InvestMacro Forex News

By Mitchell Clark, B.Comm.

As evidence of the fervor to which institutional investors are bidding this market, Johnson Controls, Inc. (JCI) jumped five percent on the day the company announced a new $3.65-billion share buyback program and a 16% increase to its dividends.

These are good times for corporations and equity investors. Companies can borrow on the cheap, and they are keeping shareholders happy with rising dividends and share buybacks.

Johnson Controls is based in Milwaukee and sells a great deal of equipment to the automobile and the heating, ventilation, and air conditioning (HVAC) industries.

The company’s dividends have been rising consistently, and for the quarter ended June 30, 2013, earnings per share grew an impressive 32%.

Not surprisingly, the stock’s been doing extremely well. At the beginning of the year, it was trading around $31.00 a share; now, it’s around $50.00.

This kind of capital gain has been very common among countless blue chips. It is a highly unusual and monetary policy-fueled rise. In my view, in the case of Johnson Controls, the company’s share price is overvalued, even with the recent news regarding its dividends.

While there is certainly a lot of liquidity in the stock market now—and there is good action to be had, generally speaking—I’m very reticent to be a buyer. At the very least, it is difficult finding attractive stocks to buy that haven’t already gone up tremendously.

I view equities as one big hold right now, and I do think that share prices will be able to finish out the year strongly, given current information.

Looking at the financial results of countless large-cap corporations, there is operational leverage to be had next year if product and service demand continues to improve. Corporate balance sheets are in excellent condition, the cost of money is cheap, there’s lots of cash on the books ready to be put to work, and companies remain lean and mean.

There is definitely a lot of speculative fervor in the marketplace now. There are countless new initial public offerings (IPOs) to be had, and there’s been some tremendous wealth creation at exorbitant prices from many of these new listings. All this is indicative of a frothy and overbought stock market. But determining the time when it turns is virtually impossible. Right now, the market is hanging onto the Federal Reserve’s every word.

The fact that many large-cap, blue-chip companies are trading so strongly on the equity market commensurate with small-caps is a traditional sign of the beginning of a secular bull market. Of course, within a bull market, there can be spectacular declines as well.

But I want to come back to balance sheets and the fact that so many corporations are increasing their dividends and upping their share buyback programs in order to pay for them. (See “Why This Food Processor’s Numbers Are a Good Indicator for 2014.”)

Stock market action over the last four years has shown that dividends and large-caps are back in style. I think dividends are going even higher in 2014. Keep an eye on the market’s existing winners, as I believe they will keep on ticking higher until we hear a major policy change from the central bank.

This article If You Don’t Want to Leave This Market, Stick with These Proven Winners is originally posted on Profitconfidential

Free 10-page eBook can get you started

By Elliott Wave International

The moving average is a technical indicator which has stood the test of time. It’s been 27 years since Robert Prechter described this vital tool in his famous essay, “What a Trader Really Needs to be Successful.” What he said then remains true today:

A simple 10-day moving average of the daily advance-decline net, probably the first indicator a stock market technician learns, can be used as a trading tool, if objectively defined rules are created for its use.

What is a moving average? Here’s how EWI’s Jeffrey Kennedy puts it:

A moving average is simply the average value of data over a specified time period, and it is used to figure out whether the price of a stock or commodity is trending up or down.

He also says that you can think of a moving average as an automated trend line.

A 20-year veteran of technical analysis, Jeffrey wrote “How You Can Find High-Probability Trading Opportunities Using Moving Averages.”

[Descriptions of the following charts are summaries from that eBook]:

Let’s begin with the most commonly-used moving averages among market technicians: the 50- and 200-day simple moving averages. These two trend lines often serve as areas of resistance or support.

For example, the chart below shows the circled areas where
the 200-period SMA provided resistance
in an April-to-May, 2008 upward move in the DJIA (top circle
on the heavy black line), and the 50-period SMA provided
support (lower circle on the blue line).

Let’s look at another widely used simple moving average which works equally well in commodities, currencies, and stocks: the 13-period SMA.

In the sugar chart below, prices crossed the line (marked by the short, red vertical line), and that cross led to a substantial rally. This chart also shows a whipsaw in the market, which is circled.

Another popular moving average setting that many people work with is the 13- and the 26-period moving averages in tandem.

The chart of Johnson and Johnson shows a crossover system using a 13-week and a 26-week simple moving average of the close. Obviously, the number 26 is two times 13. During this four-year period, the range in this stock was a little over $20.00, which is not much price appreciation. This dual moving average system worked well in a relatively bad market by identifying a number of buyside and sellside trading opportunities.

