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The Buying Opportunity of a Lifetime is Coming…

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Posted by Larry Edelson - Uncommon Wisdom

on Monday, 09 April 2012 07:31

A few months ago, I started warning that …

  • We’d see a short-term rally in the dollar, mainly against the euro.
  • Europe would kick the sovereign debt can down the road a bit with money-printing (thereby weakening its currency).
  • The U.S. economy would start to look a bit better.
  • China would largely engineer a soft landing, and the yuan would appreciate.
  • Commodities would enter a short-term period of disinflation.
  • Let’s see how things have panned out so far.
  •  Since the first of the year, the U.S. dollar, judging by the U.S. Dollar Index that’s traded on the New York Board of Trade, is essentially flat. In the last few days, however, it’s started a renewed uptrend — and the euro has started to sink.

Given the dollar’s rally last week, I think the trend will continue, as Europe’s economy — due to the extreme austerity measures being taken — sinks into a depression and the euro suffers from it.

The European Central Bank (ECB), meanwhile, has indeed printed a lot of money — over $1 trillion. This is doing nothing but keeping the banks alive, kicking the debt crisis down the road, and threatening to further pressure the euro lower.

  • At the same time, we’ve seen noticeable improvements in the U.S. economy — mainly in employment. Don’t get too used to it, though. I don’t think the U.S. economy is going to do much better in the short run. It’s only looking better because Europe is in such bad shape.
  • China’s economy also has indeed softened, even a bit more than I expected. Nevertheless, all the stats I study tell me China has indeed engineered a soft landing — with GDP running at 8.4% for this year’s first quarter … industrial production is already starting to rebound … retail sales are still pretty vibrant at 14.7% annualized growth … and property prices are starting to stabilize.

As I told you in a recent column, there will be no implosions in China, no disasters. Mind you, Beijing has engineered this soft landing with plenty of ammo left. Which means they have plenty of options available to boost growth, should they need to.

Meanwhile …

  •  Commodities have indeed entered a disinflationary period. One that won’t last long, but one that could be very sharp indeed.

Already …

•  Coffee prices have fallen 23.8% from their high earlier this year.

•  Cocoa prices are down 16.4%.

•  Cotton prices are down 10.25%.

•  Wheat’s down 7.4%.

•  Corn’s down more than 15% from its high last June.

•  Platinum’s down 8.6% since early March.

•  Crude oil’s fallen more than 8% since early March (and 13.3% since last May).

•  Cattle prices are down more than 10%, just since February.

•  Natural gas prices have plunged almost 36% since the first of the year.

I say this not to boast, but to prove to you one major point: There can be big disinflationary waves in commodities, even when there’s money-printing going on.

Why’s that important? Because nine out of 10 investors (and analysts) think all too linearly about the markets.

They think that, if there’s money-printing going on, in any part of the developed world, it’s inflationary. And that commodity prices must therefore go up.

Not true. The markets are dynamic, complex systems. If you’re to get the big picture right, you simply have to throw out all the old rules you’ve been taught or told — and stop thinking about the markets linearly.

Instead, you have to realize that markets can do anything at any time. They can defy linear logic … they can defy the fundamentals … they can defy the news. They can also defy the authorities. The biggest traders and investors in the world. And more.

Just consider gold. It’s down more than $300, or 15.6%, since its record high of last year … and upward of $151, or 8.4%, since its high at the end of February. This, despite massive European money-printing … continual bad news out of Europe … alleged buying of gold by Beijing … and an improvement in the U.S. economy, which should be a tad inflationary for gold.

Silver’s down even more — a whopping 38.1% since its record high last year and 16.4% since its high just six weeks ago.

The markets also take no prisoners. John Paulson’s main hedge fund was down a whopping 51% in 2011 … and a reported 13% so far this year. Yet he’s one of the biggest and savviest money managers in the world.

