Wednesday, July 31, 2013

BITS AND PIECES

Mark Hulbert, the longtime publisher of Hulbert Financial Digest, posted an interesting piece today on Marketwatch about interest rates and P/E ratios.

The crux is what comes down goes back up. Looking at data going back to 1871, Hulbert notes only two well-defined periods, each lasting more than 10 years, where interest rates remained in an extended uptrend.



http://www.marketwatch.com/story/pe-ratios-to-drop-20-in-coming-years-2013-07-31

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WARMED-OVER KEYNESIANISM

The Summers-Yellen plot thickened Wednesday as President Obama reportedly in a closed-door meeting with Democratic members of Congress rejected concerns that Summers was less aggressive in pushing economic stimulus.

Yellen is viewed by many as the more dovish of the two and more likely to push for more QE. Either way, according to some traders, both represent a warmed-over serving of archaic Keynesianism.
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FINANCIAL ENGINEERING

Houses for Rent - Home for Rent - Birmingham, Alabama

In the stock market brokerage business there's what's known as sell side analysts. They're mostly the ones who produced the garbage to entice you to buy the crap their firm wants to unload.

It ranges from subprime mortgages to anything they think they can book a spread on. You'll usually find the word bundled in there if you search hard enough.  Now two big Wall Street hitters, Blackstone and Deutsche Bank, are toying with bundling monthly rental payments into some type of bond.

Blackstone, a private equity group LP, sucked up tons of foreclosed properties, spending billions of dollars, a move that buoyed demand and essentially is designed to put a floor under the once sickly RE market. Now it payday time.

Blackstone intends to bundle an estimated 1,500 to 1,700 homes into a bond, in this case a new type of security backed by rental payments. If it sounds a bit risky, head to the front of the class. Renters traditionally have less reason not to walk then even zero-down folks did in the last real estate miasma.

To hawk the deal Blackstone needed an enabler. Enter open-palms stage left Deutsche Bank. If the deal goes down, Deutsche will hawk the stuff to investors. Blackstone will recoup its investment plus a profit and the rest of us will wait to see if the deal is the beginning of the other shoe or, as the late radio commentator Paul Harvey used to say, "the rest of the story."

Blackstone, according to one report, spent more than $5 billion since the start of last year acquiring around 32 million homes in a dozen US markets.

Now that's some engineering.
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MAXIMUM PESSIMSM

One of the goals of central bankers as been to kill in the minds of investors the threat of inflation.

To do that in part they needed to curtail the bull market in gold prices. Their weapon of choice became the bond market. The easy-money spigot easily spilled over into equities and real estate.

The ploy reminds one of the day President Reagan was shot and Alexander Haig, then Secretary of State and a former Army general, said: "I am in control here." But the current debate over who should succeed Bernanke as Fed chairman illustrates the real truth: this lighthouse is sans keeper.

In today's WSJ are two brief articles worth a look. If you're a maximum pessimism investor--and we are--you want to own agriculture despite the current so-called commodity malaise.

Demand and supply problems come and go. Except by proxy, demand for US government debt is largely coming from the Feds. Safe harbor buying is only icing on the pineapple upside down bond cake.

The US economy appears in stall mode, extending the possibility of more phoney money creation. Like many things, it can be a good thing as long as it lasts. Forever, however, is no part of that equation.

That's why you should welcome maximum pessimism into your investing abode. It's the obverse side of irrational exuberance.

http://online.wsj.com/article/SB10001424127887323854904578637453999548858.html?KEYWORDS=Heard+on+the+street

http://online.wsj.com/article/SB10001424127887324170004578638082108558320.html?KEYWORDS=heard+on+the+street

Tuesday, July 30, 2013

SAVING MONEY

Ben Franklin noted about a penny saved being a penny earned. Today, it's more like dollars saved are dollars earned.

What you do with those dollars is your business, but we hope you'll choose to carefully invest some.

In the meantime, if you're a cable tv subscriber, you need to read this article. It could save you some money and put some spare change in your pocket for investing. 

But do your homework.

http://www.moneytalksnews.com/2013/07/30/ask-stacy-can-directv-charge-for-something-i-didnt-order/?utm_source=newsletter&utm_campaign=email-2013-07-30&utm_medium=email

MIDDLE CLASS

There's much talk about middle class in the US today.

