Alan's Finance Blog

Why 2012 looks to be even ROUGHER than 2011!

by Mike Larson

Welcome to 2012! I trust you had an enjoyable holiday season like I did … and that you’re just as ready as I am to make this your most profitable year ever.

So what am I expecting?

In a nutshell, an even MORE tumultuous year than 2011. I say that because many of the problems that hammered markets in 2011 haven’t gone away. They’ve gotten even worse — and the list of NEW problems is getting ever longer.

Why You Still Need to
Worry about Europe!

Last year, I said repeatedly that Europe’s purported debt problem “fixes” would fail. That was clearly on target. I also told you that I believed the global economy would slow broadly. We’ve gotten plenty of evidence that’s the case in Europe, South America, and Asia. Though the U.S. has admittedly fared a bit better than expected.

I also told you that many stocks would struggle …

That was certainly what played out, with the Dow plunging by 2,000 points in late summer. A late rally did save us from an even worse year-end result. But the S&P 500 still only managed to finish 2011 within four one-hundredths of a point from where it closed in 2010. If that’s what the Wall Street pundits consider a good year, I’d hate to see a bad one!

So what will the next 12 months hold?

Well, in Europe, I’m expecting things to get much worse. We’ve seen policymakers over there throw everything but the kitchen sink at this crisis …

They created two large bailout funds — the European Financial Stability Fund (EFSF) and the European Stability Mechanism (ESM). They engineered a second Greek bailout when the first one failed. They poured money into sinking bond markets in Italy and Spain.

And in their grand finale for the year, they launched a massive Longer Term Refinancing Operation (LTRO), propping up 523 European banks with 489 billion euros (about $650 billion) in 3-year loans.

But the underlying problem still remains: European banks and European countries simply owe too much money to too many creditors, and they have neither the capital nor the income to sustain their debts.

Banks are redepositing LTRO cash with the ECB.

That’s why most banks are taking all that LTRO money and parking it right back at the ECB rather than making new loans to European companies or other European banks! Indeed, an all-time record 453 billion euros were parked at the ECB’s deposit facility earlier this week — showing the money is not circulating through the economy as policymakers hoped!

Meanwhile, a key manufacturing index in Europe just registered 46.9 in December. That was the fifth month in a row below the 50 level, the dividing line between economic expansions and contractions. The message? That much of Europe is mired in recession.

At the same time, we just learned that the leaders of Germany and France are set to hold yet another “fix Europe” summit soon. That will come in advance of yet another gathering of all 27 European Union leaders later in January. If things were really “fixed” over there, would we really need meeting after meeting after meeting? Of course not!

It Ain’t Just Europe Folks!

If Europe were the only problem out there, you might be able to shrug it off like Wall Street traders tried to do late last year and in the first day of trading in 2012. But it’s not. I also believe that …

* The emerging markets that led us out of the wilderness after the 2008-2009 downturn will NOT be able to do so again. That’s because their own economies are slowing sharply, and because countries like China are facing serious real estate problems akin to what we faced previously here.

* The dollar could rally in the coming months as the euro continues to sink into the abyss. That would be negative for contra-dollar assets, and asset prices overall. After all, the last time the dollar surged, it forced investors worldwide to close out so-called “carry trades.” All the assets that those highly leveraged trades funded — stocks, high-risk bonds, commodities, and so on — tanked as a result.

Bickering politicians can’t agree on how to fix the nation’s deficits.

* The domestic economy is still hamstrung by an anemic housing market, a relatively lackluster job market, weak income growth, and more. Meanwhile, the risk of yet another downgrade to the U.S.’s sovereign debt rating is rising rapidly thanks to political gridlock in Washington, a continuing surge in the U.S. debt load (to just past $15 trillion), and the $1 trillion-plus annual budget deficits we continue to run.

Until next time,

Mike

Plan Now and Reap a Harvest of Profits in 2012

by Kevin Kerr

When the clock strikes midnight on December 31 this year, many traders, fund managers and individual investors will be glad to ring in the New Year and hopefully better profits in 2012. This year has proven to be a challenge for even seasoned traders who have been trying to ride the volatility wave and constantly changing fundamental news out of Europe and elsewhere.

Everything from gold and oil to base metals and coffee, have been on a roller coaster ride that doesn’t seem to end. However one group of commodities that could be poised for a strong rebound in 2012 is: The grain markets!

Grain Price Rebound Likely

Rent on land is expected to shoot up 12 percent this year.

The grain markets have not been spared the extreme volatility in 2011. And prices for corn, wheat, and soybeans have fluctuated wildly. The USDA reported better than average crops, and the weak global economy all weighed on prices for the second half of 2011. But all that could change dramatically in 2012 as demand is likely to pick up with emerging markets continuing to buy more and more grains … especially soybeans.

Even banking giant UBS is suggesting 2012 could be a very good year for grains. UBS rated farm commodities with high-yield credit and hard-currency emerging market debt, as the asset classes in which it recommended an overweight rating.

While banks are keen on agriculture as a potential highly profitable sector in 2012, farmers are facing much higher input costs.

According to reports, Purdue economists Bruce Erickson and Alan Miller say “growing corn, wheat, or soybeans next year will likely cost much more than it did in 2011.” In the latest Purdue Ag Economics Report they outline many of the increases in crop input costs that farmers will have to budget for the coming crop year.

Farmers struggle with rising costs to get their crops in the ground.

Inputs like fuel, fertilizer, seed costs, and more, are going up exponentially. And at the end of the day the futures prices will reflect that. One input cost that is going up faster than any other, is rent! Cash rents that some farmers pay for the land they grow their crops on, will likely see a big jump of another 12 percent, the same increase seen a year ago.