The thing is, the disinflation you’re seeing in commodity prices is bound to continue. Through September of this year, according to my models. By then, we will likely see the majority of investors throw in the towel on the commodity sector — which will then make it an optimal time to go back in and back up the truck and buy.

What about the U.S. stock markets? A reader recently wrote in questioning me on my long-term forecast, wondering how in the heck the Dow Industrials could ever run to substantial record new highs (my forecast) if the U.S. economy is never going to fully recover and instead, slip to No. 2 in the world, with China rising to No. 1.

Defies logic, right? On the surface, yes. But it’s happened before. Just go back to the 1932 to 1937 period. The U.S. economy sank deeper and deeper into depression, yet the Dow Industrials soared 287%.

Why? Because even though the U.S. economy was sinking, Europe’s economy was sinking even more. Capital fled the European stock and bond markets in droves, pushing the Dow substantially higher.

The same thing will happen again. Only this time, it will push both U.S. and Chinese stock markets substantially higher. Gold will soar to more than $5,000 an ounce as well.

But we’re not there just yet. More pullbacks are coming in the commodity sector, and in stocks.

When those pullbacks are finished, it will, in my opinion, represent the buying opportunity of a lifetime, in commodities and stocks.

What about the recent talk of the Fed abandoning a third round of quantitative easing and not printing any more money? That’s temporary.

As sure as I know my name, the Fed will come back in and print record amounts of money. We’re not there yet either, though. Expect it later this year, when commodities and stocks look terrible.

Stay tuned …

Best wishes,

Larry

P.S. The sad state of affairs in the euro zone may be helping the dollar now. But as the Chinese yuan makes big strides, it’s trampling the greenback in the process.

Even worse, the U.S. government is not only letting it happen, but it’s playing a big role in helping to devalue our currency! This gives Washington a chance to inflate away the burden of its unpayable debt mountain.

Don’t let your wealth be left in the dust — watch my free video for proof of this conspiracy, and learn the steps you need to take to protect yourself and even prosper. Just click here to watch it now.

Larry Edelson has nearly 33 years of investing experience with a focus in the precious metals and natural resources markets. His Real Wealth Report (a monthly publication) and Resource Windfall Trader (weekly) provide a continuing education on natural resource investments, with recommendations aiming for both profit and risk management.

For more information on Real Wealth Reportclick here.
For more information on Resource Windfall Traderclick here.

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Successful Investing Strategies in a Government-Centric Market

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Posted by Addison Wiggen via The Daily Reckoning

on Thursday, 05 April 2012 15:27

You’ve heard of “risk on”; you’ve heard of “risk off”… But have you heard of “everything off”?

That’s the trade that seems to be underway right now. Investors are dumping everything with a ticker symbol: US stocks, foreign stocks, government bonds, corporate bonds, precious metals, crude oil and almost every other commodity.

In Wednesday’s trading worldwide, not one single major stock market index moved to the upside. In fact, here in the Americas — North, South and Central — no stock market index of any kind moved to the upside. Over in Europe, the ticker tapes were equally dismal, unless you happened to be tracking the bullish action in Slovenia, Montenegro, Cyprus or Latvia.

In the commodity markets, the CRB Index of commodities stumbled 1.5% this morning, as 14 of the 19 commodities in the index slipped into the red. Only nickel and coffee managed to gain more than one percent.

The newswires blamed the worldwide downticks both on the Federal Reserve and a poor government bond auction in Spain. The Fed was to blame, said Bloomberg News, “as the Fed minutes [from the March 13 FOMC meeting] showed less urgency to add stimulus.”

Meanwhile, the Spanish government struggled to sell bonds in its first auction since the country said its public debt would surge to record this year. The Spaniards, who had been hoping to sell €3.5 billion worth of government bonds, managed to knock down the gavel on only €2.6 billion worth of bonds.

The poor auction results kicked off a steep selloff in the Spanish bond market — pushing the yield on the 10-year government bond to its highest level since January, which was immediately before the ECB “solved” the eurozone crisis.

