Contrarian Profits |
| The Sector Holds the Key to an Economic Turnaround Posted: 13 Apr 2009 03:28 PM PDT What sectors rise when the economy begins to emerge from an economic downturn? The answer may surprise you.  Source - http://www.onlineinvestingai.com The chart above is of the economic investment cycle. The blue is the stock market and the yellow is the economy. This chart shows us what we should already know, that the stock market is forward looking and typically bottoms or peaks out 6 months to a year after the economy. More importantly, this chart also shows us that bull markets are formed on the back of a healthy financial and transportation sector. In other words, to see if this is a sucker’s rally or not, we have to see the financial sector bottom out and move higher. This makes sense. Money is the lifeblood of the economy. If banks aren’t lending it, then the economy can’t expand. Today, the big question is whether banks are seeing a sustainable turnaround. Wells Fargo announced a $3.3 billion profit and Goldman Sachs made over $1 billion. But the problem with banks isn’t their ability to make profits in a low interest-rate environment. The problem is the valuation of the mortgage-related assets these banks have on their balance sheet. Banks are basing their leverage on the value of these assets. If these asset values decline, then banks must write those assets down and raise more funds or deleverage to meet capital requirements. In other words, earnings or not, banks still have more to do in order to be considered “healthy”. That means this current rally should be one for the “suckers” |
| Golden Shorts In An Economic Winter Posted: 13 Apr 2009 01:22 PM PDT Avery Goodman at Seekingalpha.com asks the intriguing question, "Did the ECB Save COMEX from Gold Default?" If I had been writing it, I would have titled it "Not All Of The People In The World Are Stupid!" with the subhead, "There are lots of smart people who are buying gold to capitalize on the sheer stupidity of governments abusing fiat currencies so that inflation in prices will soar as inflation in the money supply soars, until gold-owning people, giddy with greedy glee, will say, 'The Mogambo was right! Whee! This investing stuff is easy!'" But I am not here to show off how good I am at coming up with boffo headlines with the subtle undertones so that they offer me a job, at a fabulous salary, to write headline gems like this one; this is about how "On Tuesday morning, gold derivatives dealers, who had sold short in the face of a fast rising gold price, faced a serious predicament. Some 27,000+ contracts, representing about 15% of the April COMEX gold futures contracts remained open" indicating that, as holders of those long gold contracts, they "demanded" delivery of the physical gold "by holding futures contracts past the expiration date." The big problem belongs to the short-sellers of gold, who are finding, suddenly, that "long buyers were demanding in droves" – demanding physical gold bars, when, apparently, there were not enough. Since I am confused as to what all of this means, Mr. Goodman correctly interprets the blank look on my face as puzzlement – if not outright befuddlement – and patiently explains that to keep things in perspective, history has shown that people investing in COMEX futures don't necessarily want physical gold, and that they are merely speculators, as, "In normal times, very few people do this. Only about 1% or less of gold contracts must be delivered. The lack of delivery demand allows the casino-like world of paper gold futures contracts to operate. Very few short sellers actually expect or intend to deliver real gold. They are, mostly, merely playing with paper" which is the basis of the alleged gold and silver scams, as GATA.org and Ted Butler have long exposed, which gets us talking about how corrupt regulators are these days, as everything is else corrupted these days, which is, of course, just what you would expect at the end of long monetary booms, which doesn't make it any more palatable. But back to our story of the almost-default at COMEX… Fortunately, at the last minute, Deutsche Bank (NYSE:DB) delivered "a massive 850,000 ounces, or 8500 contracts worth of the yellow metal." This is where I kind of lost interest, as this kind of thing is like blood in the water to sharks, who will soon be looking at the low price of gold and the complete lack of supply of bullion, and they will be hatching plots to squeeze this disparity and make a lot of money, and I was soon fantasizing about how my tiny little stash of gold will soar and everybody else who doesn't own gold will be busted out, now that the scam has been busted, and there will be people, like cute college coeds, who will be so desperate that they will say they are willing to do anything for money, and I will say, "Anything?" and then they will quickly affirm, "Anything!", and so I again ask, but