It drips from the drooling lips of politicians trying to assuage voters. Economists and MSM love to dwell on it. So what does it mean to be middle class? Here's an example from Marc Chandler's Marc to Market.

This Great Graphic comes from Euromonitor International.  It shows the results of international surveys to see what goods and behaviors are associated with the middle class.  It appears that one's home is the anchor to middle class status.  The survey was conducted online, which, itself says something about the middle class.  Some 6600 people responded from sixteen consumer markets, including many several emerging markets, such as the BRICs, Mexico, Turkey, Colombia, Thailand and Indonesia,   

THE PRINCIPLES REMAIN

Economic principles never change. As an old, quite successful commodities trader told me years ago, the cure for high prices is high prices.

As noted here high prices bring competition and competition begets innovation. And most of us know just one of the benefits innovation brings can be creature comforts like not having to get up and walk across your living room every time you want to change channels on your television. It's a basic, simple now-taken-for-granted once upon a time innovation.

So the guy works for BP. So what?

If you want to get a better handle on energy markets, these two articles are must reads.

The primary role, intended or otherwise, governments play isn't regulation or protection. It's stifling innovation. Incentives that foster wrong, unwanted and often dangerous results are just one example.

The Federal Drug Administration worries about bad medicines instead of spending more time focusing on bad regulations is another.

http://www.linkedin.com/today/post/article/20130730080645-259060403-oil-boom-2-0-an-american-dream-updated?_mSplash=1

http://online.wsj.com/article/SB10001424127887323309404578613792021690244.html?mod=ITP_opinion_0
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Monday, July 29, 2013

NEXT CHAIRMAN

A Larry Summers' chairmanship of the Federal Reserve might sprout something quite different from a warm, tranquil summer feeling markets would like.

One of the top leading candidates, the former US Treasury Secretary under President Clinton, Summers roiled the bond market recently with his comment about QE and its overall effectiveness on the economy.

According to the Financial Times, Summers called QE "less efficacious for the real economy than most people suppose." That's hardly what an already spooked bond market wanted to hear.

The other reported top candidate, now Vice Chairman Janet Yellen, is viewed as being more dovish than Summers and more favorable to those who want QE to continue. So a controversy has arisen.

But since the appointment isn't expected until later this year, the market may have to twist in the wind a bit longer. 
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Wednesday, July 24, 2013

TALKING DOWN

The term talking down has different meanings to different people. If you talk down an opponent it can come back to haunt you. If you manage a big corporation it can put big bucks in your coffer. 

As most investors are aware 'tis the season for earnings reports. On a basically dull day yesterday investors took what the market gave them--individual company earnings reports for the second quarter. 

Of stocks in the S&P 500, according to a WSJ report, earnings are expected to register a little over 1% gain over the same period in 2012, a number that is well below what analysts had predicted in March. How much below? Try 1.1% versus 4.3%. 

Back in the tech heydays of early 2000 one major S&P 500 darling beat management's projected earning by one penny for 14 straight quarters. Investors ate it up, pushing the stock price ever higher. It was a great gig if you were Wall Street connected. Names like Henry Blodget should come to mind here.

Managements sell more than just their main service or product. Call it reverse psychology or whatever. In the business it's known as talking down earnings expectations so you can surprise to the upside.

Truth be told, absent financial companies, corporate earnings would otherwise be negative. 
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Tuesday, July 23, 2013

LOW HANGING INTEREST RATES

They call it the low hanging fruit for a reason.

In the bond market it's low, lower and the lowest interest rates. 

Unless there is some huge, nasty event causing a big economic downturn, it's been picked. It's, as they say, history. And as the WSJ noted today those low rates impact many things not the least of which are housing and corporate profit margins.

Sure, there's what Japanese prime minister Shinzo Abe is doing, a Ben Bernanke encore. But some see that leading to inflation and higher rates. According to many, gold prices soared on the news of his recent political success.

Debt has to be serviced. Low interest rates make that a less painful experience. The average cost for corporations servicing their debt if they took advantage of Bernanke's largesse dropped considerably during Big Ben's low hanging fruit days. And that difference was no small matter.

Down the road corporate profit margins may take an unexpected whack when they have to choose higher hanging fruit to finance their debt.
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Monday, July 22, 2013

BERNANKE'S GOLD

Fed Chairman Big Ben Bernanke recently asked about gold claimed nobody really understands the yellow metal's pricing including him. 