In other words, Dear Reader, the capricious gales of bureaucratic meddling and governmental manipulations continue to buffet the financial markets. Setting a reliable course in these conditions is no easy task.

Over the long run, of course, underlying fundamentals like earnings growth and dividend yields will dictate the course of one’s investments. But over the short run, the treacherous seas of interventionist governments and too-big-to-fail crony capitalism can capsize even the most seaworthy of investment strategies.

Sure, exceptional companies will still be exceptional. But when governments are actively price-fixing the cost of credit, while selectively rescuing fatally flawed governments and enterprises, rot flourishes. And when rot flourishes, healthy organisms struggle to take root and grow.

Furthermore, no one wants to build any kind of structure on a rotting foundation. So if investors, en masse, believe that the foundations underlying their investments are corrupt and rotten, they will seek to build their wealth elsewhere — either in other jurisdictions or simply in other asset classes.

They will seek to build their wealth as far away from rotten interventionist policies as possible. That could mean anything from seeking out the safest currencies to tracking down the most compelling foreign stocks or bonds to accumulating the kinds of assets that governments cannot easily corrupt — like real estate, precious metals and other hard assets.

This little introduction brings us to the latest (and most exciting) installment of what we call the Daily Reckoning Group Research Project. We will ask you, Dear Readers, to devise a “permanent portfolio.” Here’s the context:

A few decades ago, a guy named Harry Browne devised an investment strategy he dubbed the “Permanent Portfolio.” The idea was so simple it seemed almost moronic. And yet, with the passage of time we have discovered that his idea was pure genius.

He suggested building an investment portfolio out of only four components: gold, bonds, stocks and cash.

DRUS04-04-12-1

The idea was that at any given time, two or three of these four components might underperform — but the other portfolio components would perform so strongly, you’d get an overall gain that would outpace any increase in the cost of living.

Incredibly, this simple strategy has delivered some surprisingly strong investment results. In our column “The Permanent Portfolio Revisited”, written with Addison Wiggin, we provide a bit more detail about Browne’s Permanent portfolio, followed by a few questions:

1) Is Harry Browne’s original allocation still ideal for today’s macro-economic environment?
2) If not, how would you revise his original allocation for the next 30 years?

Please read on here, then submit your own version of the Permanent Portfolio.

Eric Fry
for The Daily Reckoning

Author Image for Eric Fry

Eric Fry

Eric J. Fry, Agora Financial’s Editorial Director, has been a specialist in international equities for nearly two decades. He was a professional portfolio manager for more than 10 years, specializing in international investment strategies and short-selling.  Following his successes in professional money management, Mr. Fry joined the Wall Street-based publishing operations of James Grant, editor of the prestigious Grant's Interest Rate Observer. Working alongside Grant, Mr. Fry produced Grant's International and Apogee Research —  institutional research products dedicated to international investment opportunities and short selling. 

Mr. Fry subsequently joined Agora Inc., as Editorial Director. In this role, Mr. Fry  supervises the editorial and research processes of numerous investment letters and services. Mr. Fry also publishes investment insights and commentary under his own byline as Editor of The Daily Reckoning. Mr. Fry authored the first comprehensive guide to investing internationally with American Depository Receipts.  His views and investment insights have appeared in numerous publications including TimeBarron'sWall Street JournalInternational Herald TribuneBusiness WeekUSA TodayLos Angeles Times and Money.

Special Report: Wait until you see what could happen in America as early as this MAY… An unbelievable phenomenon is set to sweep the nation as early as this May... The railroad, steel, and technology age - this phenomenon triggered them all. And now it’s taking shape again! Watch this special, time-sensitive presentation now for full details on how it could affect your job… your lifestyle… and your wallet. Here’s How…

Read more: Successful Investing Strategies in a Government-Centric Market http://dailyreckoning.com/successful-investing-strategies-in-a-government-centric-market/#ixzz1rCthT9X8



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Think You Can Outrun a Global Flash Crash?