with a rakishly raised eyebrow and licking my lips in a lascivious manner, "Anything?" and they gulp and say, but without their former enthusiasm, "Anything"… So you can see how I was distracted. And anyway, somewhere along the line he admits that it is "circumstantial evidence" that Deutsche Bank was a major holder of short positions, or that "the gold used by Deutsche Bank to deliver and fulfill its COMEX obligations, came directly or indirectly, from the ECB", which gets back to the headline "Did the ECB Save COMEX from Gold Default?" that we were discussing previously. All of this, of course, is fraudulently criminal in many, many ways, breaks a lot of regulations in those and other ways, and he calls for investigations and indictments and all of that stuff, which won't happen because the amount of corruption at the end of long monetary booms is so pandemic that it won't be allowed. Now, before I go off ranting and raving about how another bunch of scumbags perpetrated another scam with compliance from government scumbags, let's concentrate on the important fact that not only are a bunch of guys buying gold and demanding delivery of the actual metal, but now increasing demand has swamped supply! Amazing! In conclusion, let me say that if people don't buy gold, in spite of the overwhelming historical evidence to do so when the money supply is set to double (and then double again and again!), in spite of gold's gains for the last decade, in spite of the sight of people suddenly taking delivery of physical gold in unprecedented amounts, and in spite of me telling them right to their faces to buy gold, then there is something very, very wrong with them, which ought to give them something to think about as they are idly scratching around in the dirt looking for bugs to eat, because this economic mess caused by a Congress constantly deficit-spending and a Federal Reserve constantly creating the money for them to do so is going to get Really, Really Nasty (RRN), and I am scared for me and for them. But I am not as scared when I have gold, so at least I have that going for me! Whee! |
| Posted: 13 Apr 2009 09:45 AM PDT Treasury Secretary Tim Geithner is taking his sweet time to work out the details of TARP II. But for all the uncertainty surrounding his plans, we know one thing: Zombie banks will not be allowed to go under. Geithner just reaffirmed this, though not in so many words, in an interview with Charlie Rose. Asked about the possibility of letting a major bank fail, he said, "I'll say again, they play a critical role in our markets, in our financial system. We want to continue to make sure they play that role. Now, where they need temporary assistance through the government to get through that, we're going to make sure it comes with appropriately tough conditions so that they emerge stronger and that we're providing a level of conditions and accountability that's appropriate in this context." Translation: They can continue screwing up indefinitely, and we'll still come to their rescue. The "stress tests"? That's just a sham to make it look as if the banks are being held to some sort of standard. Working from the same playbook, Fed chief Ben Bernanke said yesterday, "We have reiterated the U.S. government's determination to ensure that systemically important financial institutions continue to be able to meet their commitments." And if it that means the Fed has to buy up Treasuries (and print money for that purpose), so be it. Consider yourself warned. Consider also that the Zombie Policy isn't even achieving its stated aims. Weren't we promised that if the Fed and Treasury kept pumping money into these banks, the banks would lend more freely, and businesses could borrow more easily, and so businesses could create more jobs? Well, not so much. "Banks that have received billions of federal dollars to encourage them to make loans — JPMorgan Chase & Co., Goldman Sachs Group, Citigroup Inc. and Bank of America Corp. — are lending money to Pfizer and Merck" so they can buy out Big Pharma competitors, according to the Los Angeles Times. The mergers could result in 35,000 jobs lost. Source: Zombie Policy Reaffirmed |
| How Has The Market Changed Over The Last 60 Years? Posted: 13 Apr 2009 09:15 AM PDT Over the last few weeks, I have written several articles about asset allocation and how you can't just buy and hold anymore. In fact, on Saturday April 4, I spoke at a conference in Orlando and the crux of my presentation was why buy and hold isn't the way to go anymore. After my presentation, one of the attendees asked me why I felt buy and hold was dead. What has happened in the market that caused the long-held belief that buying and holding a stock or the market forever is not the way to invest? Where do I start? With the help of my colleague Christian Hill, we went back to 1950 and looked at the S&P 500 over the last six decades. Here are the returns per decade.
