InvestMacro Forex News

By The Sizemore Letter

Three weeks ago, I asked if the bull market in REITs and MLPs was over, to which I replied “no.”

Bond yields may indeed be rising with the scaling back of the Fed’s quantitative easing, but few investors in or near retirement can eke out a living on today’s yields.  Even if the current payout made ends meet, there is no margin of safety for inflation at today’s levels.

A well-bought REIT and MLP portfolio offers something that bonds cannot: the potential for an income stream that rises over time.  REITs and MLPs also have built-in inflation protection in that their real assets and the rents that they generate should more than keep pace with general price inflation.

So long as there are Baby Boomers entering retirement, there should be a decent market for REITs and MLPs trading at a decent price.  And after today’s Fed-induced bloodletting, some of my favorites are now on sale.

Three weeks ago, I recommended buying shares of Realty Income ($O) and Martin Midstream ($MMLP) on any continued weakness.  I would say that yesterday’s rout qualifies as “weakness.”

And to this list I would add National Retail Properties ($NNN)—which fell a ridiculous 7.1% yesterday–and Retail Opportunities Investment Trust ($ROIC)—which is down by a comparable amount over the past two days.

Could more volatility be coming to this sector?

Absolutely.  I don’t necessarily expect it, but I certainly can’t rule it out.  This is why I recommend easing your way into these positions in stages.  Use yesterday’s bloodletting as a buying opportunity, but also keep a little powder dry in the event of another selloff.

Disclosures: Sizemore Capital is long O, NNN, ROIC, and MMLP. This article first appeared on TraderPlanet.

By www.CentralBankNews.info     Pakistan’s central bank cut its policy rate by 50 basis points to 9.0 percent, its first rate cut this year, saying it was placing “a higher weight on declining inflation and low private sector credit relative to the risks to the balance of payments position.”
    The State Bank of Pakistan (SBP) – which at its two previous board meetings in April held rates steady to ensure a competitive return on rupee denominated assets and thus an inflow of needed capital – said there had been a noticeable change in sentiment following the recent political elections and a decline in inflation had helped increase the relative return on domestic assets.
    “If the economy is to reap the benefits of evolving positive sentiments and lure the domestic as well as foreign investors, then implementation of a reform oriented and credible medium term fiscal outlook is essential,” the SBP said.
    But the central bank stressed that the absence of foreign financial inflows and high fiscal borrowing remained “formidable economic challenges, especially for monetary policy,” while power shortages and security concerns remained strong impediments to growth.
    But the continuous decline in inflation along with moderate aggregate demand has improved the outlook for inflation, and without a cut in the policy rate, real interest rates would have risen and not helped support private investment, the SBP said.
    Pakistan’s headline inflation rate fell to 5.13 percent in May, continuing the declining trend since hitting 12.3 percent in May 2012, reaching its lowest level since October 2009.
    For fiscal 2013, which ends June 30, the SBP expects inflation to be at least two percentage points below its target of 9.5 percent. Last year the SBP cut policy rates by 250 basis points.
    A planned one percentage point increase in general sales taxes by the government and possible higher electricity tariffs pose a risk of inflation exceeding the SBP’s 8 percent inflation target for fiscal 2014, but the central bank said demand is expected to remain moderate, dampening inflation.
    Pakistan’s economy continues to be plagued by energy shortages and concern over basic security, with the estimate for Gross Domestic Product in fiscal 2012/13 at 3.6 percent, below the target of 4.3 percent as investments continue to decline.
    Despite the improving sentiment following the election of Nawaz Sharif as prime minister, the central bank said it had not changed its assessment of the balance of payments position. While the current account deficit remain manageable, around 1.0 percent of GDP this year, the real challenge remains the lack of financial inflows.
    In the first 11 months of the 2012/13 fiscal year, there has been a net capital outflow of $413 million.
    “Add this to the ongoing payments of IMF loans and it becomes clear that the pressure on foreign exchange reserves has not abated,” the SBP said.
    As of June 14, the central bank’s foreign exchange reserves were $6.2 billion, down from $6.7 billion as of April 5 and $8.7 billion at the end of January.
   
    www.CentralBankNews.info

Source: Peter Byrne of The Energy Report (6/20/13)

http://www.theenergyreport.com/pub/na/15387

For short-term traders, understanding cyclical markets is the key to profits. And with the hottest summer months ahead, natural gas could get a price boost when air conditioners start to hum, says Roger Wiegand, publisher of the Trader Tracksinvestment newsletter. In this interview with The Energy Report, Wiegand shares some promising names for investors who are ready to read the technical charts—and mark their calendars.