Overall, the added costs are going to put an incredible burden on farmers … consequently the prices you pay at the neighborhood grocery store are sure to skyrocket.

Unique Ways to Put the
Grain Markets to Work for You

You can take advantage of agriculture price increases by buying corn, soybeans, or wheat futures and options or an ETF like DBA.

Another idea is to consider buying shares in some of the key companies supplying much of these inputs …

Companies such as Monsanto (MON), Agrium (AGU), Potash (POT), as well as farm equipment makers like Deere (DE). In addition, some of the seed companies may also be very good prospects to look at. Companies like Syngenta (SYT) are sure to benefit as agriculture prices rise.

Agricultural commodities can often stay very strong, even in down markets. After all, everyone has to eat! So look for a few good agriculture plays for your portfolio to help you “grow” your wealth in 2011.

Regards,

Kevin Kerr

Is a return to the gold standard on the horizon?

by Jack Crooks

I’m not trying to scare you. But here are a few popularized quotes from Jon Maynard Keynes that you should pay attention to:

Keynes on fiat currency:

“There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.”

Keynes on the gold standard:

“In truth, the gold standard is already a barbarous relic.”

Keynes admits that a paper money system will only serve to hollow out the middle class and eventually destroy an economy. He also seems to suggest that a gold standard can never succeed as a monetary system.

He is right. And it is because of …

Government Interference

Policy of uninhibited money and credit creation funneled into limitless spending simply serves to undermine the wealth of the private sector. But it is done under the guise of softening business cycle downturns, thereby precipitating a cloud of complacency over the private citizens

Somewhat contradictory, Keynes is well-known for his theory that suggests stimulating demand in order to mitigate the severity of business cycle downturns. In his book The General Theory of Employment Interest and Money, Keynes wrote:

“To dig holes in the ground, paid for out of savings, will increase, not only employment, but the real national dividend of useful goods and services. It is not reasonable, however, that a sensible community should be content to remain dependent on such fortuitous and often wasteful mitigations when once we understand the influences upon which effective demand depends.”

Sounds ridiculous, I know. But to his credit, I don’t think he intended government to implement crisis-thwarting measures to augment the business cycle boom. This is what breeds the malinvestment that contributes to “overturning the existing basis of society.” But then again, Keynes’ stuff is full of contradictions.

It is also because of government interference that Keynes recognized the gold standard as a barbarous relic. Such a hard-money system tied the hands of government’s spending power. That is, of course, until the government untied its own hands by breaking the rules. The gold standard really never stood a chance for reasons that can be chocked up to government power and, to a somewhat lesser extent, market forces.

Alan Greenspan wrote many years ago:

“In the absence of a gold standard, there is no way to protect savings from confiscation through inflation …

“… This is the shabbiest secret of the welfare statists’ tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding statists’ antagonism toward the gold standard.”

So What’s Pushing
Gold Higher?

Over the last several months, the rising price of gold has been explained by saying investors are simply fed up with governments and their policies dictating the direction of fiat currency values.

It’s hard not to agree here. But an article from a few months back suggested rising gold prices should be mostly attributed to growing demand from China. The point of the article was to show that the Chinese are being encouraged to invest in gold and gold-related assets.

China, the world’s largest gold producer, imported 260 tons of gold in 2010; and their imports have increased mightily in 2011. And in the first quarter of this year, China passed India to become the world’s largest market for gold bars and coins.

But why are Chinese policymakers encouraging Chinese to invest in gold?

I’m sure many will tell you, as The Economic Times recently quoted an analyst saying, “The view that gold is an enduring store of value is firmly rooted in Chinese cultural traditions.”

Many will also tell you it is a means to reduce the risks of rising inflation in China as well as those risks in underperforming assets of the West.

Take a look at the two charts below. See the resemblance?

That is some compelling fundamental evidence, but much of the demand still revolves around negative market sentiment. Back in August a Gallup poll summed it up quite well: More Americans believed gold is better investment than anything else right now.

Another Keynes quote:

“Americans are apt to be unduly interested in discovering what average opinion believes average opinion to be; and this national weakness finds its nemesis in the stock market.”

Much of what’s enabled the process of printing money and bailing out banks, the process that engages all the hidden forces of economic law on the side of destruction, has been the focus on the financial economy. Unfortunately, the financial economy can no longer be the scapegoat if Americans lose interest in discovering what average opinion believes average opinion to be.

It is starting to look that way, ever so slightly!

Does That Mean a Return to the
Gold Standard Is on the Horizon?

Not a chance …

The power interests have too much to lose and too much power to lose it. It will likely take a near collapse of the current system before the market forces a change. Or, a major reform brought on by a rogue president elected to office by a public growing increasingly distrusting of the establishment could do the trick. But that, too, is unlikely.

Still, the market may actually bring about a mild transformation despite public sector and financial sector interference. That transformation would likely mean gravitation towards infrastructure and real-economy investments.

In order for this to happen, the public would need to openly reject the trajectory of credit creation and managed interest rates; the public would look to first protect capital and then aim to increase savings; this increased savings will be what drives investment in the real economy.

The hard part is finding the incentive to save when interest rates are kept so low. That’s why so many are more than happy to park their money in gold until the environment changes. A week and a half ago the Federal Reserve and ECB were both active in quelling market fears. The Fed only resorted to the usual “it’s there if we need it, and it looks like we might need it” rhetoric; but the ECB cut interest rates by 25 basis points. The kneejerk reaction from the market was “Hooray! A global QE3!” But this week the hangover has set in.

As investors sober up, risk appetite looks vulnerable. Are investors tired of being fooled by a monetary and fiscal mirage?