As I looked at these results, I started thinking about how different the market is now compared to the 1950s. How many people do you think were actively investing in the market in the '50s and '60s? Not too many I would guess. Maybe four or five million at best. People may have had money in pension plans and the like, but the funds were being managed by a professional investment manager. In the '70s and '80s we saw tremendous growth in Individual Retirement Accounts and mutual funds. This made it easier for the average Joe to get involved in the market. In the '90s, we saw two things greatly impact investment growth- 401(k)s and the internet. Look at how the '90s were the biggest growth decade for the S&P 500. Do you think that is a coincidence? By 2005, there were 436,207 plans, 44.4 million participants and $2.4 trillion in assets in 401k plans. Do you think the growth in participants and growth in assets had anything to do with the tremendous growth in the market during the '90s? You bet it did. Take a look at the 20-year periods.
Look at the tremendous growth in the last 20-year periods. I also decided to break it down into two periods, the first 30 years without 401(k) plans and the 20 years since 401(k) plans were introduced. From 1955-1985, the S&P went up 350%. This is an impressive number, but from 1985-2005, the S&P jumped 632%. The second thing that happened in the '90s was the onslaught of the internet and internet brokerage firms. Instead of having to have an account with Merrill Lynch, Shearson or Paine Webber, individual investors could open an account with any number of online brokerages and pay one-tenth the commissions charged by the mainstream brokers. I am not saying whether I think 401(k)s and online brokerage firms have been good for the overall market. But what I do know is that these two creations have had a profound impact on how you have to view the market. They have created easier access to the market and created more involvement from more people. Unfortunately, they did not come with more education about the markets. This is why I think traditional views on investing have been changed forever. God help us if the plan to allow self-directed Social Security ever comes to fruition. |
| Inflation, Retail, and Housing Reports; Earnings Go Full Bore Posted: 13 Apr 2009 08:45 AM PDT This promises to be a very busy week with a full calendar of economic reports and earnings announcements, so let's dive right in and highlight some of the more important ones. Tuesday: Are we beginning to see inflation creep in? Those were my thoughts after the January and February reports showed increases in the PPI. But this month's reports are expected to stay flat. The Core PPI report which excludes food and energy costs is expected to post a slight increase. The figure has been increasing every month since January, but the increase is slowing every month. So with both these reports remaining relatively the same, inflation seems to be held in check at least for now. Retail Sales for March are announced at 8:30 am, and somehow, someway, they are expected to show an increase versus February. I'm not sure where this jump is coming from, so I will be curious to see the data when it is released. Earnings Announcements: CSX, GS, INTC, JNJ Wednesday: Much of what I said above about the PPI reports applies to the CPI and Core CPI reports released today. Both are expected to show increases, but a smaller increase than the last few months. Inflation is still being held in check. Industrial Production is unfortunately expected to show further declines. While this pace is also slowing, it is still not encouraging that we are still seeing a decline at all. Until factories get back to increased production, the economy is going to struggle. While it does not come with an expected number, the Fed Beige Book still garners attention when it is released. It gathers insight from the twelve Fed regions relating to their individual outlooks on their region. This is combined to give an overall national outlook. Hopefully at least a few regions will begin to show some positive economic signs. Earnings Announcements: ABT Thursday: Economic Reports: Building Permits, Housing Starts, Philadelphia Fed Housing is back in the news on Thursday. March Building Permits are expected to show a slight increase, while Housing Starts in March are expected to show a much larger decline. After a few months of the market expecting increases and being disappointed for the most part, this month seems a lot more realistic. I expect both these reports to be in line with expectations. The Philly Fed report also comes out Thursday, and it looks like the manufacturing sector is facing continued slowdowns. As I mentioned with the Industrial Production report, manufacturing needs to get going to help bolster the economy. It looks like that's not happening anytime soon, based on how far down this reading has slipped. Earnings Announcements: BAX, GOOG, HOG, JPM Friday: Economic Reports: Michigan Sentiment It looks like consumers are at least starting to feel better. While this reading would be encouraging if it holds true (consumers need to feel positive about things in order to spend money), we could still be a long way from a real turnaround. Earnings Announcement: C, GE