The Energy Report: How are the supply/demand fundamentals playing out for North American energy resources?

Roger Wiegand: Fortunately, supply is strong. The U.S. has substantial reserves of natural gas and oil. Shale gas in West Texas is a big, wide new program. The Bakken region in the Dakotas and Eastern Montana sports 7,000 producing wells. Because domestic oil and gas production in the U.S. is increasing, we are buying less petroleum from the Middle East, much to the chagrin of the dominant forces there.

The big oil producers in the Middle East want to hold the Brent price, which is worldwide oil, at around $100 per barrel ($100/bbl). In the U.S., the floor price for West Texas Intermediate (WTI) is $85/bbl. Oil production is up 10%, which normally would push the price down. But the increase in supply is offset by inflation within the energy sector. Oil could go as high as $110–115/bbl before the end of the year.

The price of oil is tied to security-based fears. Things are ugly in Syria and Turkey right now. The oil price in the U.S. could increase in response to fear of war or increasing turmoil in the Middle East. When things really get scary, as they did in Afghanistan and Iraq, there is often a $10/bbl premium in the oil price, which is a lot.

TER: Is the oversupply of gas in the U.S. an opportunity for export?

RW: Exporting liquid natural gas (LNG) with ships is very expensive. But shipyards in South Korea and Europe are actively building LNG-carrying vessels. The primary buyer of LNG is Japan. Japan overreacted when it shut down its 25 nuclear power plants after the tsunami. The price of electricity went through the roof. When I was there last year, the temperature in office buildings was kept at a toasty 80 degrees. Japan needs to turn to LNG across all of its energy fronts. Some of its nuclear power was turned back on, and it has old plants that run on coal. Electricity generation from coal is leveling off, though.

For a while, China was starting up a new coal-fired power plant every week. That is a stunning fact, but it reflects just how much power the Chinese economy requires. A lot of these plants operate with no environmental protection restrictions. Consequently, the air and water are terribly polluted in industrial and urban areas of China. But the government is doing the best it can to stimulate the provision of electricity from a range of resources: wind, solar, coal, nuclear and natural gas.

TER: Let’s focus on opportunities in the junior oil and gas sector. What promising names do you have for us today?

RW: New Zealand Energy Corp. (NZ:TSX.V; NZERF:OTCQX) is a good company. Its price recently backed off because after three major drilling expeditions performed well, the company’s share price went up tremendously and investors took profits. But the company is well funded and it controls important reserves. We advise holding on to New Zealand Energy, because the price is likely to go back up.

We recently found a solid petroleum service company in the Calgary region of Canada, Enterprise Group Inc. (E:TSX.V). It is a pipeline and construction company that provides equipment and services to regional oil and gas drillers. It was formed from a combination of three smaller companies and management has plans to expand. Keep in mind that Enterprise Group is not exploring, which can be risky. Enterprise is a pick and shovel operation and its business is very steady. If one element of its trade slows down, the other two revenue sources can pick up the slack. It had tremendous new net profits on the last report. The managers are very sharp guys. I spent an hour with them and I was very impressed. We recommended Enterprise Group at CA$0.60. The floor is CA$0.20. The intermediate price is about CA$0.45, but the current price is way above that based upon good performance.

TER: Do you think holding onto a company is a good way to hedge against cyclical downturns in the energy markets?

RW: A diversified company that performs really well is worth hanging onto it as a long-term investment. However, we are not long-term investment recommenders. I encourage people to trade if they have gained or lost a sizable amount in a stock. Of course, some folks just do not want to trade. They want to hold onto a stock for 10 or 20 years. But those who want to trade need to understand how the cycles work in the shorter term. For example, commodities generally go higher into the fall before selling off. A trader who watches the charts will take profits before the fall selling event.

I still read the old Jesse Livermore books—his investment psychology is excellent. His attitude is that a trader should not be in the market all the time. He can pick his spots and go for the best, either long or short. Personally, I have not had a lot of luck trading short, so I do not do it, and I stopped recommending it. We have had good luck with call options in the right time of year, however. But a word of caution: If you do not have the technical expertise to deal with puts and calls, do not try to do it at home.

TER: Is it wise for junior investors to put together a large portfolio under the assumption that some percentage of them will pay off over time?

RW: I advise being selective: pick a handful of good stocks with the right fundamentals and technicals. Buy and sell them in sync with the seasonal cycles for each industry.

TER: What other oil and gas service industries are out there?