Coming from the most powerful bank chairman on the planet, Bernanke clearly understands the value of a strong dollar. 
http://www.resourceinvestor.com/2013/07/22/what-ben-bernanke-knows-about-gold?eNL=51ed82e6fc746ff54300002c&utm_source=DailyENL&utm_medium=eNL&utm_campaign=RI_eNL&_LID=485386
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Saturday, July 20, 2013

WHAT'S THE TREND?

As they say the trend is supposed to be your friend.

So what's the trend? Well, when things are weak and the future uncertain, retail investors lean toward larger, so-called safer equities many of which offer some income. As the economic malaise tends to disappear, they start moving into smaller, more risky bets like small and mid-cap stocks.

So what's going on now and how does this compare with what retailers versus the often referred to smart money? The bear market started in 2007 and ended by most accounts in 2009 just about the time the retail crowd, believing their pain threshold was exhausted, started exiting mutual funds.

US households are the largest owners of mutual funds.  In other words they were selling near the bottom. They did not return to the market until the bull was well out of the gate. According to one recent report, and there are several others, the so-called smart money got in much earlier and started getting out earlier this year, even before Bernanke notoriously misspoke. 

That trend, the reports say, has continued with corporate insiders. Again, according to recent data, the Russell 2000 and Nasdaq have of late been the hottest benefactors from inflowing money. As one market observer recently noted, the smart money tends to buy in and sell out earlier while the retail crowd does just the opposite. 

And whether one is talking mutual funds or individual securities the data tend to support the above. 

Go figure.

Wednesday, July 17, 2013

ANOTHER ROUTE

A couple of days ago we wrote about looking for a route.

We were referring then for the most part to emerging market equities that have been hit by Big Ben Bernanke and his so-called misspeaks about the imminent end of QE.

Well, here's a link to see what another route looks like, this time in the largest gold mining companies.

http://ycharts.com/analysis/story/gold_mining_stocks_guess_how_low_yeartodate?utm_medium=email&utm_campaign=YCharts+Analysis+Digest+RHHBY+PFE+NVS+MRK+SNY+INTC+QCOM+TSM+-+Non-Pro+-+DIGEST&utm_content=YCharts+Analysis+Digest+RHHBY+PFE+NVS+MRK+SNY+INTC+QCOM+TSM+-+Non-Pro+-+DIGEST+CID_c8d0a1fc215aadf8a4fa865809ff5c8d&utm_source=email&utm_term=Gold%20Mining%20Stocks%20Guess%20How%20Low%20Year-To-Date

Monday, July 15, 2013

SO WHAT NOW

So what now for the US dollar?

With the slow down in China, the EU mess and emerging markets touted to retrench, what now for the dollar becomes an interesting question. Higher interest rates could spike the dollar higher. Hot money looking for a stout place to hide could also push up the greenback.

And then there's oil, denominated in dollars. Could oil prices surprise nearly everyone and keep going up? Like most things in life, opinions are mixed. Here's one that thinks the almighty US dollar has seen its better days for this run and will soon, if it hasn't already, be topping out.

http://www.resourceinvestor.com/2013/07/15/is-the-inflationary-phase-finally-here?eNL=51e42973fc746fd1640000e9&utm_source=DailyENL&utm_medium=eNL&utm_campaign=RI_eNL&_LID=485386&t=precious-metals&page=
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Sunday, July 14, 2013

LOOK FOR A ROUT.

Instead of a rainbow with a pot of gold at the end, look for a rout.

That might be one of the best pieces of investment advice one will ever hear. The most recent rout is taking place in emerging market country. You know the names and there are plenty to go around. The International Monetary Fund recently lowered it growth outlook for next year for EMs. 

Like most things in life, however, not everyone agrees. Some followers think there's still more downside out there. They say opportunity is one thing. Waiting for it to materialize once you're invested another.

So do your homework.
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WHAT'S UP

What's up with the recent price of oil?

There's a lot of talk in the media today about fracking, US energy independence, an energy glut and the like.

Sure, there's the trouble in Egypt. Some think it's tacked on a $5 or $10 a barrel risk premium. After pulling back on Thursday to $104.91, it recovered Friday to close at $106.25. Just a few weeks ago oil traded well below $100. 

Some analysts believe $100 a barrel oil is the new norm. At that price oil is still quite a bit above it's 52-week low last November of $84.44. We' ll spare you the spread talk about Brent versus West Texas Intermediate.