As long as the U.S. dollar index stays above that lower trend channel, a move up through 81 is very possible.

Best wishes,

Jack

Physically-Backed Gold ETFs Provide Convenience

by Ron Rowland
Thursday, October 6, 2011 at 7:30am

The global economic crisis isn’t getting any better. Yes, we see rallies in various markets, but they’re getting weaker and shorter. The smart money is taking the opportunity to sell on strength.

I don’t know how it will all end. As I said in last week’s column, picking the bottom is tough even in the best of circumstances. I can’t really blame anyone who is looking for a safe haven right now. Many people think gold is a good place to hide.

Today I’m going to review some ways you can get gold exposure through exchange-traded funds. First, though, let’s look at the big picture for this most precious metal.

Remember $500 Gold?
It Wasn’t So Long Ago

To say that gold was strong the last few years is an understatement.

Gold has moved a long way in just a few years.

Of course, the only reason you buy gold (or anything else) is because you think it will outperform whatever asset you would otherwise own — U.S. dollars, in this case.

So it appears that a substantial number of people would rather hold gold than greenbacks. You could say the same for most other paper currencies.

People can change their minds, of course. If those who presently own gold decide they would rather have dollars, yen, stocks, Treasury bonds, sea shells, or whatever, gold prices could collapse.

Likewise, the gold price in dollar terms could go up quite a bit further if more people decide to buy.

I can’t predict what the crowd will do, but I think gold still has a lot of upside potential. If you agree, ETFs make it easy to get aboard. Let’s start with the two biggest gold-based ETFs:

• SPDR Gold Trust (GLD)

• iShares Gold Trust (IAU)

GLD is by far the most popular exchange-traded gold proxy. In fact, with assets of around $65 billion as of early October, it is one of the most popular ETFs of any type.

GLD is bigger, but IAU is no small fry — it currently holds about $9 billion in gold bars.

IAU and GLD have very similar structures. In both cases, the ETF shares are backed by physical gold stored in a secure vault. The shares fluctuate but typically move in line with the cash price for gold bullion.

Here’s a key distinction, though, and why it could make a difference which ETF you choose:

• Each GLD share represents 1/10 of an ounce of gold, while …

• Each IAU share is valued at 1/100 of an ounce of gold.

So if the world gold price is $1,600 per ounce, you’ll see GLD trading for around $160 and IAU around $16 per share.

The smaller increments in IAU make it easier to fine-tune your portfolio. Here’s an example. Say you want to put $1,000 to work in a gold ETF. This represents 10 percent of your $10,000 nest egg. (For simplicity, we’ll ignore transaction costs.)

If you use your $1,000 to buy GLD at $160 a share, you can buy six shares for $960. Or you can buy seven shares for $1,120. That means you allocated either 9.6 percent of your money, or 11.2 percent to GLD. There’s no way to get any more precise.

Cut the pie into smaller pieces and you can have exactly the right amount.

If your $1,000 goes to IAU, you could buy 62 shares for a total of $992, or 63 shares for $1,008. This is still not exactly where you want to be — but it’s quite a bit closer.

The small increments are less important if you’re trading larger amounts, of course. If, like me, you want to keep your gold investment within specific parameters, IAU’s low share price can be a big help. IAU also has a lower expense at 0.25 percent versus the 0.40 percent for GLD.

Is the Gold Really There?

Any investment in gold involves some degree of trust that the gold is really there. That’s the case even with gold coins and bars. They can be counterfeited or the metal diluted with impurities. Unless you are a properly equipped chemist, you may never know the difference.

Your gold is stored in huge vaults, but you can’t get in to see it. Only the auditors and a few others are allowed inside.

The same is true of gold ETFs. Sure, they say they have so many ounces of gold in a vault someplace. Do they really? Some conspiracy theorists would have you believe they don’t. However, I think it’s a pretty safe bet.

A bigger issue — even if you presume the ETF has stored away the correct amount of real gold — is that no vault is secure from government seizure. Bureaucrats do crazy things sometimes. So it helps to pay attention to who has jurisdiction in the place your ETF keeps its gold.

GLD and IAU mostly use vaults in New York, London, and Toronto. A couple of newer ETFs offer a way to diversify your gold holdings geographically:

• ETFS Physical Swiss Gold Shares (SGOL) stores its gold in Switzerland.
• ETFS Physical Asian Gold Shares (AGOL) stores its gold in Singapore.

I personally don’t see much need for SGOL and AGOL, but they’re available if this feature is important to you.

Finally, I want to mention Sprott Physical Gold Trust (PHYS). I’m not calling it an ETF because it is actually something else. PHYS lacks the mechanism that keeps the other gold-based ETFs trading in line with the world gold price. Instead, PHYS is a closed-end fund that can trade at a significant premium or discount to actual value. That may be good or bad, of course. Just be aware of the possibility.

With ETFs, investing in gold has never been easier or more convenient. Consider them carefully if you want part of your money in precious metals.

Best wishes,

Ron

Source: http://www.moneyandmarkets.com

Failures Projected as Mortgage Insurers Struggle

by guest editor Gavin Magor

Mortgage insurers are in big trouble. Losses account for 154 percent of premiums earned. And they totaled a jaw-dropping $2.4 billion in 2010, thus threatening to destroy the mortgage insurance business, which is dominated by six groups.

The insurers are facing serious threats to their very existence as the financial crisis continues. So is it inevitable that they’ll fail? Certainly their struggle is a factor slowing the housing market’s recovery.

