Goods priced in gold

Came across some interesting charts regarding various items priced in Gold, instead of US dollars. It really shows the ability of gold to maintain purchasing power, and why gold has always been considered real money for centuries...unlike fiat money such as US dollars. Note how prices for certain commoditities oscillate around a mean, and generally remain stable for years.

First read the top most article on the following link before looking at the charts below: http://pricedingold.com/

Yale college expenses priced in gold: http://pricedingold.com/college-tuition/

Crude oil (Note that crude oil in US dollars went from about $20 to $148 from 2000 to 2008, but the price in gold never changed much. Also note the lower chart outlining the price of oil from 1950 to present): http://pricedingold.com/crude-oil/

Dow Jones: http://pricedingold.com/dow-jones-industrials/

US GDP: http://pricedingold.com/us-gdp/

USD, Euro, Canadian dollar, Australian dollar: http://pricedingold.com/cad-vs-usd/

Bank of Korea joins the gold bashing bandwagon

The Bank of Korea, diversifying foreign-exchange reserves away from a falling dollar, said that additional gold holdings aren’t attractive as most other central banks aren’t buying and the metal offers no cash returns. “There’s an illusion in gold,” Lee Eung Baek, head of the bank’s reserve-management department, said in an interview. “We follow the big trend. Gold isn’t the trend. Out of more than 200 nations, how many countries have bought bullion?”

Full article link: http://www.bloomberg.com/apps/news?pid=newsarchive&sid=ag2cRG2_O1Jk

Sounds like another Central Bank head once again makes a disastrous investment decision. Let's not forget how the head of Britain's Central Bank sold its gold holdings at around $250/ounce at the beginning of this decade, right at the bottom. If gold is not the big trend, then why is it virtually the only asset class out there touching new records? It has risen consistently every year for the last decade from $250/ounce to $1150/ounce. If this is not the big trend, then I don't know what is. Let Lee Eung Baek continue to hold on to the 'big trend' of ever depreciating US dollar reserves. Or maybe the 'big trend' is the 'safety' of the S&P 500, which is no higher than it was 10 years ago. Some Central Bankers will never learn.

Top Wall Street Economic Forecasters

Gold most definitely NOT a bubble

Iacono claims gold is currently not a bubble. They are very right. Just look at the charts. This is not the first time gold has shot up so fast. And each time in the past, there have been plenty of nay-sayers calling it a bubble.

http://www.iaconoresearch.com/PublicArticles/public_articles.html

Also, the following chart from Agora Financial speaks volumes. It shows how in spite of steadily increasing expenditure on gold exploration over recent years, there has been a equally steadily decreasing rate of new gold discoveries.




Factors supporting much higher future prices in gold:

1) Heavy buying by Central Banks around the world. Central Banks are now net buyers, after being net sellers for the last 10 years. David Rosenberg today called for a target price of $2600 based JUST on China buying enough gold to sufficiently diversify its reserves. This is not considering the heavy buying other Central Banks around the world are bound to do.

2) Peak gold production has been reached. This is confirmed by both the above chart as well as an admission by a leading gold mining company last month.

3) Money printing by Western nations. And I anticipate this getting much worse in the future, particularly in the US and UK, as deficits spiral out of control and governments seek to pay the future unfunded liabilities- which by the way are mind boggling in their size. A currency crisis is bound to unfold and people will flock to real money (gold) at an accelerated pace.

All this well take gold to many thousands of dollars per ounce. Eventually, there will be a bubble, and this will manifest in the form of a "mania", just as other bubbles have. Only once there are lines of people waiting to buy gold, and when more people than not find it 'normal' to own gold, will there be a bubble. That would be the time to sell. But most definitely not now. As Marc Faber recently pointed out, gold at these levels (currently around $1200/ounce) is very likely more "inexpensive" than it was at $250/ounce in 2001, considering the fundamentals of the economy we live in;

Friedrich Hayek quotation- food for thought

Austrian School economist Friedrich Hayek, in his book 'Monetary Theory and the Trade Cycle', London, 1933 said "....to combat the depression by a forced credit expansion is to attempt to cure the evil by the very means which brought it about; because we are suffering from a misdirection of production, we want to create further misdirection - a procedure which can only a lead to a much more severe crisis as soon as the credit expansion comes to an end."

From http://www.ritholtz.com/blog/2009/11/cramer-people-like-overpaying/

By Rick Ambrose - November 22nd, 2009, 7:30PM

(CCN ­ Englewood Cliffs NJ)

With The Dow at new highs of 10440, CNBC¹s resident revisionist historian Jim Cramer encouraged what remains of his audience To “Buy! Buy! Buy!” recommending the purchase of Williams Sonoma (WSM $22) who sells over-priced culinary gadgets that few actually need. “People LOVE over­paying for things!” he exclaimed.

The Carnival Barker host of CNBC’s “Mad Money,” Mr. Cramer’s assertion has a solid basis in truth for those who listened to him. His most notable “Buy” recommendations have been Sears Holdings (SHLD) at $197 ­down 60%, Google (GOOG) at $700 ­ down 20% and the almost daily reiteration to “Buy” natural gas stocks like Chesapeake Energy (CHK) at $43, which currently
trades for half that at $21. “Hey!” he told a befuddled caller “If you liked the stock at $43, you’ve got to be just nuts about it at $21!”

Coincidentally, Nielsen reports that his viewership has moved in lock-step with his recommendations, and is also down 50%.

Cramer remains his own biggest fan despite studies which show his picks have actually underperformed the markets and are no better than those chosen randomly by a chimpanzee.