Brent crude, so the thinking goes, symbolizes world events while WTI more domestic happenings. At this point the market doesn't view Egypt's internal turmoil a major threat. Could the real message be that despite all the ballyhoo about new domestic supplies and the technological wonders of fracking the market smells something the cheerleaders don't want the rest of us to know?

With the EU economic mess not expected to be repaired anytime soon, a predicted drop off in emerging market growth and the well-publicized China slowdown, one would think it might impact demand.
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Saturday, July 13, 2013

WEEKEND BRIEFS

An article in today's Barron's, "Trickle Down Economics," paints a fairly bleak picture for China and the EU.

Citing a just-released study from Stratefor, a geopolitical research firm, the article claims unemployment in periphery EU is now around 27%, even higher than that of the 1930s Depression era. In short, there's much trouble in what once was thought to be the brainchild of EU economic paradise.

Bad news: Serious defaults in EU just ahead and a more repressive dictatorship in China.

Good news: US may be beneficiary.
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                              THE SHILL FACTOR

Webster's defines shill as someone who poses as a customer to influence others to participate in an activity.

When Big Ben Bernanke mid-week rolled out his financial boomerang act, letting God and everyone else know QE's imminent demise has been greatly exaggerated, most major stock indices did a 180 and turned skyward.

And the US greenback, Treasury yields, emerging market equities and even gold turned upward. Some analyst say the move is for real, others aren't buying the turn around. So, to borrow an over-used line from one media popular blowhard: What say you? It's only your money.
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Friday, July 12, 2013

BRIEFS

Some came away bruised. In this case big bond fund gurus, many of whom were caught off  guard when Big Ben spoke a while back about easing off the QE party. But not all of these big boys got hammered.

http://online.wsj.com/article/SB10001424127887324694904578599900117934728.html
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                                                         SURPRISE?
In case you have not been paying attention, with the exception of yesterday, the price of crude is on a run, up 10 of the last 12 days. Global oil demand and higher interest rates should lead to higher future prices. Sure more supply is expected owing to increased discoveries and more fracking.

Both, however, remain subject to uncertainties, trouble in the middle-East and environmental nonsense. OPEC's clout appears on the wane. Global oil flows may soon switch directions,flowing West to East, hardly an insignificant change in more ways than just geopolitical.

Hot money is another. Oil is denominated in dollars. Speculators love it. Higher interest rate usually go with a stronger currency. That could make oil more expensive to many countries, something those EU politicians most likely don't want. Any expected recovery in the US and elsewhere will add to the demand. 

Biofuels as in diluting gasoline may be facing further political pressure as the fuel versus food debate continues to heat up and ethanol additive requirements and transportation costs in the US have led to higher food prices and dealers exporting more energy overseas.   

EU politicians recently voted to curtail the percentage of biofuel required in autos and trucks, a blow to the clean air freaks like Greenpeace and others. The point here is the market and many investors are gearing for one thing with all the excessive energy talk. 

What they get may just be another. Clean air versus economic recovery could prove to be a hard choice for professional bureaucrats and politicos around the world.
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                                  SICKENING 
Jobs are and have been front page MSM stuff for a long while.
Given the shortage of them one would think those who have one would be more grateful. Not so according to this report.

http://blogs.wsj.com/economics/2013/07/10/work-makes-people-miserable/?KEYWORDS=work+makes


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Thursday, July 11, 2013

BACON BRIEF

The name of the nation is United States of America. But it's misleading to say the least.

America is about as divided as any country on the globe. Some might even postulate more divided now than ever, the Great Civil War period included.

The usual subjects get cited: abortion, gay marriages, taxes, education, big-versus-smaller government, gun control, to name just a few.

Well, here's another one considering a story in today's WSJ--bacon and the smell of it. Some like it, others don't. Surprised?

http://online.wsj.com/article/SB10001424127887324867904578596570016827626.html?mod=ITP_AHED
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DO ANYTHING YOU WANT BUT

You can drive my brand new car, drink my liquor from an old fruit jar, say whatever you want to say. Knock me down and step on my face, slander my name all over the place. Do anything you want. But please, please don't take the economic heroin away.

That's the message from this pundit and it should not surprise anyone. Easy money and if you're a big bank free money are addicting. Who doesn't like them? 