Source: Inflation, Retail, and Housing Reports; Earnings Go Full Bore |
| Corning (NYSE:GLW): Stock of the Day Posted: 13 Apr 2009 08:25 AM PDT Consumer Electronics in the Dumper? Not in the TV Department… To no one's surprise, a Nielsen study completed last November found that Americans are watching more TV than ever before: 142 hours a month, up five hours from the previous year. You can easily understand that, given the number of TV's here… more than one per person. In times of economic turmoil, people tend to stay home and hunker down in front of the "tube" instead of going out shopping… for things like TV's. So it was a surprise to nearly everyone that February's LCD TV sales were 39% higher than the same period last year. This accomplishment is even more dramatic given it occurred right in the middle of the nastiest economic slowdown since the Great Depression. And the blistering sales rise wasn't just in the U.S., according to consumer research NPD Group. Sales in Europe were up 49%, China sales more than doubled at 109%, and even recession-ravaged Japan had a gain of 30%. It's all a great reversal of fortune for Corning (NYSE:GLW), the world's largest maker of glass panels for LCD screens. Its shares have nearly doubled since last November's lows, and the company now expects to report a first quarter profit. Corning's fortunes are closely tied to the world's appetite for new LCD screens, as it supplies the glass for over 50% of them. Fully 90% of its net income now comes from LCD glass sales. Even though overall sales of TV's are forecast to decline 4% this year, sales of LCD sets are expected to rise nearly 9%. The reason is major advances in manufacturing techniques have resulted in set prices dropping like a stone. By some analyst's measures, Corning is already too expensive, trading at roughly 16 times 2009's earnings estimates and 13.7 times those for 2010. But these guys are ignoring the China factor. You see, China has a new subsidy program that promotes a widespread adoption of consumer electronics, particularly in rural areas of the country. And LCD TV's are first on the list of things every Chinese wants to own. Two of the biggest LCD panel makers in Taiwan – both Corning customers – are rapidly expanding their manufacturing capacity to meet the new demand driven by the Chinese subsidy program. In a move to diversify its revenue stream, Corning is eyeing the possible purchase of the half of the Dow Corning venture it doesn't already own. That venture owns 63% of Hemlock Semiconductor, an important polysilicon supplier to the semiconductor and solar panel markets. Investors who want increased exposure to China, consumer electronics, solar and semiconductors, might want to consider a few shares of Corning. It's shares could easily experience another double over the next several years, especially as the Chinese join the ranks of the TV watching world. Source: Corning (NYSE:GLW): Stock of the Day |
| Emerging Markets: 180,000 New Investment Opportunities… A Day Posted: 13 Apr 2009 08:08 AM PDT Investors in the West have a poor track record when it comes to the world's emerging markets. In particular, they have a bad tendency to leave them just when they should love them. This is particularly true today. Like equity markets everywhere, foreign exchanges in Latin America, Eastern Europe and Asia have taken quite a tumble over the last year and a half. Yet this is not like the Mexican Peso Crisis of 1994 or the 1997 Asian Financial Crisis. Those downturns were brought on by poor government policies and financial mismanagement in these regions. But these developing economies have since been rebuilt on sounder financial footing. Moreover, you'll notice that the recent worldwide sell off in equity markets was brought on by problems with U.S. real estate, mortgage securities and banks, not in developing markets themselves. Still, in their rush to avoid risk many U.S. investors are leaving - or avoiding - these emerging markets at precisely the wrong time. Yet the risk premium is much lower than it used to be. Most developing countries have already evolved from communism to democracy and from state-controlled economies to free-market ones. There are plenty of other good reasons to diversify into these markets, too. Let's start with the big picture. Emerging Markets - Covering 85% of the World's Population While emerging nations cover 77% of the world's land area and represent 85% of the world's population, they currently produce only 23% of the world's gross domestic product. That's changing… There are now 3.8 billion "middle class" people in the world today. Thanks to emerging markets, that number will double over the next 20 years. As The Wall Street Journal wrote last month: "In the next 24 hours, approximately 180,000 people in developing countries will be moving from the countryside to cities such as Shanghai, Sao Paulo, Johannesburg. The same will happen tomorrow and every day thereafter for the next 30 years, the equivalent of creating one new