Cramer’s most notable calls have been the “Buy!” recommendation of Bear Stearns at $65 which fell to $30 and then $2 the following week, before rebounding to $10. His call of the “market bottom,” which records show he made at 13,000, 12,500, 11,800, 10,000, and 9,000 before advising viewers to get out of the markets at 7900. His revisionist claim that he called the actual bottom at 6500 cannot be verified in print or on tape, and a $15,000 reward posted by a former follower for just such evidence remains unclaimed.

Apparently feeling better than a few weeks ago when he advised viewers to exit the market at 9100, Cramer extolled “I feel really good about the market here” as the Dow peaked for the day.

Meredith Whitney calls for Double Dip Recession

Bob Farrell's "10 Market Rules to Remember"

Bob Farrell’s (Merrill Lynch chief market strategist from 1967-1992) 10 Market Rules to Remember
1) Markets tend to return to the mean over time.
2) Excesses in one direction will lead to an opposite excess in the other direction.
3) There are no new eras — excesses are never permanent.
4) Exponential rapidly rising or falling markets usually go further than you think, but they do not correct by going sideways.
5) The public buys the most at the top and the least at the bottom.
6) Fear and greed are stronger than long-term resolve.
7) Markets are strongest when they are broad and weakest when they narrow to a handful of blue chip names.
8) Bear markets have three stages — sharp down — reflexive rebound —a drawn-out fundamental downtrend.
9) When all the experts and forecasts agree – something else is going to happen.
10) Bull markets are more fun than bear markets

Rosie on factors that could propel gold to the sky

David Rosenberg: This Is How We Get To $2,750 Gold

Another reason to be bullish on gold is the recurring trade spats. Indeed, this is good news for the commodity complex as security of supply resurfaces — see China Attacks U.S. in Fresh Trade Spat” on page 2 of the weekend FT. If it’s not Chinese-made tires fingered by an increasingly protectionist U.S.A. one day, it’s steel pipe the next. This latest anti-dumping measure by the United States is facing a severe rebuke, as per the press reports, in China.

In addition to these trade protectionist actions, there is also the matter of more stimulus measures being undertaken in a mid-term election year at a time when the Treasury is expanding its debt issuance to new records right across the maturity spectrum. All anyone needs to do is have a look at the article Congress’s Blank Check For Housing in the weekend WSJ — to see this happening at a time of 10% budget deficit-to-GDP ratios, had indeed become a bottom-less fiscal pit.

Since the USA will not default, not raise taxes nor cut spending, the only logical recourse will be to print vast sums of U.S. dollars to fund this surreal foray into deficit finance. In other words, reflate. As we keep on saying, under Dr. Bernanke’s tenure, the monetary base has risen twice as much as nominal GDP has and the two lines continue to diverge. At the same time, gold production peaked a decade ago. It’s all about scarcity of supply, and as Sri Lanka’s central bank just reminded us, and India before that, there are buyers with deep pockets lining up to diversify into bullion. Here are the ‘what if’ realities stack up:

• If India were to lift is gold share of FX reserves from 6% to 20%, where it was during the strong U.S. dollar policy days of 15 years ago, we estimate that gold would go to $1300/ounce.
• If China were merely to copy what India just did and raise its share to 6%, then gold would go to $1,400/ounce, based on our in-house analysis.
• If the USA were to go back to a 40% ratio of gold reserves to money supply (using the monetary base), where it was a century ago when the Fed was first created, from 17% currently, that would equate to three years’ supply of bullion, and alone take the gold price up to $2,750/ounce, based again on our research on price sensitivities to central bank buying activity.

Now gold is in a secular bull market and by no means are we suggesting that everyone line up at the vaults right this second — for the time being, it is too much front page news and a crowded trade, so it won’t hurt to wait for a pullback and get in at better prices (as an example, see Inside the Global Gold Frenzy on the front page of the Sunday NYT business section).

You see, when Bob Farrell wrote “The 10 Market Rules to Remember” he made sure that they were interesting reading and in doing so, some people get a laugh out of Rule Number 9 (“When all the experts and forecasts agree, something else is going to happen”) and Rule Number 10 “Bull markets are more fun than bear markets”). Nevertheless, they are just as important as the other eight rules. The obvious reason why Rule 5 is important (“The public buys most at the top and least at the bottom”) is that it also captures the inverse relationship between sentiment and the position of the market (ie, bullish sentiment peaks when the market tops and turns down and bearish sentiment peaks when the market bottoms and turns up). All that “agreement” adds enormous credibility to conventional opinion, just when it is most important to envision and prepare for the contrary. Lately, (you) have been experiencing shock at the policy responses by the U.S. government relative to the credit crisis and economic slowdown. Policies that encourage increased indebtedness by households and businesses are combined with massive deficit spending and Federal Reserve balance sheet expansion and the latter particularly, has enormous inflationary implications while exerting downward pressure on the value of the U.S. dollar. The problem with this understanding is that most everyone agrees.

To wit: According to Consensus Inc., bulls on the U.S. dollar are currently at 28%. Bulls on Treasury bonds are currently at 59% after hitting a low of 21% in early June when rates peaked in this cycle. Bulls on gold are at 78%. Bulls on the stock market are at 74% and they haven’t been that high since October 2007. It has become a crowded trade, and something very contrary to the expected outcome is likely to

occur, at least over the near term.
Walter Murphy, our favourite technical analyst, expects a substantial rally in the U.S. dollar and a decline in gold over the medium term, even if those moves are counter-trend. He thinks that the war is on inflation, but the battle is deflation and this is a bear market rally in stocks. We have said repeatedly that it seems too early to call for an economic expansion with so much unfinished business in the process of household balance sheet repair. And, keep in mind that the deflationary forces emanating from the household are much greater than the inflationary forces associated with government stimulus, at least so far.