Half the globe tried a little mostly smoke-and-mirrors economic retrenchment for about a season but when the pain barometer started buzzing, as it will, the crying time started again. 

http://blogs.marketwatch.com/capitolreport/2013/07/10/fed-about-to-shoot-the-economy-in-the-foot-posen/

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Wednesday, July 10, 2013

EARNINGS SEASON

What happens when anemic earnings meet over-priced assets?

The answer remains to be seen. But a decent guesstimate: something not good.

According to one recent report, the trailing 12-month PE ratio for the S&P 500 jumped from over 15 to almost 18.5 in the last year. One reason: earnings growth has lagged price gains. Should earnings growth, as some pundits expect, increase, the PE ratio could fall toward the 15 level again.

But that's, some say, a big should. The point  here is valuations look expensive. Then there's the possibility the Bernanke Dog and Pony Easy-Money Show will hit the egress trail sooner rather than later. 

There's only so many fancy rabbits in any economic hat, notwithstanding the spate of stock buybacks and cost cuttings corporate USA has pulled off in recent years. These are old not new ploys. All the more reason perhaps to expect the unexpected.  

You might want to start your list today.

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CHINESE DEMAND FOR GOLD

Interesting chart. As pointed out previously demand for the yellow metal remains high in Asia.
http://moneymorning.com/2013/07/10/if-you-own-gold-you-must-see-this-chart/#.Ud2Zisu9KSM

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UPDATE ON EM

Recently we pointed out that investors were pulling capital out of emerging markets, those once hot places for them to make some money and pick up a little yield.

One explanation given is the threat of the Fed's turning down the easy-money spigot. Now adding to the problems these EM face is the recent report from the International Monetary Fund predicting slower global growth prospects, particularly for China and Russia. 

Many of these countries in 2012 rolled out higher taxes on foreign investments and lowered interest rates to decrease the torrent of hot money flowing there as a result of Big Ben's easy-come-easy-spread policies.

It just shows that what may happen in the US doesn't stay there.

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Tuesday, July 9, 2013

A DAY LATE

Most have heard the old saw a day late and a dollar short.

Well, when it comes to the Federal Reserve it's much worse than a day late and a lonely dollar short. The Fed is always behind the curve, a fact Sir Alan Greenspan, the former clarinet player, proved repeatedly. 

All the Bernanke easy money has done little to cut unemployment. The shrinking work force should get most of the credit for any drop in the unemployment numbers. If you check U 6, the comprehensive yard stick of unemployment, it's close to 14%.

Bubbles now forming in real estate, bond and equity prices threaten this artificial, phony, pumped-up recovery. And Bernanke has the look and demeanor of a guy getting ready to kick the can to the next poor bureaucratic slob who will sit on the chairman's throne.

In the case of this monetary charade, like one of those old grade B flicks, the bad stuff hits the fan after the last villain has hit the road. 
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WHAT SOME DISCARD

What some discard others presumably want.  Here's an interesting read. Know that the author, Frank Holmes, is a longtime gold fund manager.

http://www.futuresmag.com/2013/07/09/the-asian-giant-stampeding-into-gold?eNL=51dc3163fc746ffa44000213&ref=hp&utm_source=DailyMarketFocus&utm_medium=eNL&utm_campaign=FUT_eNL&_LID=287557&t=commodities&page=2

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THE SECOND HALF

So let's take a look at the so-called second half. 

There are some expected drags on the market like the EU mess, China slowdown concerns and the US where equities for the most part were on fire for much of the first half.

That first-half US performance could cool off more than many anticipate. Many see the possible tapering of QE as a threat to a stock market that's been artificially pumped higher by easy money. 

There is also trouble in several emerging markets of late that some believe are tied to the Federal Reserve when it begins cutting back on QE. Those markets until recently provided an economic lift to many investors, especially those searching for yield.

On the other hand, cutting QE sends a signal, right or wrong, the world's largest economy is well enough to start standing on its own. That translates into more demand and more demand translates into increased use of energy and other things like basic materials that have lagged during the SM's bull run.

So what's the point. In short, look to the laggards that have been the market orphans to date. As we've written before, the bargains, if any exist, aren't usually found where everyone's looking.
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Monday, July 8, 2013

GLOBAL BUBBLE BUSTERS

Central bankers everywhere else are watching these experiments closely, among them Ben Bernanke, chairman of the U.S. Federal Reserve. He and his counterparts around the world, seared by the worst financial crisis in 75 years, are searching for ways to halt borrowing binges before they morph into bubbles, and to push lenders to shore up their defenses before the next crisis arrives.