You can read the first two chapters of this eBook FREE for a limited time.The first two chapters reveal: The Dual Moving Average Cross-Over System Moving Average Price Channel System Combining the Crossover and Price Channel Techniques Jeffrey’s insights are all about helping you become a better trader. Remember, the first two eBook chapters are FREE, so take advantage of this limited-time offer. Download your two free chapters now >>

By Dennis Miller

I have received numerous emails from subscribers asking about individual stocks and how much they should buy. While I am not licensed to give individualized advice, each time I read these questions, the experiences shared seem eerily similar to my own.

, Back in 2008 many retirees had their CDs called in overnight. They had a large amount of cash and an urgent need to do something to recover the 6%, low-risk income that no longer existed. Many thought moving all of their capital into the stock market was all that they needed to do. Oh boy, they were in for a surprise.

Seniors and retirees have to invest differently than other folks. Since they are no longer working, their risk tolerance is much lower than folks still drawing a paycheck. On top of that, the resources out there about portfolio allocation lack something investors need. Nearly every model portfolio is presented as a pie chart with a certain percentage in various sectors. They make sense, but it’s definitely not the whole story.

These allocations are too general to fit everyone’s needs. Every retiree needs his own, custom-fit portfolio allocation. For example, my wife owns part of a farm that has been in her family for over a century. She might be able to put more capital at risk than someone without a farm or similar asset to fall back on.

If an investor has a hard asset such as gold, silver, or farmland, and he has no intention of selling, these are considered “core holdings.” Core holdings serve a different purpose than a stock, mutual fund, or exchange-traded fund (ETF) that deals in precious metals or agricultural land, namely short-term profit. In short, while a hard asset and a stock might be in the same sector, they do not fit into a portfolio in the same way.

In order to flesh out this idea, I went back to Abraham Maslow’s hierarchy of needs, something I had studied years ago. His pyramid became the basis for our investment pyramid, which is broken into three groups: Core Investments, Security, and Speculation. Core investments ensure survival; Security ensures survival for tomorrow (and the day after); and Speculation – the smallest and most high-risk section – funds the “something more” in life.

Core Holdings: Don’t Bet the Farm

Core investments are at the bottom of the pyramid. These are the most low-risk investments; they keep a roof over your head and food on the table. This section might include gold, silver, and/or interest in a family farm or some other valuable asset. These are assets we hope we never have to sell or use. Don’t confuse them with precious metals, or precious-metal stocks and ETFs, which are purchased for the purpose of selling at a future date at a profit.  These would be allocated in other sections of your pyramid.

Security: Survival for Tomorrow

Security is the largest segment of the pyramid. These investments should provide income and growth, and are the primary catalyst for maintaining our portfolio over the long haul.

Because this section is quite large, it is color coded with green, yellow, and pink to indicate increasing levels of risk. Look for the color code assigned to each company in our portfolio.

For example, consider two different drug companies that have had excellent financial results for the last few years. One might have multiple new patents, while the other might have soon-to-expire patents on their top moneymakers. The first company would probably be a lower-risk investment and coded green accordingly. We might still recommend the higher-risk company, as it could have additional profit potential such as new drugs in the pipeline, but we would color code it differently.

Keep in mind that our risk code might not correspond exactly with your risk tolerance. Personal risk tolerance is largely subjective, so you can certainly adjust our categories to fit your situation. In our monthly newsletter, we  decide on the risk level of each investment, and if our readers disagree, we encourage them to code it as they see fit. After all, it is their money. Part of enjoying retirement is sleeping well at night without breaking out in a sweat, worried over your portfolio. Be honest with yourself about your risk tolerance and invest accordingly.

Speculation: Enjoying Life’s Bonuses

Speculation provides the “something more” in life. It’s limited to a small number of high-risk, high-reward opportunities. The size of an investor’s speculation section depends a good deal on age and personal risk tolerance. Folks in their 30s have a lot more time to recover if a speculative pick goes sour than an investor who’s already contemplating retirement. Yet a couple of good experiences in this section can have a huge positive impact on an entire portfolio, so retirees should not neglect it. We recommend speculating with no more than 10% of one’s entire portfolio if you are close to retirement or already there.