New York City every two months, according to the United Nations. These men and women will need everything, electricity, water, food, health care, shelter, schools, computers and, of course, jobs. Many have the potential to improve not just their local environment but the world." Some companies in the West - and, of course, many of those in developing markets themselves - are set to enjoy an extraordinary period of prosperity. These new consumers will need dishwashers, microwaves, laptops, cell phones, automobiles, eyeglasses, credit cards, pharmaceuticals, insurance and every other product and service we already take for granted in the West. Why bet on companies that may (or may not) create a new cancer drug or hit a new gold strike or develop a faster computer when you can bet on dead certainties: companies that are busy meeting the enormous untapped needs of billions of new middle class consumers. January, for example, was the first month ever in which car sales in China topped U.S. car sales. And it may be that way for the rest of your life - and your children's lives. Emerging Markets: Promising & Cheap Right now the world's emerging markets are both exceptionally promising and extraordinarily cheap. Moreover, a lot of these developing market stocks are denominated in currencies that are tied to the dollar. (So a stronger greenback like we've seen lately won't hurt them - or the dollar value of your securities.) No wonder emerging markets manager Mark Mobius says he feels "like a kid in a candy shop." The potential in these markets is greater than it has ever been before. Anyone who can count to 180,000 (a day) should understand exactly why. Source: Emerging Markets: 180,000 New Investment Opportunities… A Day |
| Posted: 13 Apr 2009 08:00 AM PDT Currencies rebound … Budget Deficit makes up for Trade data… China’s currency reserves continue to grow… High yielders are best performers… And Now… Today’s Pfennig! The lack of volume on Friday didn’t yield any wild swings, and the currencies pared their losses from the day before (trade deficit plunges)… This morning, the currencies, led by the euro, are moving higher VS the dollar, but at this point it’s baby steps… The bias to sell dollars hangs over the currencies however… It seems to me that it’s very much like trying to hold a kid back from ripping open their Christmas presents… It sure seems inevitable, but when is the question… As I used to say in my presentations, imagine if you will a big old Ford rambling down an icy country road, and it begins to spin out of control… You know for sure that you’re heading toward that guard rail, and your Ford will make impact with that guard rail, it’s just a matter of time…. Well… Some water and time has passed under the bridge now and traders and investors are dipping their toes back into the risk waters again. The Mayo comments last week, really threw a spanner in the works for the risk takers… But, as I said, time has now passed, and the comments are in the rear view mirror now. With risk back on the menu, the high yielders are the first to get attention… And the Aussie dollar (A$) is soaring this morning, passing the 72-cent figure this morning… And the Brazilian real has really taken some HUGE strides recently… In fact, in the past 3 months… The real is up over 6% VS the dollar! And do you know what currency is at the top of the heap with regard to performance VS the dollar this year? That’s right! It’s the real! Speaking of high yielders… The South African rand, which I’ve always said is too volatile for my liking, is the best performer in the past 3 months… So… With the A$, real and rand all percolating… You can see that investors are growing tired of paltry yields, and looking to higher yielding countries. Of course, whenever the cold wet blanker of risk aversion is thrown over the markets, the risk takers head of the hills… But, for now they are taking on risk, and that spells Happy Times Are Here Again for the High Yielders… Of course, I laugh out laugh (LOL) whenever I say “high yielder” as if they really have “high yield”… Compared to the majors like the U.S., U.K., Japan, Canada, and even the European Union, these “are” high yields! OK… Did you read the news, this morning, when the paper landed in your yard? China’s currency reserves grew by 16% in the first QTR, VS a year ago… This puts China’s currency reserves at $1.9537 Trillion, at the end of March… Hmmm… Makes you wonder, why the rest of the world doesn’t treat China like E.F. Hutton, and listen to them when they complain about stuff, like the safety of its holdings… Yes, China has complained recently about the monetary policies the U.S. is using to keep the economy’s pulse pumping. Speaking of the monetary policies being used… Friday, the Budget Deficit printed… And has, right now (which is before a ton of the spending is booked) tripled to $957 Billion! That’s in the first 6 months of the fiscal year… So… Let’s just say, we don’t spend any of the funds already allocated to revive the economy… That would put the annual deficit at almost $2 Trillion! And, then… Add in the spending already allocated… Remember, a couple of months