RW: In a word: railroads. The Keystone pipeline has been delayed, but there is still a pressing need to transport oil and gas from the Bakken region to petroleum refineries at the Gulf of Mexico. A lot of that oil is being moved by rail. It costs more money to transport by rail, but overall it is economic right now. A big refiner in Texas, Valero Energy Corp. (VLO:NYSE), recently announced its intention to own a fleet of 12,000 rail cars by 2015. And in 2009, Warren Buffett bought the Burlington Northern Santa Fe railroad, which transports oil by tank car. Buffet does not want to see the Keystone Pipeline built because that would ruin his tank car business.

With so much oil and gas drilling in Canada and in the U.S., the service sector is where we are seeing major growth. The drillers need exploration backup, pipes, general servicing and hauling—all the things that allow the drillers to drill. Even some of the largest firms like Exxon Mobil Corp. (XOM:NYSE) buy specialized services, as it is cheaper to outsource than to create internal capabilities to do these types of jobs.

TER: What do you think about the future of coal in North America?

RW: We have liked coal for a long time. Environmentalists have tried to prevent construction of new coal-fired power plants in the U.S., and generally they’ve been successful. But we think that energy sources for the U.S. should include every type of energy. Coal still supplies 40–45% of all power produced in the U.S. Some plants are better than others. Clean coal can be done, although it costs a lot. Some utilities find it more economic to convert coal-fired plants to operate using natural gas.

TER: What’s the future of nuclear energy in the U.S.?

RW: There is a future for nuclear in North America, but it is darn slow. It takes 12–15 years to even get a permit to start up. Fifteen years is a long wait. Some of the old reactors are ready to be shut down because it costs too much to repair and update them.

TER: Please sum up the state of the energy market for short-term investors.

RW: The energy cycle doldrums do not last very long. For example, natural gas usage goes up dramatically in July and August on air conditioning demand. And many of the coal-fired power plants in the U.S. that were converted to natural gas cannot be reconverted, because it costs too much money. So the utilities are increasingly dependent on burning natural gas, which was trading way under $2 per thousand cubic feet ($2/Mcf), and now it’s up to $4/Mcf. It is headed toward $5/Mcf this year. Now is a good time to trade in that seasonally popular commodity.

TER: It was good talking to you, Roger.

RW: Thanks, Peter.

Roger Wiegand produces Trader Tracks to provide investors with short-term buy and sell recommendations and give them insights into political and economic factors that drive markets. After 25 years in real estate, Roger has devoted intensive research time to the precious metals, currency, energy and financial markets for more than 18 years. He creates a weekly column for Jay Taylor’s Gold, Energy & Tech Stocks newsletter.

Want to read more Energy Report interviews like this? Sign up for our free e-newsletter, and you’ll learn when new articles have been published. To see a list of recent interviews with industry analysts and commentators, visit our Interviews page.

DISCLOSURE:

1) Peter Byrne conducted this interview for The Energy Report and provides services to The Energy Report as an independent contractor. He or his family own shares of the following companies mentioned in this interview: None.

2) The following companies mentioned in the interview are sponsors of The Energy Report: New Zealand Energy Corp. Streetwise Reports does not accept stock in exchange for its services or as sponsorship payment.

3) Roger Wiegand: I or my family own shares of the following companies mentioned in this interview: None. I personally am or my family is paid by the following companies mentioned in this interview: None. My company has a financial relationship with the following companies mentioned in this interview: None. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview.

4) Interviews are edited for clarity. Streetwise Reports does not make editorial comments or change experts’ statements without their consent.

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London Gold Market Report
from Ben Traynor
BullionVault
Friday 21 June 2013, 06:45 EDT

SPOT MARKET gold bullion prices touched fresh three-year lows Friday at $1269 an ounce before recovering a little by lunchtime in London, as stocks and commodities also regained some ground after sharp falls yesterday.

 Spot silver prices fell as low as $19.41 an ounce, as with gold their lowest level since September 2010, before they too recovered a little, as other commodities also ticked higher while the US Dollar weakened slightly.

 A day earlier, gold fell more than 5% between the London open and US close, while the S&P 500 recorded its biggest daily drop since November 11 2011, with volumes reaching a 2013 high, a day after US Federal Reserve chairman Ben Bernanke said the Fed could begin scaling down its asset purchases “later this year”.

 CME Group, which operates the New York Comex exchange on which gold futures are traded, announced yesterday it is increasing margin requirements on gold trading by 25% to $8800 per 100-ounce contract. The new initial margin requirement will come into effect after close of trading today.

 “That is definitely affecting gold,” says Joyce Liu, investment analyst at Phillip Futures in Singapore.