We encourage our readers to tend to their core holdings first. After all, if you don’t have anything to eat, not much else matters. After that, do your own due diligence to flesh out the Security and Speculation sections of your portfolio. Our monthly publication, Miller’s Money Forever, offers many recommendations for these sections.

Step One

It’s easy to miss the forest for the trees. Individual stocks can be so exciting that we forget to step back and look at the big picture. Personally, I do this by taking a sheet of accounting paper and heading columns across the top: Core Holdings, Security, and Speculation.

Then I list all of my investments in the appropriate column. This tells me how well my portfolio is allocated.

The first time I did this, I was over-allocated in the Speculation section, so I needed to reallocate my investments. That’s not something you have to or should do all at once. Hasty investing is never a good idea, but you do need a clear picture of where you are before you can start making the right changes.

A balanced portfolio, however, needs more than the right allocation of risk. It also needs a balanced allocation across sectors. It is not unusual to be overly allocated in the technology sector or metals and mining stocks. If an entire sector heads south, you don’t want a huge portion of your portfolio to go with it.

After you have allocated your existing portfolio, then it’s time to think about adding new investments. Start by looking for holes, and then look for investments to fill them. There’s no need to jump at every exciting opportunity that comes along. An investment is only good if it’s right for your portfolio.

This is where newsletters – Miller’s Money Forever included – come in. If you need a solid technology stock, check our portfolio. And if you have a large enough portfolio to add even more depth in technology or any other sector, find a trusted, sector-specific newsletter with additional recommendations.

First and foremost, the Money Forever team is here to teach our subscribers how to thrive during retirement. Our portfolio is filled with recommendations appropriate for baby boomers and retirees, and we are always open for questions from our subscribers, so consider trying out Miller’s Money Forever with a 90-day risk-free trial today. You’ll get access to all of our recommendations, as well as articles and materials to keep you on the right track for your retirement.

Article By Dennis Miller

By Jeff Clark, Senior Precious Metals Analyst, Casey Research

Can you name a commodity that’s currently in a supply deficit—in other words, production and scrap material can’t keep up with demand? How about two?

If you find that difficult to answer, it’s because there aren’t very many.

When you do find one, you might be on to a good investment—after all, if demand persists for that commodity, there’s only one way for the price to go.

At the end of 2012, the platinum market was in a supply deficit of 375,000 ounces. Much of it was chalked up to the sharp decline in output from South Africa, where about 750,000 ounces didn’t make it out of the ground due to legal and illegal strikes, safety stoppages, and mine closures.

The palladium sector was worse: It ended the year with a huge supply deficit of 1.07 million ounces—this, after 2011, when it boasted a surplus of 1.19 million ounces. The huge reversal was due to record demand for auto catalysts and a huge swing in investment demand—going from net selling to net buying in just 12 months.

What’s important to recognize as a potential investor is that the deficit for both metals isn’t letting up, especially for platinum.

Since platinum supply is dwindling, let’s take a closer look…

Will the Supply Deficit Continue?

According to Johnson Matthey, the world’s largest maker of catalysts to control car emissions, platinum supply will decline to 6.43 million ounces this year, largely due to lower Russian stockpile sales. But the company claims the decline will be made up by a 7.4% increase in recycling.

Ha. Projections on scrap supply are almost always wrong. Analysts said in early 2012 that supply from recycling would grow 10-12% that year—but it declined by 4%.

There are critical issues with scrap this year, too…

• Impala Platinum (“Implats”) reported a 17% decline in output, not due to decrease in production but in scrap supply. Other companies have not reported this problem, but Implats is one of the biggest producers of the metal.

• Recycling of platinum jewelry in China and Japan is falling and is on pace to be 12.9% lower than last year.

• European auto sales are declining, so one would think demand would be the most impacted. However, this has major implications for supply, too: The average age of a car in Europe is eight years, with more than 30% over 10 years old. When a vehicle exceeds 10 years, the wear and tear on the catalyst is so significant that a substantial portion of the platinum has already been lost. So the jump in supply many are anticipating will be much less than expected.

Some of these declines are offset by scrap from auto catalysts in the US, but this obviously hasn’t made up for all of it.

Demand Isn’t Letting Up Either

Platinum demand is driven mostly by the automotive industry and jewelry, which account for 75% of world demand. What happens in these two sectors has a significant impact on the metal.