The above is a quote from today's WSJ. Economists, God love 'em, even have a new term for these acts of interference: "macroprudential tools."
http://online.wsj.com/article/SB10001424127887324069104578527683704380960.html?mod=ITP_pageone_0
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ONE PERSON'S SUPPER

One man's supper is another man's slop.

Contrary to that old saying about what's good for the gander is good for the goose doesn't seem to hold up well in today's economic global scene.

http://www.bloomberg.com/news/2013-07-08/what-s-good-for-u-s-china-japan-leaves-emerging-markets-losers.html
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                                                         IF THEY DON'T
If  they don't get you one way, they will find another. And that's what the rising trend in something called "forced arbitrage" is all about.

http://www.moneytalksnews.com/2013/07/08/forced-arbitration-when-your-rights-get-the-runaround/?utm_source=newsletter&utm_campaign=email-2013-07-08&utm_medium=email
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MEXICAN MARKET MAY OFFER KEY

Here's an interesting read one could with a little imagination label correlation.

http://www.minyanville.com/sectors/global-markets/articles/Mexico-Markets-Face-Impending-Risk-mexico/7/8/2013/id/50668?camp=newsletter&medium=email&from=recapemail
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CALL THEM BROKE

You could call them the Big Three or the Little Three or PGC or CPG.

Or you could just call them broke, Portugal, Greece and Cyprus. After the market closed Monday the EU forked over another 3 billion euro tranche to Greece to keep the balloon afloat for another quarter.

These three will undoubtedly need more aid as the summer wears on and German elections begin capturing more media attention. It is widely expected German Chancellor Angela Merkel will be re-elected. She is known for taking a less than sympathetic stance about bailouts.

And more elections in Portugal could also capture investor attentions.  As for Cyprus it is expect with the nation's falling economy and banking problems the tiny country will need more money than previous predicted.
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DB UNION

DB could well stand for Deadbeat Union as in soaring bad debts plague the EU, according to a story in today's WSJ.

In the face a a continuing shrinking economy business owners are calling on what you to be known as  the low man or the repo guys. We once knew a guy who reposed cars for a major bank. It can be a frustrating, nasty business.

Judging from the WSJ Piece it's also a costly one. It's also an insight on EU small businesses and capital starvation.

http://online.wsj.com/article/SB10001424127887324251504578579190607237804.html?KEYWORDS=Debt+collectors
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DON'T LOOK NOW

You may soon be paying to cash your paycheck or pay card. It's another way big banks have figured out how to screw workers. They've enlisted the help of employers to steal some more money and your elected officials, left and right, who are owned by the banks, sit there with their usual response: "Duh!"

http://www.moneytalksnews.com/2013/07/05/prepaid-cards-are-replacing-paychecks-at-more-companies/?utm_source=newsletter&utm_campaign=email-2013-07-06&utm_medium=email
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                                     RISING INTEREST RATE OPPORTUNITIES

Cyclical stocks have been the market’s best performers during lengthy periods of rising rates. Research firm Birinyi Associates studied nine such cycles since 1962 and found that the technology, industrial and materials sectors averaged double-digit gains in the six months after interest rates started to rise, while the utilities and telecommunications sectors lost ground and consumer staples lagged the S&P 500.
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Sunday, July 7, 2013

AN EXCERPT: HABITS


Habit is either the best of servants or the worst of masters.

                                                              Nathaniel Emmons

Webster’s defines habit as a thing done often and hence, usually done easily; a custom; a pattern of action that is acquired and has become so automatic that it is difficult to break.

“I am your constant companion. I am your greatest helper or heaviest burden. I will push you onward and upward or I will drag you down to failure. I am completely at your command. Ninety percent of the things you do might just as well be turned over to me, and I will do them automatically. I am the servant of all great people and, alas! of all failures as well. I am not a machine, though I work with all the precision of a machine, plus the intelligence of man. You can run me for profit or run me for ruin—it makes no difference to me. Take me, train me, be firm with me, and I will place the world at your feet. Be easy with me and I will destroy you. Who am I? I am Habit.”