 “For those who cannot put out margin calls on time, they will be squeezed out even when they don’t want to get out.”

 Heading into the weekend, gold in Dollars was down 7% on the week by late morning in London, with silver down 10%.

 Gold in Sterling meantime looks set for a drop of more than 5% on the week, trading below £840 an ounce. Gold in Euros was down around 6% on the week at €982 an ounce.

 Going by London Fix prices, gold in Dollars looks set for its worst week since April, although a fix price of $1273 an ounce or below would make for the worst week since at least October 2008.

 “In the precious metals markets, nothing is simple and now we are at the lows, market sentiment is needless to say very negative,” says David Govett, head of precious metals at broker Marex Spectron.

 “I am now hearing from people how a thousand Dollars is the next stop. These are the same people who were predicting two thousand Dollars this year, so I take it all with a pinch of salt. However, there is no doubt that the bull market in gold has had its back broken and its day in the sun is long gone.”

 Over in India, traditionally the world’s biggest source of private gold demand, financial services firm Reliance Capital has suspended sales of gold. The Reliance Gold Savings Fund had assets equivalent to eight tonnes of gold under management at the end of the first quarter, newswire Reuters reports. Indian imports last month amounted to 162 tonnes, according to the country’s finance ministry.

 The announcement follows the introduction by India’s authorities of new measures aimed at curbing gold imports, such as restricting imports on consignment and raising duties to 8%. The objective is to reduce India’s current account deficit and thus support its currency.

 The Rupee however touched an all-time low of Rs.60 to the Dollar Thursday, as the Dollar strengthened and emerging market assets sold off following the Fed’s announcement.

 “We are not insulated from what is happening in the rest of the world,” India’s finance minister P. Chidambaram told a press conference in response to the Rupee’s fall.

“My request is we should not react and panic. It is happening around the world.”

 In contrast with Reliance, jeweler Shree Ganesh, which in recent years has imported around 70 tonnes of gold a year,  said earlier this week that it plans to issue short-term debt to fund bullion imports now that the rules prevent it from obtaining credit from suppliers shipping the gold on a consignment basis.

 Indian gold demand usually drops during the summer months during the period known as Chaturmas.

Ben Traynor

BullionVault

Gold value calculator   |   Buy gold online at live prices

Editor of Gold News, the analysis and investment research site from world-leading gold ownership service BullionVault, Ben Traynor was formerly editor of the Fleet Street Letter, the UK’s longest-running investment letter. A Cambridge economics graduate, he is a professional writer and editor with a specialist interest in monetary economics. Ben can be found on Google+

(c) BullionVault 2013

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

By HY Markets Forex Blog

The European market opened green on Friday, advancing from its sharp loss on Thursday after the Federal Reserve announced the cut in its monthly bond purchases later this year and end by 2014, if the US economy continues to grow and improve.

The European Euro Stoxx 50 rose 0.35% at 2,595.47 as of 7:01am GMT, while the German’s DAX opened at 0.30% higher to 8,053.15. At the same time, the French CAC rose 0.48% to 3,716.68 and the UK’s FTSE 100 advanced 0.23% to 6,173.50.

“Markets are bracing for the day that they no longer have steroid injections to keep them going. Instead, fundamentals will become important to sustain gains in risk assets. Signs of firmer US and Chinese growth and stabilization in Europe will eventually drag markets out of their turmoil,” analysts at Credit Agricole wrote in a note.

The Global equity market ,lost ground on Thursday after the Fed Chairman Mr. Bernanke hinted a possible reduction of its quantitative easing (QE) program later this year and end it by next year if the US economy continues to improve .

Euro zone current account for April is yet to be released, as it is expected to show a surplus of 15.1 billion on a seasonally adjusted basis. Meanwhile, the European Union finance ministers are still discussing a possible direct recapitalization of the euro zone bloc’s banks to save them from falling.

The Asian shares opened at a negative territory of Friday.  The Chinese Shanghai Composite dropped 0.50% to close at 2,073.09 as of 7:01 am GMT, while the Japanese Hang Seng fell 0.64% to 20,251.76 at the same time.

The post European Stocks rises,recovering from sharp losses appeared first on | HY Markets Official blog.

Article provided by HY Markets Forex Blog

By HY Markets Forex Blog

Gold futures dropped to a low $1,269.46 during the Asian trading hours, lowest since September 2010. The S&P GSCI gauge of 24 commodities dropped to a low 4.4%, while the MSCI Index of equities climbed 3.8%. The index from the Bank of America shows that the Treasuries dropped 2.4%.