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Posted by Rick Ackerman

on Thursday, 05 April 2012 05:42

"Europe’s bailout, for one, is a hoax that can only end badly for us all. And the torrent of lies that have kept the U.S. out of statistical recession are so egregious that a bust of 1929 proportions could occur literally overnight and at any time."

Think You Can Outrun a Global Flash Crash?

 

It was while under the influence of LSD that a childhood friend of ours decided to end a promising career as a commodity trader.  He was buying and selling pork belly contracts at the time but dropped acid one day hoping to gain valuable insights into the markets — insights that presumably lay beyond the grasp of rational thinking.  Chuck had insights all right, but not the kind he’d expected.  Instead of having potentially profitable spreads, combos, strips and straddles leap out at him from his trading monitor, his febrile mind was overwhelmed by images of the slaughterhouse — of 400-pound sows dripping blood from a conveyor belt. The experience was cathartic enough that his next job, announcing professional basketball games, was as far from the feedlots and butcheries as he could get.

We mention this because market-watching has become all-too-abstracted for us lately as well. Ponder the whys and wherefores of the stock market for too long and you begin to believe that investors are being led, one rally at a time, to the slaughterhouse.  Or so it would seem. Europe’s bailout, for one, is a hoax that can only end badly for us all. And the torrent of lies that have kept the U.S. out of statistical recession are so egregious that a bust of 1929 proportions could occur literally overnight and at any time.  As we know, the mindless herd can have epiphanies just like individuals. Except that they are called panics. And yet, stocks continue to ratchet higher most of the time, pausing only long enough to allow sector rotation and the orderly flow of money in and out of the flavor-of-the-week asset class.

We’ve Had Our Warning

Someone in the Rick’s Picks forum described this yesterday as musical chairs, and we would agree. The remark was in response to a post by a regular poster who evidently believes he’ll know when it’s time to exit the stock market. Although he had asserted that there have always been warning signs in the past, we don’t recall any such signs prior to the May 2010 Flash Crash. Some traders we know have bragged that they saw the October 1987 crash taking shape that summer, like dark cumulus clouds on the  horizon.  But did they really? We doubt it. In point of fact, crashes occur because few have noticed or heeded whatever warnings signs were there to be observed.

To those who may be looking for the next warning sign, we would say: The May 6 2010 crash was your warning. That infamous event saw the Dow Industrials plunge 1000 points, or nine percent, only to recover the entire loss minutes later. Much as we’d like to believe that someone flipped the wrong switch, a crash of that kind could have occurred only because the electronic trading network itself had gone HAL-9000 wacky. And so it is with, not just the stock market, but the entire global financial system. It has been hard-wired to panic at ten-thousand times the speed of humans. And it therefore will, eventually.

Any trader or investor who is counting on beating HAL to the exit, or on a do-over once The Powers That Be have sorted things out, richly deserves to reap the whirlwind.

stock-market-crash-1929-DJTA

***

 

Information and commentary contained herein comes from sources believed to be reliable, but this cannot be guaranteed. Past performance should not be construed as an indication of future results, so let the buyer beware. There is a substantial risk of loss in futures and option trading, and even experts can, and sometimes do, lose their proverbial shirts.  Rick's Picks does not provide investment advice to individuals, nor act as an investment advisor, nor individually advocate the purchase or sale of any security or investment. From time to time, its editor may hold positions in issues referred to in this service, and he may alter or augment them at any time. Investments recommended herein should be made only after consulting with your investment advisor, and only after reviewing the prospectus or financial statements of the company. Rick's Picks reserves the right to use e-mail endorsements and/or profit claims from its subscribers for marketing purposes. All names will be kept anonymous and only subscribers’ initials will be used unless express written permission has been granted to the contrary. All Contents © 2011, Rick Ackerman. All Rights Reserved.www.rickackerman.com



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Fed - Actions Speak Louder Than Words

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Posted by Axel Merk, Portfolio Manager, Merk Funds

on Wednesday, 04 April 2012 06:20

Investors may be taken for a ride by today’s Minutes of the Federal Open Market Committee (FOMC), which expand on the FOMC’s March 13, 2012 statement; in the interim, we believe the Federal Reserve (Fed) Chairman Bernanke has gone out of his way to assure the markets that monetary policy will remain “highly accommodative,” at least through late 2014.