GDP Report

Yesterday the Department of Commerce reported that GDP grew 3.5% in the latest quarter, after four previous consecutive quarters of contraction. The market cheered the news and the Dow jumped a massive 2%. However, as often happens, the market is not always justified in its reaction to news releases. Iacono Research pointed out that when taking a closer look and disecting the number, it is not very impressive. In fact it is highly deceiving.

Three significant factors- personal consumption, residential construction, and inventory change- comprise the majority of the expansion. We all know how heavily these three factors have depended on government stimulus. The increase in personal consumption was primarily due to the Cash For Clunkers program- something that was a one time short term boost. Residential consutruction is massively subsidized by the government. Considering the success in keeping interest rates low, government tax credits and so on, it is no surprise that this sector also received a boost. Inventory changes too are a short term phenomenon.

So taking these three factors out of the equation would actually turn the 3.5% expansion into a -0.3% contraction. The conclusion is that it would be highly unwise to use yesterday's GDP report as an affirmation of improving future economic prospects.

Strong Indications of Market Top

Multiple pieces that would indicate a very likely top in the market seem to be converging. There have been a couple of instances in the past few months of what would look like a possible top in the market, but after a swift reversal the market has continued it's stimulus-driven rally higher. However we now have a majority of factors all pointing to what could be the start of another downleg in this far over-extended market.
Financials and Real Estate, the two most critical factors underpinning the foundation of the U.S. economy- both of which have moved up most sharply during this rally- are both faltering. Both indices (KBW Bank Index and Dow Jones U.S. Real Estate Index) have recently turned bearish from a technical perspective as illustrated by the charts below.












The Nasdaq and S&P both have broken the 50 day Moving Average for the second time this rally. The first time this happened was in early July, when what looked like a highly bearish picture for the overall market quickly turned bullish again. Could this be a more convincing top formation?



Emerging Markets too have succumbed to the bearish technical forces.

Stocks 'Overvalued By At Least 20%- Rosenberg

http://www.cnbc.com/id/33490922

The stock market has become overheated since exploding off its March lows and could be in for a strong correction, economist David Rosenberg told CNBC.

"It is overvalued by at least 20 percent," Rosenberg, formerly chief economist at Merrill Lynch and now with Gluskin Sheff, said in a live interview. "But it comes down to what your view in corporate earnings (is) going to be. By the time you're up 60 percent from any egregiously oversold low, you've already got the earnings recovery."

Quick thought on the current state and future of capitalism

Capitalism is in trouble. But not because of what it is, but rather because of what it is perceived to be. Too many people today blame the crisis on capitalism, when in reality it has been the government's butchering of capitalism that has created the problems. Gross government intervention in an attempt to control the natural business cycle, fight recessions, inflate credit bubbles, and artificially postpone economic contractions has brought us to the brink. A collapse is definitely inevitable and the worst is still ahead of us. The depression that should have been allowed to run its course and cleanse the imbalances and malinvestments in the system (such as an overbloated finance sector) might have been postponed for now, but it will only come back and attack us with a vengence some point in the future...and this could be the final nail in capitalism's coffin, once politicians and the public once again resort to blaming "speculators", "greed", and capitalism. It's a Marxist's dream come true. Currently the economy is on government life support, and the government has become the final "safe" haven- the only entity left that is capable of artificially and temporarily shielding the economy from a severe depression (more recent safe havens manifested themselves in the form of the Nasdaq bubble, which collapsed in 2000, and the housing bubble, which collapsed in 2007. Once the government runs out of ammunition and oxygen, something inevitable since a flawed and dishonest system of debt-sustainence can only last so long, the ultimate collapse will occur.

Keep close eye on developing EEM triangle wedge

Investment opportunities in Gaza!

A bloomberg article today talked about an amusing yet unfortunate state of affairs in the limited investment sector of the Gaza Strip. Does not involve AK-47's shops or olive harvesting- but illegal tunnel systems used to smuggle goods. "Investors" put millions of dollars into building these tunnels but are yet to see a return. Full article at http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aFLJhn4jQA3k

Oct. 7 (Bloomberg) -- Investment opportunities are rare in the Gaza Strip. So when Nabila Ghabin saw one last year, she pawned her car and jewelry and put $12,000 into a network of tunnels that brought in supplies smuggled from Egypt.
She was one of about 4,000 Gazans who gave cash to middlemen and tunnel operators in 2008 as Israel blocked the overland passage of goods. Then Israeli warplanes bombed the tunnels before and during the Dec. 27 to Jan. 18 Gaza offensive and the investments collapsed.
Now investors, who lost as much as $500 million, want their money back from Hamas, which runs Gaza. Hamas Economics Minister Ziad Zaza says about 200 people were taken into custody in connection with the tunnel investments; most have been released. Hamas is offering a partial repayment of 16.5 cents on the dollar using money recovered from Ihab al-Kurd, the biggest tunnel operator.
The imbroglio over the 800 to 1,000 tunnels has deepened Hamas’s decline in public opinion in Gaza and highlights the Wild West nature of the underground economy that supports this jammed enclave of 1.4 million people.

Another leg up in the markets?

There has been a relatively strong inverse correlation between the US dollar and the markets, particularly commodities. Just when it looked like the USD might be turning bullish again (thus bearish for markets), it turned back down over the last couple of days. It was unable to breach the support level (blue line), making it the fourth failed attempt since the beginning of the rally in March. A turning point in the USD would need this support level to be breached, and that might signal a more definitive top in the market.