The yellow metal traded higher with 0.79% at $1,295.50 per ounce as of 7:45 am GMT, at the same time, silver fell by 0.1% lower at $19.815 per ounce.

Gold fell as much as 7% on Thursday, marking the decrease of $88 to the closing reading of $1,286.20.

Other large speculators and hedge funds cut their position by 4.1% to 54,779 contracts in the week ended June 11, according to the U.S commodity futures trading commission data.

Wednesday’s statement from the Federal Reserve’s conclusion, disclosed that the Federal Open Market Committee (FOMC) will keep its monthly $85 billion asset purchases unchanged, however the Fed Chairman Mr. Bernanke hinted a possible cut in its bond-purchase program towards the end of the year and end around mid-2014 if the U.S economy should pickup.

The unemployment rate should shift between 7.2% and 7.3% by the end of the year before its falls between 6.5% to 6.8% by the end of 2014, according to the last forecast released. The Gross domestic product (GDP) is expected to rise between 2.3% and 2.6%.

The post Gold drops below $1,300; lowest since ‘10 appeared first on | HY Markets Official blog.

Article provided by HY Markets Forex Blog

By www.CentralBankNews.info

By MoneyMorning.com.au

Did you see the news?

Stocks took a beating yesterday.

The S&P/ASX 200 dropped 104 points. At the low point it was down 130 points. Overnight the US market took a 2.3% pummelling. And this morning the Australian market is set to cop it again.

What caused the slump?

Well, first the stock market didn’t like the news that the US Federal Reserve may slow down on money printing later this year. And soon after the market heard bad economic news out of China. My colleague Greg Canavan recently released a special report to prepare his subscribers for exactly the kind of situation that now seems to be developing.

If anyone needed an excuse to sell stocks, they got two rather than one.

It seems like it’s time to give up on investing and sell those stocks…

If you’ve thought about giving up you wouldn’t be the only one to think that.

Finance website MarketWatch quoted legendary fund manager Stanley Druckenmiller speaking at a Goldman Sachs conference:

‘The importance of my skills is receding. Part of my advantage, is that my strength is economic forecasting, but that only works in free markets, when markets are smarter than people.‘

He went on:

‘Ten years ago, if the stock market had done what it has just done now, I could practically guarantee you that growth was going to accelerate. Now, it’s a possibility, but I would rather say that the market is rigged and people are chasing these assets.‘

Stanley Druckenmiller is the former managing director at Soros Fund Management. He left Soros’ firm to set up his own firm, Duquesne Family Office.

Those sound like the words of a disillusioned man. If a big hitter like him thinks there’s little point investing, what hope is there for the rest of us?

Market Manipulation is Yesterday’s News

We hear people say all the time that the market is rigged. Heck, we’ve said it a number of times too.

But here’s some breaking news: insiders have openly rigged the market for at least the past five years. And they’ve rigged the market less openly for many years before that.

Let’s be serious. Do you really think central bankers have only just started manipulating interest rates? Do you really think the big merchant banks have only just started manipulating the interbank rate market?

Do you really think that the big investment funds and Wall Street insiders have only just started getting tips so they can front-run market sensitive news?

Anyone who thinks this stuff is new is…well, we don’t want to be too harsh…let’s just say they’re naïve and leave it at that.

It’s like those folks kicking up a stink about the NSA spying on phone calls and internet usage. They act as though that’s breaking news too. The reality is that anyone with half a brain knew that stuff was going on.

But it’s not just Druckenmiller. The pages of mainstream financial websites have gone apoplectic in the past 24 hours. All the top stories on Bloomberg News covered the crashing global markets.

And it’s not just stocks that have come under pressure. Gold has taken a beating too. On the plus side, if you own assets priced in US dollars, you’ve got some protection.

Gold may have fallen in US dollars, but thanks to the lower Australian dollar, the gold price is higher than where it was a month ago. It’s a similar story if you own US stocks. The lower Australian dollar cushions the blow.

But all this news about crashing markets reinforces something we always tell you: don’t invest every penny in the stock market. It’s also why we tell you to own gold. Remember, we told you to stop thinking and fussing about it, and just do it. It’s a no brainer.

So, does that mean gold is better than stocks? No, of course not. Gold is an insurance policy against disaster. Saying you prefer gold to stocks is like saying you’d rather your house burned down so you can collect on the insurance.

Businesses are Still Doing Business

As we’ve explained before, if you want to build wealth you need to invest in businesses that generate (or have the potential to generate) revenue and profits.

Sure, the stock market has taken a pasting in recent weeks and days. But you know what? The roads were just as busy this morning as we drove from Frankston to Albert Park. People are going to work, companies are selling things and people are buying things.