We’ll let you draw your own conclusions from the data…

The Cars

• Auto industry analysts forecast total monthly sales in the US last month will reach about 1.23 million for passenger cars and light trucks, up 12% from 1.09 million in October 2012.
• China, the world’s largest auto market, saw a 21% rise in passenger car and light-truck sales in September to 1.59 million units, an eight-month high.
• PricewaterhouseCoopers forecasts that sales of automobiles and light trucks in China will have nearly doubled by 2019. This trend largely applies to other Asian countries too, becoming a constant source of demand for both platinum and palladium.

The Politicians

Both platinum and palladium will benefit from new regulations that take effect in 2014 in Europe and China:

• Europe’s new “Euro 6” emission regulation will force diesel vehicles to have new catalysts going forward.
• China has already accepted tighter emission standards that will substantially push platinum demand in the country. It’s worth mentioning that car markets in China and other emerging countries are at the “Euro 4” level, so they have some catching up to do before reaching US and European levels.

The Investors

NewPlat, a platinum exchange-traded fund, launched in South Africa on April 26 and has already seen an inflow of 600,000 ounces through the end of September. This unprecedented surge is expected to lift platinum investment demand by 68% to a record 765,000 ounces.

The Jewelers

Jewelry is the second-largest use for platinum, representing 35% of overall demand.

China dominates this market, and demand has doubled in the past five years. According to ETF Securities, China is well on its way to make up around 80% of total platinum jewelry sales in 2013—their report calls Chinese platinum demand “a new engine of growth.”

Johnson Matthey expects the interest for platinum jewelry to soften in China this year. However, a recent article in Forbes suggests the opposite may be happening:

A good proxy for Chinese platinum jewelry demand is the volume of platinum futures traded on the Shanghai Gold Exchange. Average daily platinum volume on the exchange in 2013 is running near 45% above 2012 levels, recently reaching a new record high this year.

Another indicator of Chinese platinum jewelry demand is China platinum imports. The latest data on China platinum imports for September showed the highest level since March 2011 at 10,522 kilograms (or approximately 338,300 ounces).

And this from International Business Times…

Net platinum inflows into China hit their highest levels in two and a half years … China’s net imports of platinum rose by 11%, to hit almost 70 metric tons for the first three quarters in 2013, higher than the 62 metric tons from the same period last year.

Overall, platinum demand is expected to be greater than ever before, reaching a record 8.42 million ounces this year. And this while supply continues to decline.

This supply/demand imbalance will likely continue for at least several years, perhaps a decade. Prices haven’t moved all that much yet, but that doesn’t mean they won’t. Prices of commodities with a supply/demand imbalance can only stay subdued for so long before reality catches up. Either prices must rise or demand must fall.

The other metal to take advantage of right now is gold. While there’s no supply crunch, the gold price is so low right now that it practically screams to back up the truck. Learn in our free Special Report, the 2014 Gold Investor’s Guide, when and where to buy gold bullion… the 3 best ways to invest in gold… and more. Get your free report now.

By The Sizemore Letter

In case you had any doubts, it’s official. Diageo (DEO), the world’s largest spirits maker, will not be buying Beam, Inc. (BEAM) for its bourbon portfolio.

CEO Ivan Menezes said this week that Diageo would be expanding its existing portfolio of whiskeys and launching new ones, and adding for emphasis that “we don’t need to” buy Beam.

I told you so.

Late last year, Diageo had recently lost its distribution deal with Jose Cuervo, leading to wild rumors that DEO would buy Beam for its tequila assets. Beam’s Sauza is the No. 2 global tequila brand by sales.

Apart from the obviously backward logic of buying a large bourbon distiller to get a relatively small tequila brand, Diageo would have a hard time swallowing an acquisition of Beam’s size. Beam has a market cap of $11 billion (Diageo’s is more than $80 billion), and after years of pricey purchases, DEO and its shareholders have acquisition fatigue.

Purists will point out that Diageo is still very weak in bourbon and that acquiring Beam — and its Jim Beam, Maker’s Mark and Knob Creek brands — would fill that gap. Diageo currently only has one bourbon brand, Bulleit, and it is a relatively small player.

All of this is true, but there are a couple points to keep in mind:

1. Bourbon is a very small market outside of the United States.
2. Most drinkers make litter distinction between Kentucky straight bourbon, Tennessee whiskey and Canadian whisky.

Per the first issue: Yes, the United States is the single most important market to be in globally. That’s not changing anytime soon. But it’s also a mature market and one where demographics are not necessarily moving in the right direction. Younger drinkers tend to prefer vodka cocktails, not whiskey.