Rosie on the market rally

David Rosenberg had another piece up today. I took out an excerpt that highlights the irrationality of this current market rally and why a correction is long overdue:

"To think we can have a 60% rally from the lows in six months and believe that somehow this is normal – please. By the time the market is up 60% from any low, it usually is up that amount in three years, not six months; and over 2 million jobs have been created. This is the first time the market has rallied this much with the economy shedding 2.5 million jobs."

Full article is at: http://www.zerohedge.com/sites/default/files/Lunch_with_Dave_100209.pdf

Good piece from "Rosie"

Good piece from David Rosenberg (former Merril Lynch Chief Economist)- I always enjoy reading his insightful, albeit very bearish, pieces. In this one he analysis the prospects of commodities, Asia, and does a good comparison of Canada vs. U.S.

http://www.zerohedge.com/sites/default/files/Special_Report_TripleC_092509.pdf

Japan (EWJ) breaking down

All three of the indicators I follow (EMA, MACD, and CCI) are flashing sell signals for EWJ. Further, the chart has broken support both on the short term chart and long term chart. Might be a time to consider buying EWV (Ultrashort Japan ETF).

Emergin Markets Index (EEM) triangle wedge

Watch EEM closely. A break below support could be a time to short. Market looking quite 'toppy' at this level.

Another triangle wedge in China (FXI).

A break below support can signal a sharp downward correction. Also note the double top formation- a bearish sign.

Beginning of a breakdown in oil prices?

Note the clear "triangle wedge" pattern formation. In the previous two blog posts, Wilbros (WG) and GLD both had huge breakouts out of the triangle after running out of space to oscillate between ceiling and floor. With today's 5% drop in USO, it could be the beginning of a break to the downside in oil prices. If this is the case, SZO (short oil ETF) could be a consideration. Or DTO (double short oil ETN) for more aggressive speculators.

Willbros breakout

GLD

Note Gold's breakout

USO approaching decisive point

Oil ETF USO is approaching a decisive point at the end of the triangle wedge. The next few days should see a significant breakout to the upside or downside.

Trying to micro-analyse the golden question about Inflation vs Deflation

A good analysis from www.worldofwallstreet.us about how the arguments of the most prominent inflationist and deflationist pair up against each other. Both have very good arguments and only time will tell who emerging correct.

Best Of The Podcasts: Prechter Vs Schiff (Deflation vs Inflation), The Puplava Interviews
http://www.financialsense.com/fsn/main.html
Jim Puplava has posted two different interviews over the last two weeks giving the leading deflationist and leading inflationist a chance to clearly present their views and supporting evidence. I've just listened to both of these interviews pretty carefully.
Here's a summary as I heard it:
Prechter's key point is that there is an ocean of unpayable debt which must result in a deflationary collapse and depression (huge unemployment, big hit on the standard of living, etc.).
Schiff agrees that there is an ocean of unpayable debt, but disagrees on what the outcome will be. He expects a dollar collapse and an inflationary depression (huge unemployment, big hit on the standard of living, etc.).
So, there is a lot more agreement between the “deflationists” and the “inflationists” than you would think.
Prechter claims that the creditors will not allow the Federal Reserve to “print its way out of the debt” and that the key evidence for this is that the Fed has tried really hard to keep from doing anything to really, really tick of its creditors.
Schiff claims that the Federal Reserve will keep “printing debt” until the creditors refuse to buy any more and that is when the printing goes into high-gear and there is a currency collapse (dollar plummets) and the inflationary depression really kicks in.
Schiff claims that the government and Federal Reserve have been printing money and causing inflation non-stop for decades and there's nothing to stop them from continuing and that there are very powerful reasons for the government to continue including:
Allowing the government to spend money without having to raise taxes.
Inflation allows the government to tax assets (when sold) which have not gone up in value (for example when you sell a house).
Inflation automatically drives tax payers into higher brackets increasing their tax burden.
I find Schiff's argument here is pretty compelling.
Prechter claims a major shift has taken place in the last year with credit contracting and a major change attitude to avoid debt. Prechter claims the amount of monetization so far is puny compared to shrinkage in the amount of credit outstanding and that even if all of the bad debt was replaced with 100 dollar bills it would not create inflation because it would just replace what was formally in place.
I find Prechter's argument pretty weak here because the replacement dollars would be chasing fewer goods (as a result of economic distortions) resulting in price inflation.
Here's my observations:
Prechter is an man enthralled by his grand idea of a cyclic approach to history based on waves of mass mob attitude. He paints everything as black and white (e.g. these guys at the Federal Reserve are completely powerless and just follow the trends of cyclic history). At the core of his thinking is his cyclic thinking, not any kind of argument based on specific data. He can't imagine any way he would be wrong and requires 5 years for his ideas to be tested. This puts me off. I can buy an idea that cycles are significant, but not that they are overwhelmingly the most important thing that dominates all other considerations.
Schiff's outlook seems to be more based on data and natural reasoning about cause and effect and is more in continuity the last few decades experience. Prechter has been more accurate on what has happened the last 18 months or so with Schiff having been wrong short-term about the dollar and inflation.
Neither seems to understand why USA creditors (China, Japan, etc.) keep buying USA debt and neither has a grip on what will trigger their stepping back and yet this is the key to the current situation and when/if it will change suddenly.
So to my mind, there is no clear winner of this controversy right now, although I favor Schiff's outlook.
What's next?
We are going to be at a really, really interesting point around the end of this year and I see two really big factors that should put their ideas to the test:
Federal Reserve funds for monetizing debt runs out in October, I believe. They will then either have to:
Stop buying treasuries and Fannie Mae / Freddie Mac debt which may very well cause interest rates to launch and trigger another major contraction which results in the dollar rising in a flight to safety. If this happens Prechter is proved right.
Announce another round of monetization and have the creditors belly ache but keep on buying treasuries. If this happens the jury is still out.
Announce another round of moneitization and have the creditors refuse to keep buying treasuries resulting in a dollar collapse. If this happens Schiff is proved right short term.
Secretly continue monetization (with perhaps a delayed reaction).
Year over year commodity prices start rising in Q4 (unless there is another crash) and the CPI should stop falling and start rising. The U.S. Dollar should probably keep falling, but any significant resumption of CPI rise proves Schiff right short term. Prechter's outlook doesn't really allow for this, although he gives himself test of requiring all prices to rise to new highs.
Of course, both may be wrong and the ocean of debt may not be unsupportable and there may be a chance that we just muddle through indefinitely, with GDP growth and super low interest rates allowing the USA to work its way out of debt (or at least sustain the debt). I'm kind of dubious of this result, although the key to the whole situation is the reaction of USA creditors to the continued piling up of USA debt and there's no telling how long they will just grin and bear it.
I'm in Schiff camp of thinking that the USA will continue to pile up and monetize debt and think that eventually there will be a major dollar collapse when times get really, really bad. I'm expecting either scenario 1.2 or 1.3 this fall with either minor CPI inflation (with 1.2) or major CPI inflation with another big economic step down (with 1.3).
Hope this makes some sense. I certainly don't have a crystal ball and am perfectly willing to admit I'm wrong if the data shifts leading me out of the inflationist camp into either the muddle-through or deflationist camp.