So regardless of what the markets say, businesses and consumers are still doing stuff.

Of course, what you have to do as an investor is figure out how much of an impact these events will have on the broader economy and individual businesses. You need to work out if a company’s share price reflects the value accurately, or if it’s over- or under-valued.

Well, despite falling stock prices (or perhaps because of it) when we look at the market we see plenty of undervalued stocks. We see a bunch of overvalued stocks too…but we try to stay clear of those if possible.

In short, it pays to remember that the stock market is made of individual companies. Bad news may drag the whole market down, but that’s why you need to buy stocks that appear to be the best value. Then when the market recovers you’ve got the best chance of the share price going up as revenues, profits and dividends rise.

So the mainstream can scream and shout as much as they like about the billions wiped off the market. The Age loves that headline with its market blog, and used it again yesterday. And doubtless they’ll use it again today.

Funnily enough they didn’t report on the billions added to the market over the course of the previous week…that would be too inconvenient.

A Market Crash is an Opportunity to Buy

Put simply, we’ll continue to yawn at the actions of the central banks. After five years of listening to their rubbish we’ve long since figured out that you shouldn’t let them influence how you invest.

Mr Druckenmiller may have given up on the markets, and may be questioning his value as an analyst, but we’re not about to give up that easily.

As far as we’re concerned, with everything going on and stocks taking a beating, this is a great time to be an investor.

We’ve previously advised you to have no more than 20-30% of your wealth in stocks. But now, with prices crashing, it’s time to think about raising your exposure. Just last night we issued our latest research report for Australian Small-Cap Investigator subscribers where we recommend two great buying opportunities.

No one – not even the Federal Reserve – is going to scare us away from investing in the world’s best wealth builder: the stock market.

Cheers,
Kris
Join me on Google+

From the Port Phillip Publishing Library

Special Report: The Sixth Revolution Has Just Begun

Daily Reckoning: QE is Dead, Long Live QE

Money Morning: The US Economy Butterfly Effect

Pursuit of Happiness: Calming a Property Market Storm

Australian Small-Cap Investigator:
How to Make Big Money from Small-Cap Stocks

By MoneyMorning.com.au

‘The more I see, the less I know for sure.’ – John Lennon

When you’re younger, your limited life experiences tend to cloud your judgement. At eighteen you know everything (at least if you’re male).

The more you experience life, the more you realize how little you actually know. And that which you think you know, may not even be correct.

Twenty-six years in financial planning has taught me a lot. None of it came from textbooks. No amount of theory can replace experience.

Just when you think you know about markets, along comes a surprise.

Allow me to share with you what my experiences have taught me and what I think I know about the investment business…

Humility

Markets can make you truly humble. Those who treat the market with disrespect eventually pay a very heavy price. Markets are like the ocean – one day gently rolling waves, the next, wild seas with strong undertows. Anyone who does not respect the power of the ocean is a fool and the same goes for the markets.

Markets do have very long term trends. However over shorter time frames – five to ten years – they can be completely unpredictable. The All Ords for example is back to levels it first reached in late 2005. Eight years of zero growth – I bet few people factored that into the computer modeling used for a 2005 financial plan.

There are no new ways to go broke

Debt is the common denominator in all financial disasters. Those who live by the creed ‘you have to bet big to get big’ can be lucky, but they are in the minority. The majority ends up wrecked on the rocks of financial reality. Be prudent. I prefer the creed ‘slow and steady wins the race’.

The best luck is bad luck

Success without bad luck is a disaster waiting to happen. Bad luck and misfortune teach you to appreciate the good times. Success without setbacks is conditioning you to have unrealistic expectations.

Patience

Patience truly is a virtue. In this fast paced world, instant gratification is embedded in our society. The thought of taking twenty years to pay off a home or forty years to build retirement capital is completely at odds with the ‘want it now’ attitude.

Markets (interest rates, shares and property) do not always deliver the returns we would like or expect. Sometimes they defy the averages and perform abysmally for very long periods. You cannot make markets go any faster, therefore patience is the key to holding your nerve.

Do not chase returns

This is a follow on from patience. If interest rates are low, the temptation is to leave the safety of the bank and chase an extra few percent. Invariably the cost for chasing the higher return comes with loss of capital – this loss is usually far greater than the few percent you earned.

Always take profits

You’ll never go broke taking profits. So many people want to squeeze the last drop out of a winning investment. Leave some for the next person.

