.
Home prices are still significantly lower than what they were during 2005 and 2006. On its own, there is no housing market recovery. All we are witnessing is the mere reflection of easy money provided by our central bank.
As I often write, to see a real recovery in the housing market, we need to see first-time home buyers active in the market. Unfortunately, they are not involved.
In April, first-time home buyers accounted for only 29% of all existing home purchases in the U.S. housing market. This was three percent lower than the previous month and 17% lower than April 2012, when first-time home buyers accounted for 35% of all home purchases. (Source: National Association of Realtors, May 22, 2013.)
According to a survey by Fannie Mae, last month, 40% of Americans said it’s a good time for them to sell their home. In April, the survey showed only 30% thought the same thing, and in the same period a year ago, this number stood at 16%. (Source: Realtor Magazine, June 11, 2013.) Hence, we are going to see more listings … Read More
Global Slowdown Accelerates as Smaller Nations Witness Export Slump
My advice: if you want to know what’s happening in the global economy, do not look to the key stock indices. They are misguiding investors into believing all is well, while the global economy stands on the verge of an economic slowdown.
In these pages, I have written about major economic hubs in the global economy, namely China, Germany, and France, going through an economic slowdown. But now the smaller countries are flashing warning signs as well.
India grew at the slowest pace in a decade in its fiscal year (ended March 31, 2013). The Central Statistical Office reported that production in India at factories, in utilities, and at mines only increased by two percent in April from a year ago. In March, it increased 3.4%. (Source: Bloomberg, June 12, 2013.)
The troubles for the global economy don’t end there.
In April, Malaysia reported its trade surplus fell to the lowest level since 1997. The country’s exports to the global economy surprisingly declined 3.3% from a year ago. There are now fears that Malaysia can very well run its first trade deficit in 16 years. (Source: Reuters, June 12, 2013.)
Exports from the Philippines fell 12.8% in April … Read More
Breakdown: U.S. Economy and Its Cycles in 18 Brief Points
In a fascinating work on long-run economic cycles, J. Anthony Boeckh’s book The Great Reflation offers up some poignant research on the U.S. economy and its cycles.
The Great Reflation is a non-political, historical breakdown of inflation, monetary and fiscal policies, interest rates, and long-wave economic theory. It was completed in 2010 and made several predictions on the U.S. economy that have turned out to be correct so far.
Boeckh, former publisher of the Bank Credit Analyst, delves into past financial manias, asset inflation bubbles, asset allocation for the aftermath, the U.S. dollar decline, commodities, and the monetary future of the stock market and the U.S. economy.
Here is a summation of Boeckh’s observations:
1. The global financial system will always remain flawed and subject to price inflation and bubbles, so long as it is based on fiat paper money.
2. Before 1914, most Western countries had a monetary regime that legally restricted central bank money creation based on its holdings of gold.
3. Average interest rates fell throughout the 100 years leading up to 1914.
4. In the absence of a financial system based on discipline and restraint, all anchorless fiat money systems (especially the U.S. economy) are destined … Read More
Buying High the New Winning Investment Strategy?
When I evaluate potential stocks to trade, not only do I examine how well the company has done and delivered, but I also look at the stock’s chart potential and technical analysis.
In fact, I often will screen stocks based on my technical analysis system, and from there, I’ll take a closer look at the company’s underlying fundamentals. But the strategy I use for day trading and swing trading differ from the process I employ for longer-term buys.
For trading, I tend to rely on technical analysis more than I do for longer-term investments.
Stocks that I really like to look at are those trading at their 52-week highs. (Read “Denny’s Serves Up Grand-Slam Returns.”) Some of you might ask why I would bother to look at stocks that have already eclipsed their 52-week highs. The reason is that these stocks are trading at their highs, because they are delivering results to Wall Street. As a side note, I also look at stocks near their lows, but these are predominately viewed as contrarian picks.
An excellent example of a stock at a 52-week high that I suggested readers keep on their watch lists recently was Mannkind Corporation … Read More
Why There May Be an Insatiable Appetite for Chinese IPOs
The Chinese are coming! Well, not really, but we did see the first Chinese initial public offering (IPO) of the year list on an U.S. exchange yesterday and only the third Chinese IPO since 2011. The pipeline has dried up from the 60 or so Chinese IPOs listing in the U.S. from 2008 to 2011. And whether the flow will start again is questionable, as I doubt it will happen.
China-based shopping center LightInTheBox Holding Co., Ltd. (NASDAQ/LITB), an online seller of apparel and other household goods to the world market, is the top Chinese online retailer as far as sales to customers outside of its country’s borders. The company, sometimes seen as the little “Amazon.com” of China, was started by Alan Guo, who was previously an executive at Google China. The company priced 8.3 million shares at $9.50 (the mid-point). The deal was hot due to the absence of IPOs coming from China. The stock surged 34% to an intraday high of $12.69 prior to settling at $11.61 for a market cap of about $470 million.
The strong buying in LightInTheBox indicates the demand for Chinese IPOs that are deemed to be trustworthy. The other two … Read More
Indian Government to Banks: Stop Telling People to Buy Gold
India, the biggest consumer of gold bullion, is witnessing over-the-top demand—to the point where the government is trying to curb demand.
The Finance Minister of India said last week, “Banks have a role to play in dampening the enthusiasm for gold. I think the RBI [Reserve Bank of India] has advised banks that they should not sell gold coins.” He added, “I would urge all banks to please advise their branches that they should not encourage their customers to invest in or buy gold.” (Source: “P. Chidambaram hints banks likely to stop gold coin sales to curb demand,” The Indian Express, June 7, 2013.)
The appetite for gold bullion by Indian consumers has forced its government to increase the import tax on the yellow metal to eight percent—it has increased this tax rate twice in the past six months!
But the Indian economy isn’t the only one experiencing a surge in gold demand.
The acting director of the U.S. Mint, Richard Peterson, was quoted last week saying, “Demand [for gold bullion] right now is unprecedented…” (Source: “US bullion coin demand still at unprecedented levels-US Mint Chief,” Reuters, June 5, 2013.)
Looking at the sales of gold bullion coins … Read More
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