Critical moment in CRB

Will the CRB break through support?

Capitalism at work. What happens when companies are allowed to weaken/fail?

Activision Meets Walmart in Recession With Market-Share Gains Sept. 4 (Bloomberg) --

At Activision Blizzard Inc., instilling a “culture of thrift” means you wait 13 years before you change the office carpet, according to Chief Executive Officer Bobby Kotick. “A lot of other companies, when there is some sort of economic downturn, they go into triage mode where they are trying to figure out their costs,” Kotick said. “We do that all the time.” Kotick acted quickly during the recession, merging his company last year with Blizzard, the game division of France’s Vivendi SA. Activision got “World of Warcraft,” an online role-playing game with more than 11 million subscribers paying $14.99 a month. That helped Kotick boost market share in North America and Europe by 2.8 percentage points to 12.7 percent even as industry sales fell 14 percent. Activision offers one example of how companies well- positioned for the worst economic slump since the 1930s have gained a competitive advantage. Wal-Mart Stores Inc. expanded electronics offerings after Circuit City Stores Inc. liquidated, McDonald’s Corp. rolled out low-priced lattes and casino owner Penn National Gaming Inc. is looking to expand into Las Vegas. J.M. Smucker Co. added Folgers, the best-selling ground coffee in the U.S., to its market-leading jelly, jam and preserve brand; Ford Motor Co. boosted output while U.S. rivals filed for bankruptcy; and Verizon Communications Inc. bought Alltel Corp. Beating the S&P Six of those seven companies have outperformed the Standard & Poor’s 500 Index since the recession began in December 2007, while Penn National, the only laggard, has outpaced the S&P since the benchmark’s March 9 low. Analysts expect the gains to continue. Each of the seven companies has more buy ratings than holds or sells. Of 150 recommendations for the group, there are 106 buys, 38 holds and six sells, based on data compiled by Bloomberg. “To be aggressive in this recession, it took a strong stomach and a good balance sheet,” said Mark Zandi, chief economist of Moody’s Economy.com in West Chester, Pennsylvania. “The companies that panicked will suffer more in the long run.” McDonald’s, the world’s largest restaurant chain, and its franchisees invested $1.12 billion to add McCafe gourmet coffee drinks at about 11,200 U.S. locations. Investing in Coffee The company’s share of the U.S. fast-food market has increased 1 percentage point since 2006, according to a spokeswoman, Heidi Barker. That growth was driven in part by last year’s introduction of the McCafe products, said Chief Financial Officer Peter Bensen. Coffee sales have grown to 5 percent of the Oak Brook, Illinois-based company’s sales, up from 2 percent in 2006, Bensen said. “We’re hitting or exceeding our targeted unit movement across the country,” Bensen said, while declining to specify internal goals. “We think the combined beverage strategy, conservatively, can add about $125,000 to sales per store.” U.S. McDonald’s restaurants average $2.3 million in annual sales, Bensen said. Lattes at McDonald’s start at $2.29, compared with $3.29 for a small latte at some of Starbucks Corp.’s New York outlets. Seattle-based Starbucks said Aug. 20 it is lowering prices on coffees and lattes by as much as 15 cents while raising prices on frappuccinos and caramel macchiatos by as much as 30 cents. Sales Growth “We continue to focus on providing value to our customers, an area where we have made much progress against the misperceptions about Starbucks value proposition,” May Kulthol, a spokeswoman for Starbucks, said in an e-mailed statement. McDonald’s shares are up 9.3 percent since their March 5 low this year. They rose 20 cents to $55.57 yesterday in New York Stock Exchange composite trading. Of 21 analysts covering the stock, 12 say buy and 9 say hold, based on data compiled by Bloomberg. “We’ve had an intense focus on improving operations,” Bensen said. “The eating-out market is shrinking in the recession, and we’re grabbing an even bigger part of the market.” U.S. restaurant-industry traffic fell 2.6 percent for the three months ended May 2009, according to market researcher NPD Group, the steepest drop since 1981. Sales at McDonald’s U.S. stores open at least 13 months gained 3.5 percent in the second quarter, the company said. Breakfast Boost While it’s too early to say whether the drinks strategy will meet McDonald’s goals, the coffee is “bringing people into McDonald’s more often and they’re spending more on breakfast and the rest of the menu,” said Richard Jeremiah, a restaurant analyst with marketing researcher IBISWorld Inc. in Los Angeles. “The key thing at the moment is getting that traffic.” Smucker, the 112-year-old maker of Smucker’s jams and Jif, the top-selling peanut butter in the U.S., has also taken advantage of the decline in dining out. “The shift to ‘at-home’ consumption is on an upward trend and we are well prepared to continue to play an important role,” Co-CEO Tim Smucker said in an Aug. 21 e-mail. Net income at Orrville, Ohio-based Smucker more than doubled to $98.1 million for the three months ended July 31. Revenue nearly doubled when it acquired the Folgers coffee business from Procter & Gamble Co. for about $3 billion in November as Wall Street turmoil fueled a global financial collapse. “Folgers was a sleeper that they have been able to reinvigorate,” said Edward Aaron, a Denver-based analyst with RBC Capital Markets. On the Prowl Folgers captured more than a quarter of ground-coffee dollar sales in the 13 weeks ended June 28, according to Information Resources Inc., a Chicago-based market researcher. IRI’s data does not include sales at Walmart. Aaron, who advises buying Smucker, has a 12-month share- price target of $59, 14 percent more than yesterday’s NYSE close at $51.59. Of 11 analysts covering the company, 9 say buy and 2 say hold. Smucker has surged 51 percent since touching a 2009 low of $34.22 on March 11. Penn National has $800 million in cash and is on the prowl for new casino licenses in states including New York, Kansas and Ohio, as well as existing properties being sold by debt-laden rivals, Chief Executive Peter Carlino has said since October. “We are probably busier at the corporate office than we have ever been in terms of looking at new opportunities,” CFO Bill Clifford said in an Aug. 21 interview. “We have a lot more firepower, a lot more options available to us to take advantage of the opportunities being created indirectly by the bad economy.” ‘Distressed Property’ The prize the Wyomissing, Pennsylvania-based casino and race-track company is seeking: a mid-sized resort on the Las Vegas Strip. Troubled owners now reluctant to sell may have little choice next year after MGM Mirage’s CityCenter opens in December, adding almost 6,000 new