                           Anonymous

We all accumulate habits, some good and some not so good. But it’s always the same: Your choice. Whether you’re working out or just trying to live your life, choose your habits carefully.  And on those days when you find your spirit flagging a bit, try to remember something the author Somerset Maugham wrote years ago: “The unfortunate thing about this world is that good habits are so much easier to give up than bad ones.”

Habits play an important role in our investing whether we realize it or not. Buying at the top and selling at the bottom is widespread among retail investors. Swimming always with the crowd is a confirmation habit. It often provides a false sense of validation, a feel good factor.

I started this book out with a piece about habits because they play such a large role in our lives.  All of us are forming habits daily. Habits are like the saying, “Be careful what you wish for.”  Habits fill vacuums.

So be extra careful what you’re leaving unattended. It just might get filled with a habit.
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Thursday, July 4, 2013

CAIIFORNIA BUSINESSES

While some say the decline in the number of California's businesses isn't clear, those businesses and lots of  jobs with them are disappearing.  And California is not alone.

That's the bad news. The good news is some states have seen an increase in new businesses.

Could the differences between California and Florida, both whacked hard by the real estate bubble, the former losing firms and the latter growing them, be about the difference in taxes?

That couldn't be part of the answer.

http://www.businessweek.com/articles/2013-07-03/why-are-californias-businesses-disappearing#r=rss
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                                   OPPORTUNITY KNOCKS 

We've talked about the chaotic bond market before. Where some smell fear, others smell opportunity. The trick is not to let your opinion pre'vent you from making money. 

Thank Bernanke for his flub, intended or otherwise, as some have suggested. If he was just pluming the market, fine. If he just screwed up, fine. He created opportunity.

The only real freedom in this increasing government-controlled world is to have your own stash of screw-you-money. Make the money and be gone.

And yes we've looked at Moises Naim's recent book The End of Power.
 http://www.bloomberg.com/news/2013-07-04/fidelity-sees-bargains-as-98-of-asia-bonds-sink-credit-markets.html
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Wednesday, July 3, 2013

AUSTERITY FATIGUE

 Portuguese stocks and bonds take another dive owing to what some are calling "austerity fatigue."

In 2011 the EU's Big Three--the ECB, the IMF and the European Commission--coughed up $106 
billion to help the nation's ailing economy. No small amount for a country with a $215 billion GDP.

Portugal's unemployment hovers near 18% and its GDP has been in a slump since late 2010. The money came with strings in the form of required budget cuts. Those cuts, according to some, are starting to bite. Complicating matters two political figures tendered their resignations in recent days raising questions about government stability.

The stock market is down nearly 18% and yields on 10-year government bonds linger near 8%, up from 5.5% just two months ago. And Portugal is not alone. Greece faces similar problems meeting its demands trying to qualify for more handouts from EU officials.

Austerity fatigue or not, the EU's economic turmoil looks a long way from being resolved.
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YOU NEED TO

I have a way of starting sentences with "You need to...." as if I am trying to tell the other person what to do when I'm not. It's a bad habit. But we all at times need to do something not because you or I or anyone else says it.

W. B.Yeats, the great Irish poet, warned against "hitching our Pegasus to a plow" trying to "please every knave and dolt."

Pegasus you recall was the winged horse in Greek mythology that could fly. In more modern times he was the image for years for Mobil Oil now known as Exxon Mobil.

Yeats concluded by saying: "I swear before the dawn comes 'round again, I'll find the stable and pull out the bolt."  In other words, free up his creative self after years of writing to please others that proved most unsatisfying.

Most of us are taught not to be selfish, not to pound our own drums or sing our own praises. Don't know if that's Christian-Judea or what. I do know, as Yeats was pointing out, it's a recipe at best for mediocrity if not worse.

So here's the point. Never be afraid of finding that stable and dislodging that bolt.

And the same holds true for investing. Sometimes following the herd works as in the trend is your friend or, as the late Marty Zweig use to say, not fighting the tape.

The tape today seems to be Federal Reserve controlled, at least for the nonce. Some, however, believe a structural shift is afoot based on better fundamentals caused by all the easy money these past few years. These people cite an improved housing market, the so-called lack of inflation, a moot point if ever there was one, and improved consumer confidence.

The SM is supposed to be a leading not a lagging indicator of what's ahead. It could just be if these folks are correct that when these positives become accepted fact, the market might just head south again, anticipating the next economic down turn.