Weiss Ratings recently examined the 34 largest mortgage insurers’ performance through the first quarter of 2011. Subsidiaries of MGIC Investment Corporation (MTG), Radian Group (RDN), Genworth Financial (GNW), PMI Group (PMI), American International Group (AIG) and Old Republic International Corporation (ORI) wrote 80 percent of the $4.4 billion of premiums in 2010.

These same companies also recorded $1.7 billion or 71 percent of the combined $2.4 billion losses. United Guaranty Residential Insurance Co. (an AIG subsidiary) is the only large insurer that had a profit during 2010 and for the first quarter of 2011. And Mortgage Guaranty Insurance Corp (MGIC) recorded a profit in 2010.

With losses of $618 million in the first quarter of 2011 and no sign of significant improvement in the economy for the remainder of the year, it appears that the $2.4 billion in losses mortgage insurers suffered will be matched in 2011.

These losses were not on the back of increasing premiums. In fact, it was exactly the opposite!

With $3.5 billion out of the $4.4 billion of premiums written by the largest insurers, only Radian Guaranty Inc, saw a rise in premiums, increasing 3.5 percent. The remainder of the companies had drops of between 6.4 percent and 21.6 percent.

So why does this matter?

Well, the losses and lower premiums are additional evidence that the housing crisis is nowhere near an end. In fact, without mortgage insurer guarantees, lenders might not extend loans to low down-payment borrowers at prevailing interest rates. And with government guaranteed FHA loans scarcer than ever, there may be nowhere for these borrowers to turn.

The bottom line: If insurance is not available at the lower end of the housing ladder, sales of existing homes face continued weakening.

Of the thirty four mortgage insurers reviewed in the Weiss Ratings’ study, only 6 (18 percent) were rated as having strong financials with 19 (56 percent) rated as weak, including all of the largest.

And from an investing perspective, a look at Weiss Watchdog, shows PMI rated D-, MTG rated D, and GNW rated C-. Not too enticing unless you can find signs that insurers are actively engaged to turn the tide.

Losses Mounting …
Cash Dwindling

With insufficient capital to meet state regulator requirements, PMI Mortgage insurance Co. may be unable to write any new policies. The company recently set up a new insurer specifically to write new business, but his company hasn’t written many policies so far. And according to the Associated Press, PMI’s CFO, Donald Lofe, indicated that the group may consider bankruptcy, although it has no immediate plans to file.

Capital and surplus — the dollars that remain after insurers subtract liabilities from assets — has been dropping for the 34 companies we examined, from $7.7 billion as of December 2010 to $7.2 billion as of March 31, 2011. Losses account for the vast majority of the $494 million (7.4 percent) drop in capital. On an annualized basis this would result in a further $1.5 billion or 21 percent drop in capital to around $5.7 billion.

For some insurers, the key to writing new business is continued waivers from the state regulators over the maximum 25 percent risk-to-capital ratio required. Both PMI and Old Republic exceeded this level during the second quarter of 2011.

The rate of losses is unsustainable. The only question is whether some insurers will stop writing business before they run out of capital. And even then their survival is on a knife edge.

With parent company stock prices dropping an average of 64 percent this year as of Thursday’s close and a price-to-book value of 35 percent or less for each of these stocks — Old Republic being the exception at 62 percent — it appears the markets are wise to be concerned.

Investors beware … speculators may see opportunities.

Best wishes,

Gavin Magor

Source: Money and Markets

Reinventing the American Dream, Abroad!

by Keven Kerr

The late George Carlin, the outspoken and controversial comedian and modern day philosopher, said it best:

“The reason they call it the American Dream is because you have to be asleep to believe it.”

Well these days that’s certainly true.

America’s forefathers and the first colonists risked everything to escape tyranny in Britain, and they fled to the New World to form ‘a more perfect union.’

So what has happened in the last 235 years that has brought the United States to the sorry condition it’s in today?

New American Nightmare

First, it’s important to define what exactly the “American Dream” is anyway? Many people nowadays may not even know.

In fact, for some struggling Americans today the ‘new American Dream’ could be radically different from what it was in the past.  Today it could simply be not being foreclosed on, or a few more weeks of unemployment benefits, or more food stamps. That’s how bad it is.

The definition of the American Dream by writer and historian James Truslow Adams in 1931 stated that “life should be better and richer and fuller for everyone, with opportunity for each according to ability or achievement.” This meant regardless of social class or circumstances of birth.

The idea of the American Dream is the very essence of the U.S. Declaration of Independence, which proclaims: “… that all men are created equal, that they are endowed by their Creator with certain inalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.”

This clearly doesn’t mean more food stamps or longer unemployment lines.

The American dream has turned into more of a nightmare for most people.

Exporting the American Dream

Source: endoftheamericandream.com

The lifeblood of America has always been small business and entrepreneurs, as they provide the much-needed jobs and tax revenues that help support the nation and make it prosperous.

They also provide the innovation that has created some of the world’s most important inventions, such as electric light, computers, space travel, medical advances, entertainment, and on and on.

The achievements and the contributions Americans have made over the short existence of the country are simply miraculous.  But as they say, “the light that burns twice as bright burns half as long,” and America has burned very brightly.

Source: economicnoise.com

Unfortunately, as time passed the country lost many of its core values. Today, we have numerous barriers to the American Dream and all that’s associated with it.

Homeownership, once the cornerstone of the American Dream, is clearly out of reach for the large majority of would-be homebuyers.  Job losses, tight credit, or non-existent credit, have made it next to impossible for potential buyers.

And for those unfortunates who are owners and want to sell, it’s worse.

Homeowners have seen their property values sink, and are often simply throwing the keys in the air and walking away because the properties are so upside down it simply makes no sense to continue to pay for it. Small and medium businesses are impacted too.