hotel rooms amid the city’s worst decline. “There are going to be some distressed property situations out in Las Vegas,” Clifford said. “It will play itself out early next year, and at that point in time I think it will be much easier to get something done.” Of 16 analysts covering Penn National, 12 recommend buying and 3 say hold, according to data compiled by Bloomberg. The shares have soared 68 percent since a March 6 low. They rose 13 cents to $28.64 in Nasdaq Stock Market composite trading. As U.S. auto buying fell to the lowest level in three decades, Ford CEO Alan Mulally forced the 106-year-old automaker to deal with its diminished place in a changing market. “There was a move by the company to accept the reality of today rather than thinking things are going to get better,” CFO Lewis Booth said in an Aug. 21 interview. “This very strong view, led by Alan, is, ‘Accept reality and react to it. Don’t hope it’s going to go away.’” Avoiding Bankruptcy That attitude led the Dearborn, Michigan-based automaker to borrow $23 billion in late 2006. The move saved Ford from the bailouts and bankruptcies that beset the predecessors of General Motors Co. and Auburn Hills, Michigan-based Chrysler Group LLC. Ford has cut its North American workforce by 42 percent, or 50,400 jobs, since December 2006 as it revamped its product line. It dropped the 10-miles-per-gallon Excursion sport-utility vehicle and added the 41-mpg Fusion hybrid. As Chrysler and Detroit-based GM slipped into Chapter 11 in April and June, Ford boosted output 16 percent to win more buyers. Ford had 15.8 percent of U.S. auto sales through August, up from 15 percent in 2008. It’s faring better than it did after the 2001 recession, when its market share slid to 21.5 percent in 2002 from 24.1 percent two years earlier. “We didn’t think of just surviving,” Booth said. “We thought that, as we went through this, we would continue to invest in the new products for the future.” ‘Stealing Share’ Ford has combined “cost cutting, product improvement and pricing enhancement,” said Brian Johnson, a Chicago-based Barclays Capital analyst who has a “neutral” rating on the stock. “Ford is not just stealing share from GM and Chrysler, they’re taking it from the Japanese as well.” Ford rose 45 cents to $7.48 yesterday in composite trading on the New York Stock Exchange. The shares have more than tripled this year for the third-largest gain in the S&P 500. Analysts still aren’t convinced a turnaround is at hand. Six recommend the shares while five say hold and five say sell. Walmart, the world’s biggest retailer, loaded up on laptops, mobile phones and Blu-ray disc players as Circuit City liquidated in March. In the U.S., operating profit advanced 5 percent to $4.9 billion in the quarter ended July 31. Walmart and Target Customer visits during the period increased by 1.3 percent, reflecting store improvements that will help the Bentonville, Arkansas-based company keep shoppers when the recession ends, Eduardo Castro-Wright, U.S. stores chief, said on an Aug. 13 earnings call. Sales by Walmart’s U.S. stores open at least a year rose 1 percent in the 26 weeks through July 31 as Target Corp. posted a 5 percent decline. Walmart had a 3.2 percent gain in 2008, when same-store sales for Minneapolis-based Target slid 2.9 percent. “Based on same-store sales performance over the past year, Walmart has been outperforming the competition, which implies that the company is gaining market share,” Joseph Feldman, an analyst at New York-based Telsey Advisory Group, said Aug. 27. A Target spokesman, Eric Hausman, said the second-largest U.S. discount chain “has continued to gain market share in many categories.” “Market share is not a zero-sum game between these two companies,” he said. Verizon’s Leap Walmart’s ability to keep increasing sales in a slumping economy echoes the company’s experience in the 2001 recession. For the 52 weeks ended Feb. 1, 2002, Walmart’s same-store sales climbed 6.1 percent. Walmart rose 82 cents to $51.74 in NYSE trading yesterday. Walmart has gained 11 percent since a 2009 low on Feb. 4, and 21 analysts recommend buying the stock, based on data compiled by Bloomberg. Six say hold. Verizon used an acquisition to leapfrog AT&T Inc. and become the largest U.S. wireless provider this year. The Jan. 9 purchase of Alltel for $28 billion helped New York-based Verizon increase second-quarter sales by 11 percent amid a slowing market for phone services, and boosted the number of mobile customers by 18 percent. Mobile Web Access “Our business relationships have held up very well,” Verizon CFO John Killian said in an Aug. 19 interview from his office in Basking Ridge, New Jersey. “We’ve not lost any contracts.” Verizon announced contracts this year with the Bank of New York Mellon Corp., Siemens Enterprise Communications and federal agencies such as the Department of Health and Human Services. Revenue from mobile plans that let customers surf the Web jumped 53 percent last quarter from a year earlier. They will eventually comprise half of customers’ monthly wireless bills, up from 29 percent in the second quarter, Killian said. Mobile Web access will speed up when Verizon rolls out its “fourth generation,” or long-term evolution, network next year. Verizon said it will be the first to deploy its LTE network in the U.S., ahead of AT&T’s planned 2011 rollout. While global mobile-phone sales slid 6 percent in the second quarter, smart-phone sales rose 27 percent, according to research firm Gartner Inc. “People want the cool thing,” said Brian Marshall, a technology analyst at Broadpoint AmTech Inc. in San Francisco. “They view that as a necessity.” Verizon rose 10 cents to $30.24 yesterday in NYSE trading, pushing its gain to 16 percent since a March 9 low. Of 31 analysts covering the company, 17 say buy, 13 say hold and 1 recommends selling. ‘Even Out Earnings’ Like Verizon, game maker Activision looked to a merger to expand in the recession by combining with Vivendi’s Blizzard. “Doing that merger and having a subscription base for a game such as ‘Warcraft,’ that really helps even out earnings,” said Geoff Chamberlain, a research analyst with Appleton Partners in Boston, which owned 272,000 Activision shares as of June 30, based on data compiled by Bloomberg. Adding market share in an economic contraction isn’t new for Santa Monica, California-based Activision. In 2001’s fourth quarter, when the last recession ended, game titles featuring professional skateboarder Tony Hawk helped boost global market share by 1.7 percentage points from a year earlier to 12.4 percent, the company said. Activision has surged 41 percent since its low for the year on Jan. 6 in Nasdaq trading. The shares fell 9 cents to $11.55 yesterday. All 29 analysts following the stock rate it as a buy. As for the 13-year-old carpet at company headquarters, CEO Kotick said he recently replaced it at the landlord’s expense.