Forget death and taxes. With the politicians and bureaucrats running this charade, there will most certainly be another one playing at a venue near you in the not too distant future.
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Tuesday, July 2, 2013

KNOW YOUR EXITS

We recently wrote a brief--Have An Escape Route--about following the news but make sure you know where the exits are.

Following the news is akin to following the money and until recently, for nearly the last four years, that money was flowing into emerging markets. According to a piece in today's WSJ between 2009 and 2012 private money flowing into emerging markets totaled $4.2 trillion, "more than all the money invested in the Tokyo Stock Exchange."

A nice piece of change anyway one chooses to count it. Troubles in Emerging Market Land seem to be spreading. From Brazil to China to India and Turkey it appears that the prospects of slower growth and rising interest rates are taking their toll.

End result: investors are fleeing as they yank their capital from bond and equity funds. Like rigor mortis, reality has a way of setting in. Toss in political unrest and the slowing of the global locomotive most know as China and it looks more and more like another round of investor hand-wringing time.

A quick scan of some currencies tells much of the tale. Brazil's real is down more than 20% this year. The South African rand has lost a similar amount against the US dollar as gold prices tanked and to the north the Canadian loonie is, well, looking a bit loonie owing to a high level of household debt, a looming real estate bubble and weak energy prices.

Recall back in 2009 when the EU turmoil erupted many investing soothsayers like Bill Gross and others touted EMs, especially their debt instruments. Have they called you recently and warned you where the exits were located?

Much of this could be summarized by one word--growth. Investors flock to it. But they get their hats over non-growth. How much non-growth? Probably a lot more than MSM is predicting.
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Monday, July 1, 2013

JUST OUR OPINION

There's an old saw about the more attractive the reward, the more reluctant people are to go after it.

The rule certainly applies to beautiful women. Most guys are too shy or intimidated to approach them. But the same rule applies to investing.

Following a big sell-off like the one that happen recently when Bernanke spooked the markets, many equities and bonds suddenly became more attractive while gobs of investors instead of buying headed for the nearest exit.

To be sure, there's some risk here, just as there can be in approaching a beautiful lady. So it raises the age-old, classic question: does the reward outweigh the risk?  The answer is really quite simple. You have to learn to decide.

If you're afraid to approach beautiful ladies, spare yourself the angst of going around claiming you really want one because under those conditions your chances are at best remote.  And the same pretty much holds true for making serious money in the market.

Some time soon we'll talk about another old saw: never let an opinion get in the way of making money.

IRS OCTOPUS

It's tentacles ever grow. The Washington spy agency benignly known as the IRS was birthed in 1913, the same year another octopus was born, the Federal Reserve Bank. The two have probably done more to crimp the freedom of American ingenuity than all the mindless politicos together.

http://www.bloomberg.com/news/2013-07-01/simons-strategy-to-shield-profit-from-taxes-draws-irs-ire.html

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GOLD MAKES TRIPLE BOTTOM

Few items have had more ink spilled over them the past several months than gold.

People seem to love or hate it, deride or praise it, buy or short it. We won't get into the particulars other than to say we don't trust bureaucrats, central bankers and politicos any farther than we can toss them. 

And these are the people with their foot to the pedal over most of the globe. Frightening, we know.

In the eyes of some that will most likely makes us quality material for some epithet category, take your pick: fear-mongering, conspiracy freak or whatever. We say thank you very much and we accept the challenge.

In the meantime here is a read you might find of interest.

http://www.resourceinvestor.com/2013/07/01/roger-wiegand-predicts-a-brand-new-world-for-gold?t=mining-investments&page=2

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POSITIVE SPIN

Federal Reserve Governor Jerome Powell in a speech last week oiled up the old spin machine.

Here's an example from today's WSJ.

Fed Governor Jerome Powell said in a speech Thursday that, though growth has been middling so far this year, he has been surprised at how well the economy has performed in the face of tighter fiscal policy.

What tighter fiscal policy? They didn't cut anything, just didn't add any new spending. If they made any real cuts, most likely the market reaction would've been even better, as hard as that is to imagine.

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                                    I

THE SECOND HALF

If you think the Fed's talk about taking the punch bowl away from the QE party is real--meaning the economy is ready to stand on its own in the near future--then look at cyclicals. 

Energy, materials and what has been a lagging technology sector might deserve some of your investment capital.
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