And in any event, DEO is focusing its expansion efforts in emerging markets, where it plans to get more than half of its revenues by 2015.

Diageo’s scotch brands, such as Johnnie Walker, tend to be far more popular overseas. Most emerging-market consumers have literally never heard of bourbon. Try ordering one in a bar in South America or the Middle East and observe the confused look on the bartender’s face.

This brings me to point No. 2.

There are plenty of aficionados out there who take the distinctions between Kentucky straight bourbon, Tennessee whiskey and Canadian whisky seriously. In Kentucky, you might be required to give satisfaction in a duel for confusing bourbon with neighboring Tennessee whiskey. (I’m joking … Sort of. )

But all three whiskeys have a sweet flavor (as opposed to scotch’s smoky flavor) due to their use of corn as a major ingredient. And most drinkers are only vaguely aware that they are different products. I have no stats to confirm this, but anecdotal experience has shown me that 95% of the patrons in any bar in America wouldn’t know that Jack Daniel’s (a Tennessee whiskey), Jim Beam (a bourbon) and Crown Royal (a Canadian whisky) are different types of whiskey.

And on top of all that, Diageo is planning on expanding its bourbon offerings anyway.

This is a long way of saying that Diageo CEO Menezes is absolutely right.

Diageo doesn’t need Beam.

And that causes a little problem here. You see, Beam has had an elevated valuation for years in the belief that it would be acquired by Diageo or Pernod Ricard (PDRDY). Beam trades for nearly 30 times earnings, compared to 20 times for the larger and better diversified Diageo.

My advice? Pour BEAM down the drain and stock up on DEO.

Charles Lewis Sizemore, CFA, is the chief investment officer of the investment firm Sizemore Capital Management. As of this writing, he was long DEO. Click here to receive his FREE 8-part investing series that will not only show you which sectors will soar, but also which stocks will deliver the highest returns. This series starts Nov. 5 and includes a FREE copy of his 2014 Macro Trend Profit Report.

This article first appeared on Sizemore Insights as Pour Beam Down the Drain and Pick Up Some Diageo Instead

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By The Sizemore Letter

Just weeks after former CEO Thorsten Heins was given the boot, BlackBerry (BBRY) is kicking its chief operating and marketing officers to the curb as well. Roger Martin — a board member since 2007 — also is leaving BBRY, apparently of his own accord. So, is the housecleaning a positive for the company and battered BlackBerry stock?

Not really. It’s too late for BBRY.

BlackBerry stock was in desperate need of a managerial shakeup; of this there should be no doubt. The problem is, BBRY needed it five years ago, not today.

I want to compare BlackBerry management to that of Nokia (NOK), the Finnish mobile communications company that was, for most of the 1990s and 2000s, the largest and best-respected mobile phone maker on the planet.

After Apple (AAPL) launched the iPhone in 2007, both BBRY and NOK found themselves on the wrong side of the smartphone revolution. Nokia’s Symbian, once the dominant “smartphone” platform (I use this term loosely), found itself in terminal decline. BlackBerry, which had a better enterprise presence, took a little longer to feel the pinch.

But to any management team that wasn’t delusional or in denial, the handwriting would have been very clearly on the wall: Apple and Google (GOOG) were reinventing the smartphone market and leaving all others behind.

Faced with a slow but inevitable decline, Nokia CEO Stephen Elop responded with his now-famous “burning platform” memo. He scrapped Symbian and formed a partnership with Microsoft (MSFT) that would see Nokia adopt the Windows Phone operating system.

The jury still is out as to whether that was the right decision. The Microsoft partnership guaranteed that Nokia would have the financial backing it needed to stay afloat. But it ultimately still resulted in Nokia leaving the handset business. Microsoft has since purchased the Nokia division that makes the handsets, and Elop has since resigned from his post as CEO.

Still, had Elop not done what he did, Nokia would have suffered a slow bleed and most likely would have found itself in BlackBerry’s shoes today: slowly dying and waiting for the vultures to pick the company clean of any sellable assets.

BBRY never had a “burning platform” moment. Instead, BlackBerry stuck to a stubborn belief that their core customers would stick with them through thick and thin despite all evidence to the contrary.

Looking back at BlackBerry, there is no reason why management couldn’t have done what Elop did. It could have adopted Windows Phone. Or better, given its ability to be tailored and customized to each manufacturer, it could have adopted Android. Instead, BBRY bet it all on QNX, which might have made it a viable competitor … had BlackBerry released it three years earlier.