SOME OTHER INTERESTING CHARTS

The energy index chart might begin a big downturn if it breaks through the lower line of support











Oil fast approaching point of reckoning- will it break to the upside or downside of the corner of the triangle?











Emerging markets index shows strong signs of breaking its support line.

Gold has broken out

As gold bounced along the support trend line, it was approaching the critical point at the corner of the triangle, where it needed to break out to the downside or upside. Two days ago, gold broke out above the corner of the triangle, through the resistance trendline- a very bullish chart. +$1000 gold soon??

"Green shoots" have overshot- The coming correction

It's clear the market has gotten far ahead of itself since the early March rally. Investors piled into the market blinded by the green shoots euphoria, thinking that the economy has made a 180 degree turn. Once sanity settles in, and we are reminded that the fundamental ongoing problems continue to exist and have actually worsened, there is bound to be a sharp correction. Currently holding a short bias on investments, although another leg up cannot be ruled out.

Good piece about the current "recovery" that is supposedly happening.

http://www.creditwritedowns.com/2009/08/looking-beyond-the-fake-recovery.html

It's a reminder of two key facts:
1) Trillions of dollars in irresponsible massive government stimulus can provide a short in the arm/short term boost and make things seem great for a little while.
2) The fundamentals of the system that got the economy into this crisis have not changed- the economy has not been allowed to wind down the excessive debt and leverage that were the primary cause of the mess. The crisis can always be postponed to a later date, but that future crisis will only be much much greater.

As per my earlier post, commodities are coming under increasing pressure as the dollar strengthens. The dollar chart moves towards confirming a coming uptrend, after falling precipitously since the beginning of march.

Stocks to consider to capitalize on this move are ones that short the commodities themselves.
Ex: SZO, DDP, ZSL, GLL, DTO

Market up, commodities down, dollar up today

Currently today the Dow has surged 1.34%, the dollar has risen 0.64%, and the Rogers Commodity Index is down 0.33%. What do these numbers tell us? They highlight the strong correlation between the dollar and commodities. Even though the market has surged, commodities in general have fallen- commodities are choosing to associate themselves more with the dollar, turning their back to the movements in the general market.

The technical picture for the dollar has changed, with the dollar showing strong signs of beginning an upward trend. This could be a time to short commodities specifically and stocks in general for the moment.

Dollar breakdown still intact- stick to commodity plays

The technical picture of the most recent dollar breakdown which begun on 03/04/09 is still intact. The dollar is still in bearish territory, after failing to break above the key 80 region on June 9th. Stick with commodities and other anti-dollar plays for the moment.