ago, I told you that at first I calculated the deficit this year to be $2.5 Trillion, but then raised it to over $3 Trillion? Well, it sure appears that we as a country are well on the way to a $3 Trillion Budget Deficit this year, which should put our National Debt at around $14 Trillion dollars! And… Of course that’s just a drop in the bucket, when you add in all the future payments we will owe on the endowments like Social Security, and Medicare… And, Oh, by the way, just where do those war expenses get booked? Is that the proverbial “off balance sheet item”? You bet it is folks… Oh… I had better stop right there! I can get all geeked up whenever I begin talking about our deficits… I begin to wonder, no wait! I said I was going to stop! OK, onward and upward to something else! I’m going to step away for a minute, I’ll be right back… OK, I’m back! I had to get up and walk around for a minute, that deficit talk just get right under my skin from the get-go! Then you add in the consumer debt, and you just go crazy! Yes, maybe Credit Card Debt is plunging, but Mortgage foreclosures are soaring, according to Reuters… So… Gold, which has had a difficult time pushing back to $900, is up $5 this morning. I was checking the best returns this morning, year-to-date, and I noticed that Silver had pushed higher by over 9% so far this year… It’s out performing Gold, right now… The real winners this year, so far, are… Platinum and Palladium, up 32 and 27% respectively. WOW! As I said at the top this morning, it’s Easter Monday, which means it’s a holiday in parts of the world, and that means we won’t be “fully staffed” in the markets again today… But the U.S. stock jockeys are back in the saddle, and that should add to the excitement of the day! Well… Here in the U.S., the data cupboard is bare… But the remainder of the week, sees it get restocked daily! Tomorrow’s big report will be the Retail Sales for March, which given the indication of the BHI (Butler Household Index), should be a bit better than recent reports… Wednesday is Tax Day, and we’ll see the stupid CPI, and the TIC reports. Industrial Production and my fave, Capacity Utilization also prints on Wednesday. Thursday brings us a slew of data, of which the Weekly Initial Jobless Claims will be the most important. And we finish this week with the U. of Michigan Consumer Confidence report for this month. So… With me dragging a bit, some countries on holiday, and no data today, I think I’ll head to the Big Finish… Will you join me? Currencies today 4/13/09: A$ .7245, kiwi .5860, C$ .8165, euro 1.3210, sterling 1.4730, Swiss .8685, rand 9.0550, krone 6.6225, SEK 8.2240, forint 219.20, zloty 3.2910, koruna 20, yen 100.50, sing 1.5250, HKD 7.75, INR 49.87, China 6.8350, pesos 13.11, BRL 2.17, dollar index 85.44, Oil $50.84, Silver $12.51, and Gold… $887.40. Source: Budget Deficit Triples! |
| Ocean Piracy: Fill Your Trading Account With Booty From The ‘Pirate Portfolio’ Posted: 13 Apr 2009 07:57 AM PDT The saga on the high seas continued… As much of the world continued to monitor the story of the American cargo ship that was captured by Somali pirates and held its captain hostage, the increase in piracy has sparked a fascinating conversation. It involves the use of innovative products that enable shippers to defend themselves from pirate attacks. While it may not seem like a lucrative business, the uptick in high seas shenanagins over the past year or so threatens to become more prevalent if it's not addressed. And with millions of dollars worth of cargo traveling by sea every day, both the shipping industry and the companies whose cargo they're hauling hardly want to see the trend become a full-blown epidemic. At the moment, however, only the Department of Defense and various small private companies are responsible for "mobility denial systems." Described as an "oil slick in a can," these weapons make it difficult for bandits to board (and remain on) a ship. But there are a few major, publicly traded American companies that are combating this problem amid their other defense issues… Take That, Jack SparrowFirst up, one of the world's largest defense companies, Lockheed Martin (NYSE: LMT). The firm has partnered with BAE Systems PLC. (Pink Sheets: BAESY) and Israeli weapons systems developer Rafael Armament Development Authority to develop "The Protector." While it sounds like the hero of a 1980s action movie, The Protector Anti-Piracy Robot is an unmanned robot with a mounted 7.62mm machine gun. Originally designed to protect harbors, The Protector is capable of defending ships from attackers, while keeping the crew out of harm's way. A more widely used form of anti-pirate defense is Long Range Acoustic Device (LRAD) systems, designed by American Technology Corporation (Nasdaq: ATCO). Equipped with high-powered speaker systems, these devices can be used to issue ear-splitting beams of sound directly at the bandits, or provide verbal warnings (no word, though, as to whether, "Back, ye scurvy dogs!" is on the list of available commands). Despite the fact that these systems are more common, keep in mind that ATCO is a tiny stock and can be illiquid. Here