The idea of having a vision for a new product or service and developing it and growing it has always made America the land of opportunity. Unfortunately, today there are many major hurdles for anyone seeking to accomplish this goal.

Regulatory agencies, taxes, legal, and credit woes, etc. make the idea of starting and growing a business in the United States a complicated affair.

Many people are opting not to attempt to follow their dream, or, like myself, are picking up and taking their dream elsewhere.

Building Your Own Mayflower

Source: moveoneinc.com

The idea that things may not get better for a long time, or possibly ever, is depressing. After all, most of us have been brought up to believe that if we work hard, save, and contribute to our communities that we too could live the American Dream, it’s simply not the case anymore.

I believe the colonists who first set sail to the New World had the same concerns, and also the same fears about the unknown. Yet they took the risk, boarded boats, and set sail for better or worse.

Today you can too.

Opportunities abound abroad, and as the new global economy grows that will only increase. Asia, Eastern Europe, (where I live), Russia, and elsewhere are all expanding. While every place on earth has challenges, the concept of ‘anything is possible’ is fresh and alive in these places.

But what can investors do if they just can’t take the major step of packing up and shipping out? There are many steps investors can take to protect themselves, but here are four, key action steps everyone can take right now.

Here is my four-point action plan to help you protect yourself and even prosper from the crumbling American Dream:

#1. It’s said a lot, but you must reduce or diversify out of the U.S. dollar as much as possible and into tangible assets. Gold and silver are the most common, but there are many other ways too. The more diverse your holdings, the better.

#2. Pay down your debts as quickly as possible, so your credit cards and other borrowings don’t bury you. Cut the dead weight and turn from a massive consumer to a pragmatic saver and investor.

#3. Become irreplaceable where you work. Take classes outside of work and educate yourself, so you have valuable skills to offer the global marketplace in case you lose your job or want to leave the country. Make your skills portable and desirable. This is key in the new world workplace.

#4. Keep the dream alive, and don’t fill yourself with fear and loathing. Instead, look for what really makes you happy and imagine your glass as half full. You don’t have to bury your head in the sand and ignore reality. Just be sure to see what the reality is and what it’s not.

I love America, and every part of my being wishes and hopes that the dream at home will be resurrected and even improved on. For now, however, I have decided that to protect myself and my family and to give my children a better chance, the opportunities elsewhere are better.

As I said in my first action step, some great ways to take measures to protect and diversify your wealth, are with gold and silver investments.

Using specific gold and silver mining stocks, and ETFs such as GLD and SLV and others. You can also purchase gold bullion coins from reputable dealers such as, American Century, Dillon Gage, FideliTrade, Manfra, Tordella & Brookes, and Rare Coins of New Hampshire.

Remember though, ETF options are what I like best because they offer you leverage on ETFs and you get an added bonus: Limited risk.

They’re the tool I use to help my Master Trader members seek gains in any major asset class in the world — stocks, precious metals, commodities, bonds and even foreign currencies — no matter what event or trend is happening in the world!

The bottom line is America is an amazing country that has simply lost its way. Hopefully, the dream can return. But in the meantime, investors have no choice but to take steps to protect themselves and their families, even if that means taking drastic measures.

Yours for resource profits,

Kevin Kerr

Source: http://www.moneyandmarkets.com

Sometimes the most powerful investing strategies are also the simplest!

by Nilus Mattive

A lot of folks just don’t get dividends.

They think they’re little throwaway payments that companies make to shareholders. Or they say only deep-pocketed investors really benefit from them.

But nothing could be further from the truth!

In fact, this might surprise you, but 41.73 percent of the stock market’s historical returns have come from dividend payments.

That’s right — from January 1926 through June 2011, nearly half of the S&P 500′s rise can be attributed to those lowly dividend payments … or more accurately, their payment and reinvestment.

This is precisely why I recommend buying companies that consistently lavish more and more cash on their shareholders.

And it’s also why, if you’re currently receiving dividend payments and can afford to forgo the income right now, I strongly recommend plowing them back into more shares.

After All, Dividend Reinvestment Is One of the
Simplest, Most Powerful Strategies Around!

First, the bad news: To see real results from dividend reinvestment, it WILL take some time.

But once it starts kicking, things reeeaaally get rolling!

That’s because dividend reinvestment is based on the “compounding effect,” whereby money you’ve already earned on your investments begins to earn returns of its own.

For example, if you put $10,000 into a savings account with a 6 percent annual interest rate, you’ll have $10,600 after one year. Next year, you’ll be earning 6 percent on the $10,600 rather than just the original $10,000.

That might not seem like a big deal, but the effects can really add up over time. Ten years later, you’d have almost $18,000, 80 percent more than you started with!

And if anything, the compounding involved with dividend reinvestment is even more accelerated than simple interest compounding on itself.

Here’s why: You’ll be steadily increasing your holdings of a particular stock over time, setting yourself up for even more dividends down the line.

Plus, if you choose companies that consistently RAISE their dividend payments, the end result is actually yet another layer of compounding on top of it all.

Better Yet, It’s Extremely Easy to
Start Reinvesting Dividends …

Hundreds and hundreds of companies are more than glad to help long-term investors buy additional shares with their dividends, so they’ve created dividend reinvestment plans (commonly known as DRIPs) to make the process easier.

Here are some pointers on DRIPs:

• In some cases, the company runs the plan itself. Most times, however, the plan is run by an independent agent.
• While a few plans allow you to buy your initial stock directly, most require you to be a current shareholder.
• Many plans also allow you to buy additional shares with your own money; and some will even automatically deduct a set amount from your checking or savings account at predetermined intervals.
• A select number of plans even allow you to purchase your shares at a discount (generally between 1 percent and 10 percent) to the stock’s current market price. Talk about a deal!

