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Posts tagged ‘Silver valuations’

Decoupling Now, Currency Crisis Soon

NIA believes that the decoupling we have been predicting of precious metals from the Dow Jones has now officially taken place. A year ago we would consistently see precious metals and stock market prices rise and fall in parallel. We have now seen the Dow Jones decline by 6.1% from its high on August 9th, along with both gold and silver rising by about 3.3% during this same time period.

The Dow Jones to gold ratio is now down to 8.1, near its low for 2010 of 7.9. The gold to silver ratio still remains at a historically high level of 66. However, silver was up today by $0.65 to $19.03 per ounce, its biggest one day gain since early June. We expect silver to significantly outperform gold in the months to come.

One year ago, almost all mainstream economists on CNBC were calling for either a “U” or a “V” shaped economic recovery. NIA said that prices were rising only due to inflation and there would be no economic recovery. NIA went into detail about how destructive government programs like the homebuyers tax credit were helping to artificially boost economic numbers, but as soon as these programs were over, economic activity would collapse to new lows. NIA was right. Now that the government has ended its homebuyers tax credit, we just saw sales of previously owned homes decline in July by 25.5% from one year ago, to their lowest level in a decade. We also saw new home sales in July based on the signing of new contracts decline by 32.4% from one year ago.

The government will report their second estimate of second quarter GDP on Friday and we will likely see a revision from growth of 2.4% down to growth of less than 2%. Keep in mind, the White House budget is projecting a GDP growth rate of 5.58% over the next five years (along with permanently low interest rates) in order to get the budget deficit down to $752 billion in 2015. With a sharp contraction in GDP likely coming in the third quarter, NIA continues to believe that the Federal Reserve will unleash the mother of all quantitative easing this fall, along with a huge push by Congress for a new stimulus plan.

U.S. mutual funds currently have about $10.5 trillion in assets, with $2.5 trillion being in bonds and $4.6 trillion being in equities. Although the amount of money invested in equities is still far greater than bonds, asset inflows into bonds have outpaced equities for 30 consecutive months. During these 30 months, $559 billion were invested into bond funds while $209.4 billion were pulled out of equity funds. It is a real shame that most retiring baby boomers who are looking for safety, are actually investing their savings into the riskiest assets of all.

The U.S. savings rate climbed in June to 6.4%, its highest level in one year. It is unfortunate that Americans who are doing the right thing by increasing their savings, are simply giving their savings away for free to the government which is spending it recklessly with no way of paying it back. When this bond bubble begins to burst, prices of commodities will explode to the upside like nothing you have ever seen before.

NIA believes that there is a risk of the bond bubble beginning to burst as early as this fall. Smart money is now loading up on commodities. In the week ended August 17th, net long holdings in futures for 20 commodities rose 2.6% to 1.18 million contracts, with the biggest rises coming in agricultural commodities like wheat and corn. Commodity assets under management gained by about $8 billion in July to over $300 billion.

The World Gold Council just announced today that gold demand surged in the second quarter of 2010 to 1,050.3 metric tons, up 36% from one year ago. This rise in demand came mostly from rising investment demand, with gold demand for backing ETFs climbing 414% and retail investment demand rising by 29%.

Because the rest of the world still likes to follow and emulate the U.S., it might be Americans who initiate the upcoming stampede out of bonds, U.S. dollars and other dollar-denominated assets, and into precious metals. For the time being, the average American is still more likely to be a seller of gold. Recycling of gold increased 35% last quarter to 496 metric tons. Once Americans become educated about how gold isn’t expensive and is still trading for only 1/2 of its all time high adjusted to the CPI and 1/4 of its all time high adjusted to the real rate of price inflation, and that by recycling gold they are actually trading real money for fiat paper money, this recycling supply will diminish and the world will face a major gold shortage. The world already has a major silver shortage that will become apparent to all very soon.

NIA’s co-founders still receive phone calls on a daily basis from non-NIA member friends asking for us to invest in Real Estate “short sales” and other foreclosure deals. By year 2012, NIA guarantees nobody is going to want to touch Real Estate and all of your friends will be calling you about the latest Krugerrand that they bought. Although NIA doesn’t project hyperinflation to occur until the years 2014-2015, there is a serious risk of hyperinflation occurring any day now. Hedge funds need to be where the momentum is and as soon as the momentum turns against the dollar, we could see the bond bubble burst and the currency crisis begin instantaneously.
source http://inflation.us

Quarterly Market Brief & Stock Pick

source www.wealthbuilder.ie

Quarterly Market Brief & Stock Pick

The American stock market is still working through a consolidation phase following the magnificent run up since March of last year. The Dow transports have presented us with a new Dow buy signal but so far the Industrials have unconfirmed. The Dow 30 needs to break the 10,700 range convincingly before I will advise student clients to re-enter the market through their virtual portfolios.



The reason for this is clear. There are a number of major issues playing on the market and accordingly risk is high. In particular persistent unemployment, rising inflation, anticipated year end interest rate hikes and the planned end of quantitative easing are all still being priced into the competitive mix. I want evidence that this risk has been adequately discounted. Once we start moving to higher highs on both Dow 20 and Dow 30 we know that this process is over. Until that occurs the markets will probably be range bound as they have been since October – December 2009. If the confirmation signal is mixed it may prove problematic for valuations.

In general the QQQQ’s, the ETF for the NASDAQ, have been doing particularly well with AAPL breaking to new all time highs. This movement augurs well for technology moving forward, provided of course that the overall market returns to its former bull trend.

The dollar continues to grow in strength but this has more to do with a weakening Euro than any powerful fundamental growth in the American economy. In other words the issue is not who is the strongest but who is the least weak. As long as this is the case it will play havoc with Gold and Silver valuations and I continue to advise clients to avoid these metals in their virtual trading.

April is earnings season and I am looking forward with great relish to see how valuations in the market hold up. A lot will soon be told and how Wall Street reacts will give great insight on how to successfully play the rest of 2010. So keep your seat belts fastened and your minds focused.

Stock Pick

McDonald’s Corporation: MCD

Stock Fundamentals:

Dividend Yield:        3.5%

Financial Strength:    A++

Return on Capital:    21%

Return on Shr. Equity:    30.5%

Earnings Growth:    10%


McDonald’s Corporation finished 2009 in superb fashion and is one of my favourite choices for students learning the pension strategy.

Robust comparable store sales, margin expansion, and favourable currency movements were behind much of the earnings per share advance.

The momentum will probably continue into much of 2010. Although the economic recovery is taking shape, consumers are still looking to save money, especially in the face of high unemployment. Consequently, McDonald’s value and convenience have enabled it increase market share.

The company’s short and long term prospects look solid, Its dividend is secure and financial strength impeccable.

(Pension Strategy)

Note:    Since last March our pension portfolio mix is up a whopping 55%, including dividends, year on year. When one considers that this is our most conservative portfolio in terms of risk you soon realise the power of the recent stock market bull run. While we do not expect a similar performance this year from the pension portfolio over the last decade this strategy has proven itself to be ideal for those seeking an average 10-15% annual return with minimal risk and minor time allocation.

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