The Fed does indeed have a credibility problem: having assured investors that rates will remain low for an extended period, it may only take one or two FOMC members to turn more optimistic about the economic outlook to cause the markets to more aggressively price-in tighter monetary policy. Conversely, Bernanke has made it clear that he is most concerned about a recovery in the housing market and that low interest rates – throughout the yield curve – are desirable. Operation Twist is specifically aimed to achieve that, lowering long-term rates and flattening the yield curve. However, should investors become increasingly optimistic about economic improvement, odds increase that investors sell bonds, putting upward pressure on long-term rates.

To understand the Fed’s “communication strategy”, one needs to be aware of who is calling the shots. We are not just talking about Fed Chairman Bernanke, but also the composition of voting FOMC members. Without a doubt, the “hawks” (hawks are FOMC members considered to favor tighter monetary policy compared to “doves”) on the FOMC are getting more vocal. At the same time, the only voting “hawk” on the FOMC this year is Richmond Fed President Jeff Lacker:

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The scale may tilt a tad towards the centrist/hawkish side should Congress fill the two vacant seats with the candidates under consideration. Still, when all is said and done, it is the voting members who ultimately determine imminent monetary policy decisions, rather than the noise created by non-voting members. And those actions remain, in our interpretation, decisively on the dovish side:

 

  • “almost all members again agreed to…maintain a highly accommodative stance…”
  • “a number of members perceived a non-negligible risk that improvements in employment could diminish as the year progressed”

 

Obviously, should economic data continue to surprise to the upside, the Fed will have an ever-more difficult time defending its dovish position. The credibility of the Fed will be seriously tested as the Fed has committed to keeping rates low until late 2014. However, should we enter a weak patch, we believe the odds are rather high that the FOMC will “take out insurance” against another slowdown. In a world where everyone hopes for the best, but plans for the worst, central banks around the world – including the Fed - may keep the world awash in money.

After all, a world laden with debt may need inflation if deflation is to be avoided. Bernanke has argued many times that tightening monetary policy too early was one of the biggest mistakes the Fed made during the Great Depression. We don’t think Bernanke will repeat this. Indeed, we consider he will err firmly on the side of inflation. As such, when the dust settles, look at actions, not words. We see doves, not hawks, managing the monetary aviary.

Please register for our Webinar on Thursday, April 19, or sign up for our newsletterto be informed as we discuss global dynamics and their impact on currencies.

Axel Merk
President and Chief Investment Officer, Merk Investments
Merk Investments, Manager of the Merk Funds



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The Singapore Stock Market is the World's Biggest Bargain

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Posted by Martin Hutchinson

on Monday, 02 April 2012 05:14

After all, its economy is in fine shape, and is growing faster than any of the major Western economies.

In fact, with its GDP per capita estimated at $50,700, Singapore is now richer than the United States.

It's all proof that as the world's leading trade entrepot, Singapore is aggressively moving up the global value chain as its citizens become richer and better educated.

And unlike the US, Singapore's recovery from the 2008-09 recession was rapid, with 14% growth in 2010.

Since then, it has entered a mini-recession, with GDP declining at a 2.5% annual rate in the fourth quarter of 2011. Still, overall growth in 2011 was a solid 4.8%, and the country is expected to grow by another 3.1% in 2012, according to the analysts at The Economist.

Inflation is a moderate problem, running around 5%, although it is expected to decline.

Yet the most impressive statistic about Singapore is its current account surplus of 18.4% of GDP; the budget is also in modest surplus, as it is most years.

Read full article here

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