Now, before you sign up for one of these plans, please note that if you don’t plan on participating for at least a few years, it’s probably not worth the hassle.

Okay, you own a dividend-paying stock and you want to reinvest your dividends. How do you get started?

First, find out whether a company offers a DRIP plan. You can contact its investor relations department to find out. They’ll be happy to provide you with the necessary forms and/or the plan agent’s phone number.

These days, you can also find much of the information on third-party websites.

One very useful site is www.computershare.com. This company acts as the plan administrator for hundreds of DRIP plans and their website allows you to search by company name. Another valuable resource is www.moneypaper.com, which offers many of the same features.

If your company offers a plan, you simply sign up for the plan by phone or online. Then, the company itself or its plan agent will automatically reinvest your dividends into additional shares. If they allow additional purchases, they can also help you set up automatic deductions from, say, your savings account.

If your company doesn’t offer a DRIP, don’t despair. There are still ways to efficiently reinvest your dividends. Many brokers will do it at no charge!

What about mutual funds and ETFs? Many funds will automatically reinvest dividends for you. And although exchange-traded fund investors are typically responsible for reinvesting any dividends they receive, your broker might be willing to do it for free. So don’t be afraid to ask.

After all, while there are certainly plenty of powerful investing approaches out there, dividend reinvestment has to be one of the most powerful — and most proven — ways to build substantial wealth over the long term.

Best wishes,

Nilus

Source: Money and Markets

All Eyes on Europe While China Quietly Weakens

by Bryan Rich

In recent weeks the crisis in Europe has continued to dominate world markets. But behind the scenes China, the world’s highly touted global growth savior, has been proving more and more fragile.

China continues to try to rein in inflation, recently raising interest rates for the fifth time since last October, but they’ve been unable to get a grip on it. Worse, the aggressive monetary and credit tightening is damaging its economy.

China’s all-important manufacturing sector has weakened sharply, recording its worst reading since February 2009 during the depths of the global financial crisis. Moreover, it’s looking increasingly like China is finally set to begin its own bubble burst.

Especially when you consider this …

Back in late 2008-early 2009, when the global economy was on the edge of the cliff looking down, global governments coordinated unprecedented monetary and fiscal stimulus, backstops and emergency aid to avoid disaster. And even though China was still growing at 6 percent, its government did the same, rolling out the biggest fiscal stimulus package (as a percentage of GDP) in the world — about three times the size of the U.S. fiscal stimulus.

Why did they do it? Jobs.

Experts say China needs to hit a 9 percent growth rate to keep their people employed. Because when unemployment rises, so does social unrest. And that’s the biggest threat to Chinese leadership — a revolution in the most populated country in the world.

Here’s the problem …

Too Much Easy Money!

China’s economy has grown dramatically in the past decade, and it has the largest population in the world. But the economy simply couldn’t absorb all of this easy money! The result: Persistent inflation. And the money ultimately spilled over into speculative assets, both globally and domestically, driving an unprecedented appreciation in Chinese real estate.

For now, the Chinese are trying to engineer a perfect landing, where they put a lid on inflation, without crushing their economic growth — a difficult feat, for sure.

If they can’t, China is on the path of one of two outcomes:

1) An inflationary spiral, or

2) A significant economic slowdown (i.e. recession).

In outcome one, the masses likely rise up against the government because they can no longer afford the basics of life, especially food. In outcome two, the masses likely rise up because of a massive wave of job losses.

Either of these outcomes creates big problems for the global economy — which has relied on Chinese growth to drive global economic recovery.

Unfortunately, for the Chinese government and the global economy …

The Cracks in China
Are Already Showing

Real estate bubbles tend to pop when there are increases in interest rates, downturns in general economic activity, or exhausted demand. I think we can check all three of these. The latter is being self-induced by the government’s attempts to curb both general inflation through interest rates, and property speculation by raising lending standards.

A National Bureau of Economic Research (NBER) study shows the price-to-rent ratio in Beijing so out of line that a stellar yearly price appreciation is required to financially justify buying a property versus renting. If annual home price appreciation slowed to only 4 percent, prospective buyers become financially motivated to turn to renting. And NBER estimated that the demand-hit would likely trigger price declines in Beijing of over 40 percent.

And anytime you have a real estate bubble primed to pop, the next place to look for problems is the banks. In fact, historical financial crises typically find their origin in the property market.

While the Chinese government flooded the country with money back in 2009, it also kept the easy money flowing through cheap loans from state-owned Chinese banks.

Now, China has asked its banks to stress test for a scenario where property prices plunge 50 percent!

A report by Moody’s this week served as a warning on Chinese banks, exposing an extra $540 billion of local government debt, thus adding to the scale of problem loans in the banking system.

Jim Chanos, a well-known China bear and hedge fund manager, has a chart that reveals this overinvestment, not only in Chinese real estate, but Chinese fixed asset investments in general.

Take a look …

>From the chart above, as Chanos explains it, never in modern history is there a record of a country that has invested so heavily in fixed assets (greater than 40 percent of GDP) for such a sustained period of time. He estimates that the overbuilding in commercial real estate has been so extreme that there’s a 5×5 cubicle for every man, woman and child in China.

Given this bursting bubble scenario, for a world that has been hitched to the idea that China can grow at a double-digit rate year in and year out, you now have to ask the ultimate question:

What would the global economy look like if China slowed down to 5 percent?

Who gets hurt if China slows? Likely, everyone since the global economy has been reliant on Chinese growth to fuel recovery.