Besides greed, the other reason people don’t take profits is, ‘I’ll pay too much tax!’ This is dumb. Paying tax is a cost of successful investing. Live with it. Under Capital Gains Tax (provided you’ve held the investment for 12 months) the taxman will extract a maximum of 22.5% of your gain. You keep 77.5%. This is far better than seeing the market wipe out your paper gains.

Busts always follow booms

Since Tulip Mania became folklore we know booms always bust. Yet when the animal spirits capture society’s emotions this logic is abandoned in the chase for the almighty dollar. Night follows day and booms always bust. When the heat is on in the market, get out and stay out. The market may get even hotter and you may experience sellers remorse – get over it. The hotter the market becomes the more violent the snap back to reality will be.

Transparency of investments

Only invest in something you understand. There are so many ‘iceberg’ investments out there. You think you see the risk, but most investors have no idea what lurks beneath the surface.

The rule of thumb is ‘If you don’t understand it, don’t do it’.

Higher risk can mean greater loss

Have you heard the saying ‘High Risk /High Return’? It’s not entirely true. In some cases high risk pays off handsomely. However high risk can mean greater losses. Personally I prefer low risk/high return.

How is this possible? Buy low and sell high.

Far too many people buy high and sell low.

Do not invest for tax reasons

No one likes to pay more tax than they have to, but never invest solely for tax reasons. The taxman tells you upfront the percentage of your income and capital gain he will extract from you. The market does not give you any indication of the percentages it can take from you.

If you are a successful investor you must pay tax. There are certain structures you can use to minimise tax, but ultimately the investment must be sound.

If it sounds too good to be true…

Listen to your inner voice; if it’s saying, ‘This is too good to be true,’ take the advice. You may genuinely miss out on the ‘once in a lifetime opportunity’ but from my experience you have more than likely dodged a bullet.

The magic of math

There is an old saying ‘the market goes down by the elevator and up by the stairs’. If a market loses 50%, it has to recover 100% for you to break even.

The 50% loss can happen in a blink of an eye, whereas the recovery process can take years – look at the All Ords, still way below its 2007 peak.

Calculating your downside is far more critical than focusing on your potential gains. As an example one of my recent investments was in US dollars.

Buying in at $1.05 my guess was the downside was probably 5% (if the AUD rose to its previous high of $1.10). However the upside could be over 100% if the AUD falls heavily into the $0.50 range (perhaps GFC Mk2 could trigger this).

To lose 50% on this investment the AUD would have to appreciate to over $2 against the USD – highly unlikely.

Understanding the math assists in taking calculated risks.

Vern Gowdie
Contributing Editor, Pursuit of Happiness

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By Profit Confidential

What a remarkable past 20 hours it’s been…

Yesterday afternoon, the Federal Reserve announced it might cut back on its $85.0-billion-a-month money printing program later this year.

The Dow Jones Industrial Average tanked 200 points following the news (and continues to fall this morning), European stock markets fell about two percent, Asian stock markets saw about the same, bond yields jumped to their highest level in years, and gold bullion prices are getting hit hard this morning.

Now, here’s an opinion on what’s really happened over the past 20 hours, and what will happen going forward, that you won’t read anywhere else:

Back in December of 2012, the Federal Reserve announced it would continue with its quantitative easing program until the unemployment rate in the U.S. economy fell under 6.5% and inflation increased beyond 2.5%.

If I heard the Fed Chairman correctly yesterday, those targets are out the window now.

In a press conference after the Federal Open Market Committee (FOMC) meeting minutes were released, Federal Reserve Chairman Ben Bernanke said the central bank might change the pace of the asset purchases later this year depending on the performance of the economy. He hinted that the Federal Reserve may even end quantitative easing by mid-2014 if the outlook on the U.S. economy remains as it expects. (Source: Financial Times, June 19, 2013.)

The Federal Reserve expects the U.S. economy to grow between 2.3% and 2.6% this year and between 3.0% and 3.5% in 2014. And the central bank doesn’t expect the unemployment rate to decline below 6.5% until 2015. (Source: Economic Projections, Federal Reserve, June 19, 2013.)

So the tone of the Federal Reserve has changed from “we’ll keep money printing going until the unemployment rate hits 6.5% and inflation goes to 2.5%” to “we might start pulling back on money printing later this year if the economy continues to improve.”

Dear reader, I have been writing about this for months. I’ve even created several video presentations on the topic:

By creating trillions of dollars in newly printed money, the Federal Reserve inadvertently created a bubble in the bond market and spurred a big rally in the stock market.

The bond market bubble, which I have been warning would burst, has already started to do so. In my opinion, the Fed sees a stock market bubble coming too and put the brakes on that rally yesterday by making it very clear to market participants not to count on quantitative easing to boost the market higher.