are three other ways to play the piracy protection trend… Three Ways To Play High Seas BanditryThe Defense Angle: You can't dip into many sectors or industries these days without finding the presence of General Electric (NYSE: GE). The company's defense subsidiary, GE Security, offers various communications systems that are used to enhance ocean security. The Insurance Angle: In addition to direct defense sector plays, there are also several insurers and reinsurers, which have an important maritime business and could face exposure if a ship is lost at sea. These include CNA Financial Corp. (NYSE: CNA), Marsh & McLennan Companies (NYSE: MMC) and Willis Group Holdings (NYSE: WSH). The Cargo Angle: Consider commodity plays on cargo like oil. If oil cannot be shipped directly for fear of it being intercepted by pirates, it could drive up the price. A straightforward, more diverse (and thus less risky), cheaper and safer way to play this would be to buy an ETF like the U.S. Oil Fund ETF (NYSE: USO). You could also consider timber companies like Plum Creek Timber (Nasdaq: PLUM). It's historically a solid market outperformer anyway, which isn't a bad investment to have in your portfolio at times like these. Move With The Waves As This Maritime Trend GrowsFor pirates, the lure of capturing easy booty from an unsecured ship in the middle of an ocean is an attractive proposition. And while the current US-Somali standoff will eventually end (hopefully in peace), companies are realizing that there's a more pressing need to secure their cargo and crews while at sea. In an economy where it's mighty difficult to make money at the moment, the prospect of losing cargo to pirates will force companies to pay for the security products and services that can protect their haul. While the majority of the companies in the maritime security space are small and privately owned, if the piracy trend increases, you'll likely see more well established firms enter the market - especially those with long histories of securing government contracts, such as Lockheed and GE. Hoping your longs go up and your shorts go down. Source: Ocean Piracy: Fill Your Trading Account With Booty From The "Pirate Portfolio" |
| Posted: 13 Apr 2009 07:17 AM PDT The rally is on! The Dow rose another 246 points last week. Enjoy it while it lasts…but keep those trailing stops tight. The "End of the Rally is Nigh," says Barron's. Our old friend, Marc Faber, says he expects a 10% drop in the stock market before the rally resumes. Maybe. This rally is going to end sometime. But it probably has a ways to go. There are still a lot of suckers who haven't been drawn in. Another old friend, Rick Ackerman, thinks the problem with this rally is capitulation…or rather, the lack of it. There's been no capitulation, says he. And you can't have a real bottom without it. No capitulation, no bottom. The news from the economy is bad and getting worse. Credit card debt has just taken its biggest plunge in 32 years…maybe ever. Credit card balances fell at a 9.7% annual rate. And the number of open credit card accounts is going down too. What happens when people can't pay down their loans? "Mortgage delinquencies soar in the US," says a Reuters article. Remember, delinquencies are the beginning of the process. Then come foreclosures and auctions – all eventually driving housing prices down further. And when property prices fall, so does the collateral behind the banks' and other financial institutions' assets. So, their troubles aren't over. The worst is still ahead of us, not behind us. But despite the bad economic outlook, investors think the worst is past for the stock market. Markets look ahead, they say, beyond the immediate economic forecast. True, but they have an adorable habit of seeing only what they want to see. "In January 2008, when the S&Ps were in the early stages of what was to become a devastating collapse," explains Rick Ackerman, "domestic equity mutual funds were worth about $6.5 trillion. Lo, a little more than a year later, in February 2009, we see that the value of these funds had fallen by about 48%, to $3.4 trillion. But guess what: Over that time, net redemptions totaled only 2%, or about $100 billion! What that means, explicitly, is that mutual fund investors have stuck with this bear market throughout the decline." Investors didn't give up on stocks – despite the huge decline in stock market prices. What that means is that there's still a lot of selling to be done. "This bear market will end," he continues, "like every other bear market in history, with a wholesale dumping of stocks at prices that will make current values seem exorbitant in comparison." That's why you use trailing stops. You want to be sure that when the selling begins your stocks get sold first – long before most investors finally capitulate. More news on how to play this bear market from Addison and The 5: "If you're shorting stocks, this might be of use," writes Addison Wiggin. "Now that the easy targets are long gone (big banks, homebuilders, AIG) and the bear market rally is in full swing, short sellers are setting their sites on some more diverse organizations."