Fitch Ratings reckons that a Chinese slowdown to 5 percent growth would result in a 20 percent plunge in global commodity prices. Indeed a grim outlook for the many emerging market and commodity rich economies that have been huge beneficiaries of China massive stimulus spending in recent years.

On top of that, China as a buyer of the euro, troubled sovereign debt and Greek state-owned assets has been the stabilizing force in European markets throughout the ongoing European sovereign debt crisis.

If this “China-rug” was pulled out from under the global economy, expect another violent, 2008-like, flight from riskier assets.

Bottom line: The world economy remains very interconnected. And the busts associated with the great global credit bubble are still unfolding. Expect crises to ripple. Be defensive!

Regards,

Bryan

Source: http://www.moneyandmarkets.com

Why this summer, it truly IS different!

by Mike Larson

They’re lining up in the wake of last week’s rally. You know who I’m talking about. The “second half recovery” crowd.

Two years ago, in the summer of 2009, they said a short-term pullback in the market and the economy was just a correction. And thanks to the $800 billion-plus in economic stimulus spending, plus the Federal Reserve’s asset-inflating “QE1″ program, they were right.

One year ago, in the summer of 2010, they said the Flash Crash and market pullback wouldn’t amount to anything. Because Helicopter Ben Bernanke launched QE2, they got that right too.

But this summer, it truly is different!

The Fed can’t ride to the rescue with QE3, with multiple policymakers nixing that notion …

Congress and the Obama administration can’t launch any significant new stimulus programs. They’re focused on tax increases and program cuts, not more over-the-top spending …

Even the bailout brigades in places like Europe are running out of power to spike the markets with more monetary booze. Not even ONE WEEK after European policy makers managed to cram a Greek austerity package down that country’s throat, bonds in all the PIIGS countries have started melting down again!

Bottom line: Nobody is riding to Wall Street’s rescue this summer. So unlike in 2009 and 2010, more rallying just isn’t in the cards!

Lack of Stimulus Spending,
Rate Cuts, and Bailout Crutches
Could Send Market Tumbling!

Congress only has about three weeks to approve an increase in the federal debt limit.

Let’s start with Washington. We’re coming down to the wire there in the great debt debate. While Treasury Secretary Timothy Geithner has said Republican and Democratic lawmakers have until August 2 to reach a deal, it takes time to draft legislation that authorizes any debt ceiling hike. So the real deadline is more like late July.

A last-minute deal could be reached to avoid a short-term default. But that’s not “good” news for the markets. I say that because any legislation will contain some combination of spending cuts and tax increases … an “anti-stimulus” package! I expect we’ll get $2 trillion or more in spending and tax measures, more than twice as much anti-stimulus as we got in stimulus two years ago!

What about more QE?

No way! Bernanke himself put the kibosh on that idea a few weeks ago. So did many of his deputies. The U.S. Fed obviously can’t cut interest rates anymore, either, with rates already pegged in a range of 0 percent to 0.25 percent.

At the same time, foreign central banks continue to hike rates unremittingly. China surprised the markets yet again by raising rates 25 basis points on Wednesday, the third increase this year. The benchmark lending rate climbed to 6.56 percent from 6.31 percent.

Then there’s Europe. Remember that “big” rally in the euro and European bonds spurred by the passage of the second Greek bailout? Well it’s already ancient history!

Moody’s downgraded Portugal’s debt to “junk” status a few days ago, sending Portuguese bonds into the toilet. Yields soared to a record-high 956 basis points over comparable German government bunds, and 10-year borrowing costs hit 12.5 percent!

In Italy, the 10-year bond yield jumped to 5.08 percent. That was the highest level since November 2008. And the cost of borrowing for only two years in Ireland surged above 15 percent for the first time ever.

Bottom line: Just as I predicted, the Greek bailout is failing to stem the tide of selling in European bond markets. You simply can’t paper over a SOLVENCY crisis by adding excess LIQUIDITY to the market. Nor can you solve a multi-nation sovereign debt crisis by putting more debt on the balance sheets of those governments!

Don’t Be Blinded
by the Perma-Bulls!

Look, it’s easy to fall victim to the siren song of Wall Street pundits. They pointed to last Friday’s ever-so-slightly-better-than-expected Institute for Supply Management report as evidence the economy is rebounding, and they promptly drove the Dow Industrials up by more than 160 points.

But did they note that the lion’s share of the strength came from inventory building? That’s not what you want to see. It suggests manufacturers are stuffing the wholesale and retail channels with inventory in anticipation of a rise in final sales.

Construction spending has fallen for six straight months.

But the latest consumer confidence and spending figures suggest no such rise is coming. That means they’re going to be forced to rev down their factories again in the future, a bearish development for the economy.

I bet they also didn’t highlight the fact that a sub-index which measures orders booked actually slipped below the 50 mark to 49. Nor did they note that the new orders index barely budged, ticking up just 0.6 to 51.6. Or that the export index slipped to 53.5 from 55.

Meanwhile, the University of Michigan’s confidence index fell to 71.5 in June from 74.3 in May. That was worse than forecast. We also recently learned that construction spending tanked 0.6 percent in May. That was the sixth straight monthly decline, and far worse than the 0.1 percent increase economists were expecting. And the ISM services sector index sank to 53.3 in June from 54.6 in May. That’s the second-lowest reading this year.

What about jobs?

Outplacement firm Challenger, Gray & Christmas said job cut announcements rose more than 12 percent between May and June to 41,432. And while ADP Employer Services said job growth rebounded somewhat in June, unemployment remains stubbornly stuck around 9 percent.

Look, I’d love to tell you the economy was in good shape … that the sovereign debt crisis was “solved” … or that we’re in for a rip-roaring rally, just like what we saw in 2009 and 2010.