But here’s what wasn’t said yesterday:

By the end of this year, the Federal Reserve will have printed just under $1.0 trillion in new money—roughly equal to the U.S. government’s budget deficit for the year. What a coincidence.

So if the Federal Reserve stops buying U.S. Treasuries, who will step in and buy them? We know foreign investors have pulled back on buying U.S. Treasuries for a variety of reasons. To attract buyers to U.S. Treasuries in the absence of the Federal Reserve buying them, interest rates on the U.S. bonds will have to rise…and that’s exactly what has been happening in the bond market.

But won’t higher interest rates kill the housing market and stifle an economic recovery that is already questionable?

You’ve got it, dear reader. The Federal Reserve’s comments on pulling back on its money printing program have surely cooled the stock market rally for now. But the real question is: will the Federal Reserve really be able to stop printing money given that 1) the government’s pool of buyers for its bonds has diminished, and 2) higher interest rates will kill the so-called housing and economic “recovery”?

I surely wouldn’t bet on the Federal Reserve pulling back on money printing anytime soon. Any forms of investment that were hit particularly hard by the Fed’s comments yesterday might actually be a buy right now.

Did I just hear someone say “gold bullion”?

Michael’s Personal Notes:

As I hear more and more talk about jobs being created in the U.S. economy, it’s obvious politicians and the mainstream are not looking at the conditions in the jobs market—they are simply following the government’s “official” manipulated unemployment rate.

The reality is that the jobs market is fundamentally tormented; and hands down, it has become the biggest hurdle for an economic recovery in the U.S. economy.

As I have said many times, the unemployment data provided by the government do not depict what’s really happening with the jobs market. The so-called “recovery” we have seen in the jobs market of the U.S. economy has been nothing but a large number of jobs created in low-wage-paying sectors.

Consider Texas, the second most populous state in the U.S. economy. In 2012, Texas had 282,000 people working at jobs that paid the minimum wage set by the federal government—$7.25 per hour—and there were 170,000 others who earned less than that.

Combining these together, those earning minimum wage or less totaled 452,000 people or 7.5% of all hourly paid workers in the state. But back in 2006, before the U.S. housing bubble burst, there were only 173,000 hourly paid workers in Texas who earned minimum wage or less. (Source: Bureau of Labor Statistics, March 12, 2013.) In six years, there has been a 161% increase in the number of workers who are earning minimum wage or less in Texas.

Sadly, this isn’t just happening in Texas. Other states in the U.S. economy have very similar issues. In North Carolina in 2012, there were 137,000 workers who earned minimum wage or less, a jump of 200% from 2007, when only 46,000 individuals were in this category. (Source: Bureau of Labor Statistics, March 28, 2013.)

The government can pump out its monthly official unemployment rate, which shows us that less than eight percent of the population is unemployed, but the truth is that these figures do not include people who have given up looking for work and people who have part-time jobs but want full-time jobs, which they can’t find. Add those two numbers to the mix, and the real unemployment rate in the U.S. is between 13% and 14%.

The fact is the U.S. economy will only experience real economic growth when consumers increase their spending. But right now, with the anemic jobs market, consumers simply don’t have the financial resources to increase their spending.

In fact, in May, the Bureau of Labor Statistics reported the average hourly earnings for all employees in the U.S. economy fell 0.2%. (Source: Bureau of Labor Statistics, June 18, 2013.) What this means is that the pockets of consumers have shrunk even further.

The number of people in the U.S. economy with a full-time job and a secondary part-time job has also been on the rise. In May, there were 3.7 million Americans who were working two jobs. This number has increased five percent in the U.S. economy since the beginning of 2013. (Source: Federal Reserve Bank of St. Louis web site, last accessed June 19, 2013.)

U.S. consumer spending makes up almost 70% of the U.S. gross domestic product (GDP). With only minor improvements in the jobs market since the credit crisis hit in 2008, real economic growth in the U.S. economy is far from happening.

What He Said:

“The conversation at parties is no longer about the stock market, it’s about real estate. ‘Our home has gone up this much’ or ‘our country home has doubled in price.’ Looking around today, it would be very difficult to find people who believe that one day it could be out of vogue to own real estate because properties would be such a bad investment. Those investors who believe a dark day will never come for the property market are just fooling themselves.” Michael Lombardi in Profit Confidential, June 6, 2005. Michael started warning about the coming crisis in the U.S. real estate market right at the peak of the boom, now widely believed to be 2005.

Article by profitconfidential.com