Returning to the management shuffle, BlackBerry stock is up just more than 1% in early Monday trading. Don’t get sucked in here. “Success” by the new management team will be measured by the prices they can get in shopping around the assets that BBRY still has, such as its patent portfolio.

Could BlackBerry have a life after handsets as a device management and security company? Yes, hypothetically. But is that something you want to bet on right now?

My advice is to walk away from BlackBerry stock. At some point, a corporate raider might make a fortune selling the company for spare parts. But we’re not to that point yet, and management has a lot more value to destroy in the meantime.

More About BBRY Stock

• More details on Monday’s BlackBerry exodus (WSJ)
• The new CEO won’t do much, either. (Slant)
• Apparently BlackBerry made a social-media buy earlier this year. (Bloomberg)

Charles Lewis Sizemore, CFA, is the chief investment officer of the investment firm Sizemore Capital Management. As of this writing, he was long MSFT. Click here to receive his FREE 8-part investing series that will not only show you which sectors will soar, but also which stocks will deliver the highest returns. This series starts Nov. 5 and includes a FREE copy of his 2014 Macro Trend Profit Report.

This article first appeared on Sizemore Insights as BlackBerry Ditches Its Management Team–Three Years Too Late To Matter

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By CentralBankNews.info
Hungary’s central bank, which earlier today cut its policy rate for the 16th time in a row, said “considering the outlook for inflation and the real economy and taking into account perceptions of the risks associated with the economy, further cautious easing of policy may follow.”
The guidance by the National Bank of Hungary is similar to the bank’s statement in October, signaling that the central bank is likely to cut rates further.
The central bank cut its base rate by another 20 basis points to 3.20 percent and has now cut rates by 255 basis points this year and by 380 points since August 2012 when it embarked on its current easing cycle to revive economic growth amid weak inflation.
“In the council’s judgement, there remains a significant degree of unused capacity in the economy and inflationary pressures are likely to remain moderate over a sustained period,” the bank said, adding that a “further reduction in interest rates is consistent with meeting the 3% inflation target  in the medium term.”
However, the bank also tempered its outlook, noting that global financial markets continue to be volatile and a “sustained and marked shift in perceptions of the risks associated with the Hungarian economy may influence the room for manoeuvre in monetary policy.”
    Hungary’s inflation rate fell to 0.9 percent in October from 1.4 percent in September, well below the bank’s 3.0 percent target.
The central bank said the low rate of inflation since the beginning of the year reflects the “disinflationary impact of weak domestic demand and the external environment” and expects inflationary pressures to remain moderate over the medium term as the low inflation environment also anchors inflation expectations.
Hungary’s economy is starting to strengthen and the central bank expects the expansion to continue this year and accelerate next year.
But the level of output is still below potential and unemployment exceeds its long-term level which means that domestic demand is expected to remain weak, holding back inflation.
Hungary’s Gross Domestic Product expanded by an annual 1.7 percent in the third quarter and last week the OECD revised upwards its growth forecast for this year to 1.2 percent from a previous 0.5 percent and for 2014 growth to 2.0 percent from 1.3 percent. In 2012 Hungary’s economy shrank by 1.7 percent.
The international financial environment has been volatile recently, the bank said, due to the future outlook for monitor policy by major central banks and this has led to a slight deterioration in the perceptions of risks from investing in Hungary’s economy along with a new wave of capital outflows form emerging markets.
“In the council’s judgement, the global financial environment remains supporting overall, but volatile sentiment in global financial markets continues to pose a risk, which in turn calls for maintaining a cautious approach to policy,” the central bank said.

 www.CentralBankNews.info

By Sasha Cekerevac for Investment Contrarians

There has been a lot of coverage over the phenomenon that is Bitcoin.

I’m sure many of you are asking yourselves, is this online currency for real? What does it really say about our financial system?

But for those who are unaware, Bitcoin is essentially an online currency that is completely decentralized. Simply put, it is the exact opposite of the U.S. dollar, which is managed by the Federal Reserve.

While the value of one Bitcoin started off being only a few U.S. dollars, over the past couple of months, investor sentiment has become euphoric and the price of a Bitcoin has gone hyperbolic, from approximately US$13.00 in January for one Bitcoin to US$100.00 in July, recently hitting a high of US$900.00 for one Bitcoin in the past few weeks.

Why is investor sentiment so bullish on this online currency?