But rather than a summer of market love, I believe we’re in for a summer of discontent. And that’s why I continue to urge you to take profits off the table, and hedge against a market decline with inverse ETFs.

Until next time,

Mike

Source: http://www.moneyandmarkets.com

The world’s most important commodity is often the most overlooked!

by guest editor Kevin Kerr

For many people when they think of natural resources and commodities, immediately gold and oil come up as the most important on the planet. They certainly tend to get the most attention. But does that really make them the most valuable?

Not necessarily.

One commodity stands head and shoulders above all others as far as demand goes, and unfortunately it is in short supply. Yet ironically it covers about 71 percent of the Earth’s surface.

Water, Water Everywhere,
But …

While it’s true that much of the planet’s surface is water, clean potable water is extremely rare. The majority is salt water or extremely polluted fresh water.

Less than 1 percent of the world’s fresh water is readily accessible for human consumption. Courtesy of Mahersoutdoor.blogspot.com

Since almost all life form cannot survive more than about three days without clean, fresh water, this makes it one of the most sought after and essential commodities there is.

And as the global population grows, this problem of a lack of clean potable water only gets worse.

What’s more, the statistics on diseases found in water are extremely disturbing …

It is estimated that around 1.8 million people die every year from diarrheal diseases, including cholera and E coli, just from contaminated water. To put it in better perspective: That’s around 4,900 people who die each day, and 90 percent of those are children under age five!

In fact, according to the World Health Organization (WHO) water-related diseases are the leading cause of death for children under the age of five. WHO also reports that 1.1 billion people worldwide lack access to clean water — that’s about 1 in 6 on the entire planet. And as the global population explodes, I expect those numbers to climb dramatically.

So it’s easy to understand why a quick solution must be found to quench the thirst of our ever-expanding planet’s population.

Nothing Exceeds
Like Success!

Reports by the UN and other sources claim that human use of water has increased more than 35-fold over the past three centuries. And now, in the emerging markets alone, we have seen a sudden burst of a new rapidly growing middle class, which simply never existed before. Mainly in places like China and India.

All these people certainly want clean water. But beyond that they also want many items that use a lot of water: Modern appliances, better foods, and much more.

Consider this: The average American uses a whopping 80-100 gallons of water at home each day, compared to the average African family, which uses about five gallons, according to UN statistics.

In the U.S. much of our water goes to flushing toilets and washing our clothes. Courtesy of American Waterworks Assoc.

We Americans run our dishwashers, washing machines, and faucets, often oblivious to how much water we use and how easily accessible it is to us.

Basically, as long as we can turn on the tap and it works, we’re fine! We have never truly worried about what is seemingly a never-ending supply of cheap and clean fresh water.

Meanwhile, millions of women and children in other parts of the world sometime spend several hours a day collecting water from contaminated rivers, lakes and open wells. Often it is a game of Russian Roulette.

People can’t live without water, but on the other hand, many of them will die from it if they drink it and bathe in it. It’s truly a double-edge sword.

Then there is the additional cost of …

A Crumbling Infrastructure

The Environmental Protection Agency (EPA) estimates that water is the third single largest expenditure in our entire economy. That means that it falls just behind defense and Social Security.

However, much of the infrastructure in American and elsewhere needs a complete upgrade simply to meet the growing demand as well as for sustainability and sanitary reasons.

Some estimates predict that we lose up to 60 billion gallons of water every day just through old leaky pipes. Photo courtesy of activerain.com.

And the EPA reports that the U.S. water systems alone need hundreds of billions of dollars in upgrades and repairs.

Most people do not consider water to be a commodity like many of our other vital resources such as agriculture and energy. That’s mainly because it’s not traded on a futures exchange and because in the West we have considered clean potable water to be a right, not a privilege.

Those days are over …

Clean potable water is becoming more expensive, more scarce, and more important than ever for both drinking and growing crops.

As you can see, having enough useable water is a matter of our very global survival.

So how can you take advantage of this incredible market and the opportunities it affords? Actually there are quite a few ways.

Water-Related Stocks

Anticipating all this future scarcity, many money managers invest directly in water supplies by purchasing shares of companies like PICO (PICO) and Limoneira (LMNR), which are basically farming and real estate holding companies. The attraction is mostly for their water rights.

But I think these approaches are very tricky and too tough to accurately estimate the real value of their water holdings.

Stock in companies that are involved in clean water supplies is another idea. One example is Molycorp (MCP).

Molycorp has designed a revolutionary water filtration system to purify the world’s most heavily polluted drinking water sources. This technology was borne from a joint development effort with the U.S. Army for use in man-portable devices that provide soldiers with clean drinking water regardless of the water source.

In my opinion, though, there are far better ways to take advantage of the critical demand in the water market …

Water ETFs

You could consider an exchange traded fund (ETF). One I like happens to be the largest water ETF available.

The PowerShares Water Resources Portfolio (PHO) is based on the Palisades Water Index™ (Index). This Index seeks to identify a group of companies that focus on the provision of potable water, the treatment of water, and the technology and services that are directly related to water consumption.

And if you are looking to leverage your investment for even bigger possible gains, you could use options on ETFs.

No matter which vehicle you decide is the best for this market, rest assured the growing urgent need of the world’s population for clean potable water will continue. And that’s not going to change anytime soon!

Yours for resource profits,

Kevin Kerr

Kevin Kerr has successfully traded commodities professionally for the last 22+ years. His unparalleled expertise in commodity and resource futures, options, and equity trading, has made him a regular contributor to news outlets like CNBC, CNN, FOX News, CBS Evening News, Nightly Business Report and many others.

Source:  http://www.moneyandmarkets.com