Watch the dollar!

The role of the currency markets in the equity markets is highly underappreciated by the greater investment community. I will write more on correlations between specific currencies and asset classes later, but today I want to touch on the dollar's role in the U.S. stock market. A weak dollar is generally bullish for equities and vice versa.

What does it mean to be wealthy? If your answer is to have a lot of dollar bills, then you're wrong. The correct answer is to have a lot of purchasing power. Paper currencies such as U.S. dollars are just a medium used to execute this purchasing power. If paper currency was truly a gauge of your wealth, then Zimbabwe would be the richest country in the world. Everyone in Zimbabwe is a millionaire, but alas, a loaf of bread or a bottle of water can cost several million Zimbabwe dollars there.

The value of your true purchasing power is an important point to keep in mind when investing. A depreciating dollar takes ones purchasing power down with it. So what good is having more dollars in your wallet if the value of those dollars has decreased? The 40% rally in the U.S. markets since early March of 2008 has everyone jumping for joy. But in the meantime, the dollar index (the index measuring the value of the U.S. dollar against a basket of foreign currencies) has gone from 89 to 77- a 14% drop, representing a decrease in our purchasing power. It is no coincidence that the dollar made a recent peak in the first week or March, and the markets made a recent bottom at the same time. See below:

Dow Jones bottomed March 9th. Dollar index peaked March 4th.

Taking a more broad example, those who understand real economics, inflation and sound money (gold) believe that the bull market in U.S. equities ended in 2000. Those in the opposing camp contend that 2003-2007 represented a bull market. But in reality, the dollar lost enough value from 2003-2007 to represent an actual fall in purchasing power, in spite of the Dow Jones moving from 8,000 to 14,000 during this period. Measured in real money such as Gold, or even strong foreign currencies, the Dow is actually down (ie. a loss of purchasing power) during this period. The charts below outlines the rise of the Dow measured in U.S. dollars (paper money), the plummet in the Dow beginning in 2000 measured in real money (gold), , and the corresponding decline in the dollar index.

Dow measured in U.S. dollars since 2000

Dow measured in gold since 1997- note the fall since 2000

Dollar Index since 2000- a decline of 34%

Save Yourself the Hassle- Pick the Sector, Not the Stock

PICASSO - taken with my iPhone at the Museum of Modern Art, NYC

A friend of mine often boasts to me about his great stock picks and their performance over the current 5 month long rally. Clearly he is unfamiliar with the idea that a rising tide lifts all boats. The powerful rally which began at the beginning of March, which has sent global equity markets shooting higher, have carried with them virtually all sectors. This in turn has provided an upward thrust to stocks within those sectors- be they fundamentally flawed or not. It doesn't matter whether the stock is that of a lousy company or a gem- they've all been propelled higher. This brings to mind the so called 'market-beating' fund managers that were paraded around during the bullish days. Firstly, beating the market during a bull market isn't a great feat in my opinion. The 'market' (ie. Dow/S&P/Nasdaq indices) is a comparatively mediocre benchmark. But my point here is this: to make money in a bull market simply requires you to buy reasonable equities and hold on to them. As long as their fundamentals are sound, they will most likely move higher over the course of the bull market. For instance, it would have been pretty hard to not generate positive returns over the 2003-2007 bull run. A rising tide does lift all boats.

To provide a more recent example, commodities have had a tremendous run since March of this year. I scour through dozens upon dozens of stocks, particularly in the commodities space, and it is virtually impossible to find any company that has not moved higher since March.

The key point I am trying to make here is this: when picking stocks, focus on the sector first, and the individual company second. For instance, if you are bullish on the energy sector, and you believe oil prices will be higher 6 months down the line, choose any or a variety of companies exposed to the energy sector- oil services companies, exploration and production companies, oil & gas equipment companies, natural gas pipelines, solar companies, coal companies, energy-oriented engineering firms- because all of them would benefit from higher oil prices. That is to say, the stock prices of these energy-oriented companies hinge simply on oil prices. They will most likely move in tandem.

The following chart shows a relatively close correlation between the Rogers energy index (RJN) and the stock prices of coal (KOL), the oil & gas exploration and production ETF (XOP) and the solar ETF (KWT).

http://finance.yahoo.com/echarts?s=RJN#chart21:symbol=rjn;range=1y;compare=kol+xop;indicator=volume+macd;charttype=line;crosshair=cross;ohlcvalues=0;logscale=on;source=undefined

Similarly, if you believe that metal prices have been battered down more than they should, and a rebound is imminent, the stock prices of most companies benefiting from higher metals prices should be desirable choices- mining companies, exploration companies, mining equipment companies etc. Metal prices bottomed out in early December of 2008, and since have rallied about 60%. Companies exposed to the metals sector, whether they be iron ore miners such as Vale, copper miners such as Freeport Mcmoran, or mining equipment manufactureres such as Joy Global, the share prices of all these companies bottomed out with the metals sector.

The following link compares the Rogers metals index (blue line) to the stock prices of the above mentioned three companies:

http://finance.yahoo.com/charts?s=RJZ#chart2:symbol=rjz;range=2y;compare=vale+fcx+joyg;indicator=volume+macd;charttype=line;crosshair=cross;ohlcvalues=0;logscale=on;source=undefined

Here is another chart comparing a range of silver mining companies, and the price of the underlying silver commodity:

http://finance.yahoo.com/echarts?s=SLV#chart1:symbol=slv;range=1y;compare=slw+ssri+paas;indicator=volume+macd;charttype=line;crosshair=cross;ohlcvalues=0;logscale=on;source=undefined

It is safe to say that sector choice is far more important than individual company choice.