The best way to think of Bitcoin is as an online version of gold bullion. This digital “gold bullion” has exploded in popularity around the world. In fact, some of the strongest investor sentiment in Bitcoins comes from China. Not only are the Chinese heavily buying physical gold bullion, but they’re now accumulating the digital version of gold bullion: Bitcoins.

Many find the appeal of a decentralized currency attractive in this day and age. With central banks pumping money around the world, owning a piece of something that can’t be controlled by a central bank is very attractive to many people.

However, the spectacular rise of interest in investor sentiment for the digital gold bullion is extremely speculative.

Actual gold bullion has been around for centuries. To place one’s faith in an online version, which has only been around for a few short years, is certainly risky.

But the idea and reasons behind the euphoria in investor sentiment for Bitcoins are valid. More nations are running deficits, racking up long-term debts, and central banks are printing money to inflate their way out of obligations. Clearly, investor sentiment in something as speculative as a Bitcoin is telling us that millions of people around the world are growing increasingly distrustful of central banks.

Even Washington is beginning to listen, as the Department of Justice reported during a U.S. Senate committee hearing on the validity of Bitcoins and that they can be legally considered a means of exchange.

The question then is this: should you consider investing in Bitcoins?

Considering that investor sentiment is so volatile, and this digital currency is so new, I would definitely look to alternative investments that have similar characteristics.

That is to say, I would certainly prefer an investment in physical gold bullion that has been proven for centuries to be a store of wealth, rather than a four-year-old digital currency that can move hundreds of dollars per day.

But because the price of one of the longest-standing stores of wealth, gold bullion, has remained weak, I view this as a long-term buying opportunity. Investor sentiment tends to run in cycles, from bearish to bullish and back to bearish again.

For the long-term investor, the key is to accumulate when investor sentiment is bearish and take profits when investor sentiment is bullish.

This is not to say Bitcoins won’t last; they certainly might. But because it’s so volatile at this point, it’s far too risky to invest in this decentralized currency as a store of wealth.

I could see Bitcoin being worth $50.00 or $1,500—it can go either way, like the flip of a coin. In comparison, I certainly don’t see gold bullion falling to $50.00 per ounce—prices may be headed downward, but they won’t go that low!

http://www.investmentcontrarians.com/stock-market/is-this-digital-gold-bullion-investment-worth-the-risk/3347/

By Michael Lombardi, MBA

The only thing keeping the stock market alive is the easy money that is indirectly being pumped into it by the Federal Reserve, nothing else. The fundamentals for the market are dead in the water.

Here, I present five indicators that point to high risk for key stock indices.

Optimism continues to increase. There’s a general consensus among stock advisors and investors that the key stock indices will continue to go higher. Take the Sentiment Survey by the American Association of Individual Investors, for example. As of November 14, 39.20% of all respondents said they were bullish. In late June, this number stood at 30.28%. Investors who are bearish on key stock indices dropped to 27.47% from 35.17% in June. (Source: American Association of Individual Investors web site, last accessed November 20, 2013.)

History has repeatedly shown us that when the optimism increases and reaches the level of euphoria, key stock indices have turned the opposite way. The examples of this are many.

Corporate earnings are in trouble. Companies are posting lower revenues but reporting higher per-share corporate earnings, beating estimates as they cut costs, reduce their labor forces, and continue on their record stock buyback programs. This “financial maneuvering” cannot go on indefinitely.

And the outlook for corporate earnings continues to deteriorate. Just look at the chart below of estimates of corporate earnings per share of S&P 500 companies in the fourth quarter. You will notice there’s a very clear trend: the estimates continue to decline. Meanwhile, despite corporate earnings estimates falling, the S&P 500 has soared even higher.

Companies are warning about their corporate earnings going forward, as well. As of November 15, 82 of the S&P 500 companies had issued negative corporate earnings guidance for the current fourth quarter. In contrast, only 12 of the S&P 500 companies have issued positive guidance on their corporate earnings for the fourth quarter. (Source: FactSet, November 15, 2013.) These are very troubling statistics.

Corporate insiders are selling stock at an alarming rate. According to a recent article in MoneyNews (November 22, 2013), stock buying by corporate insiders is at a 23-year low! When corporate insiders are selling more stock than they are buying, it shows a lack of confidence by the people closest to the public companies in key stock indices—not a good sign.

The amount of money investors have borrowed to buy stocks has reached an all-time high. Margin debt on the NYSE has surpassed $400 billion for the first time. Historically, when investors have borrowed so much to buy stocks, key stock indices have turned on them. (See “Warning: Stock Market Margin (Borrowing) Reaches All-Time High.”)