"Hmmm… pretty all over the board, eh?" Addison notes. "There's a mobile tech biz, several real estate players, home healthcare, a bank and a popular chain of sandwich shops. What's the connection?" "Most of the stocks on this list," answers our resident short seller Dan Amoss, "are characterized by at least one of these three facets: Shorting the stock is a current fad, the company is using 'creative" accounting methods that traders think is fraudulent, or the company is a high risk for insolvency. "Regardless, bulls beware… when you see short interest that high (as a % of outstanding shares), you rarely see sustainable short squeezes." And back to Bill with more thoughts: It's amazing how much credibility some people have. Seems almost infinite. No matter how bad their advice…or how little they understand…people still ask their opinions. Or, to put it another way…it's amazing what most people will believe. You'd think – after $50 trillion in losses – that people would be careful whom they listened to. Who would take Alan Greenspan's thoughts seriously, for example? Yet, the newspapers still report his remarks with a straight face. And what about all the economists who claimed that since the "U.S. has the world's most flexible, dynamic economy" you couldn't go wrong buying U.S. stocks? And what about the market timers who urged investors to buy "bargains" when the Dow was only 10% below its peak? And how about the regulators – such as Tim Geithner – who completely missed the biggest Ponzi scheme of all time, taking place right under their noses? And the economists who thought derivative debt made the financial world safer by "distributing risk more widely?" And those, such as Hank Paulson, who thought the sub-prime crisis was "contained" at $100 billion in losses? (Current cost of the bailouts – $12.8 TRILLION!) As our friend Nicholas Taleb says, it's as if these guys had wrecked a school bus – while they were driving drunk. But instead of putting them in jail – they're given a new school bus to drive! Kevin Phillips, author of Bad Money: Reckless Finance, Failed Politics, and the Global Crisis of American Capitalism warned of a the pending explosion of a 25-year "multibubble." The bubbles began in the 1980s, he says, when the financial sector accounted for 10 percent to 12 percent of the U.S. economy had grew to an "arguably crippling" 20 percent to 21 percent of GDP by the middle of this decade. Who's to blame? Henry Paulson, he says…and Ben Bernanke…and Alan Greenspan. The Reuters report: "Phillips calls Paulson a Wall Street insider who was looking out for his own, and Bernanke an academic misguidedly trying to refight the 1930s Great Depression. Together they formed the wrong team at the wrong time whose ad hoc approach threw away hundreds of billions of dollars and more than doubled the Fed's balance sheet, he says. "What you're seeing Bernanke do is he's trying to create a bailout reflationary bubble, which he can't describe as a bubble, just as Greenspan couldn't describe the housing mortgage bubble as a bubble. What we're seeing by Bernanke is a covert attempt to rebubble," Phillips told Reuters. Meanwhile, Nouriel Roubini – who's been mostly right about the crisis – says that [Jim] "Cramer is a buffoon." "He was one of those who called six times in a row for this bear market rally to be a bull market rally and he got it wrong. And after all this mess and Jon Stewart he should just shut up because he has no shame…He's not a credible analyst. Every time it was a bear market rally he said it was the beginning of a bull and he got it wrong." Roubini warned two years ago that the United States faced its worse recession in four decades. He points out that the current rally on Wall Street merely follows the pattern of other major downturns. "Once people get the reality check than it's going to get ugly again," he says. Finally, as promised in yesterday's issue: What can we learn from Argentina? In the '30s, Argentina suffered along with the rest of the world. Until then, it was roughly as rich as Europe and rivaled America in some ways. "As rich as an Argentine," was an expression in England. Marrying one's daughter to an Argentine planter was the dream of many down-at-the-heels English aristocrat. But something went very wrong on the pampas. Instead of Franklin Roosevelt's New Deal, the Argentine's got a raw deal from Juan Peron. Both programs were frauds. Both made things worse. But Peron's program stuck. Americans soon came to their senses and forgot Roosevelt. Between Franklin Roosevelt and Barack Obama were Eisenhower Republicans and Carter Democrats. But Peronist politicians have dominated the Argentine political landscape since the '40s. Every problem demands a government solution. And every Peronist solution makes things worse. Source: A 'Rebubble' Attempt |
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