Consumer confidence is getting worse. In the first 10 months of 2013, the average month-over-month change in retail sales and food services was 0.24%. In 2012, this number was 0.47% and in 2011, this was 0.59%. (Source: Federal Reserve Bank of St. Louis, last accessed November 20, 2013.) Consumer purchases are slowing. The National Retail Federation (NRF) said this year there will be almost five-percent fewer shoppers out on Thanksgiving weekend compared to last year. In 2012, 147 million shoppers planned to purchase goods. This year, this number is 140 million. (Source: National Retail Federation, November 15, 2013.)

With all this happening, I don’t see many reasons to be bullish on key stock indices. I might be the only one saying it, but this could be the biggest stock market bubble ever created. When it pops, it won’t be pretty.

What He Said:

“Investors have been put into an unfair corner. Those that invested in stocks because they got caught in the tech boom (1999) have seen their investments gone. Now, those that have leveraged heavily to play the real estate game, because it is the place to be (2005), could see the same fate as the stock market investors. Thanks again, Mr. Greenspan.” Michael Lombardi in Profit Confidential, May 27, 2005. Michael started warning about the crisis coming to the U.S. real estate market right at the peak of the boom, now widely believed to be 2005.

This article The Biggest Stock Market Bubble in History?  is originally publish at Profitconfidential

By John Whitefoot for Daily Gains Letter

While you can’t tell, judging by the growth the S&P 500 has experienced this year, most companies on the index aren’t doing all that well. Somehow, against a backdrop of high unemployment and stagnant wages, the index has managed to chalk up a 26% year-to-date gain.

Not only has it managed to hit new highs week after week, it has done so after an increasingly large number of companies warned about revenues and earnings. For example, during the first quarter of 2013, 78% of S&P 500 companies issued negative EPS guidance; during the second quarter, 81% of companies issued negative guidance; and in the third quarter, a record 83% of all S&P 500 companies revised their third-quarter earnings guidance lower. So far, 89 of the S&P 500 companies, or 88%, have already issued negative earnings guidance for the fourth quarter. (Source: FactSet, last accessed November 25, 2013.)

What David Copperfield tricks have these companies employed to mask their weak results? Companies looking to impress their shareholders are, by and large, implementing extraordinary share buyback programs, propping up corporate earnings and masking negative growth.

It’s hard to figure out how the S&P 500 can advance as much as it has during a year where companies are missing on revenues and earnings are, when you factor in share buyback programs, flat.

On top of that, many firms use share buyback programs to simply extinguish option grants, which doesn’t move the overall share count at all.

Not all share buyback programs are being used to artificially prop up results. In fact, a large number of honest S&P 500 companies with strong fundamentals are using share buyback programs to legitimately cannibalize their overall share count.

Not surprisingly, there’s an index that follows that. Rebalanced quarterly, the S&P 500 Buyback Index measures the top 100 stocks in the index with the highest buyback ratios. Over the last decade, it has outperformed the S&P 500 by about four percent year-over-year.

This year’s results, however, have been spectacular. Whereas the S&P 500 is up 26% year-to-date, the S&P 500 Buyback Index is up 40%. Over the last 12 months, the S&P 500 has climbed an impressive 29.5%; over that same time period, however, the S&P 500 Buyback Index is up an eye-watering 44.5%!

Not all share buybacks are created equal. When it comes to pleasing shareholders, share buyback programs are all about timing, both good and bad. Companies that repurchase shares just to prop up their earnings might be paying more for their shares than they’re intrinsically worth, meaning they’re forking out $1.00 for a share worth $0.80. It’s pretty difficult to build long-term investor wealth when you’re doing that.

It’s also difficult to keep the share buyback spigot flowing when share prices are increasing. When share prices rise, companies need to spend more on share buybacks just to repurchase the same number of shares.

If, however, a company is spending $0.75 to purchase shares worth $1.00, that’s a different story. But in this climate, it’s rare, especially when you consider that irrational investors are sending companies with mediocre fundamentals higher and higher every day.

But they’re out there. It’s not entirely difficult in this economic environment to tell which companies on the S&P 500 Buyback Index are most likely using share buybacks to strengthen their bottom line or marionette strings to tow investors along.

A little due diligence will shine a spotlight on the winners.

http://www.dailygainsletter.com/investment-strategy/not-all-share-buyback-programs-created-equal/2143/