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Perspective on the US Real Estate Market PDF Print E-mail
Written by Chartoftheday.com   
Wednesday, 23 July 2014 10:58

For some perspective on the all-important US real estate market, today's chart illustrates the inflation-adjusted median price of a single-family home in the United States over the past 44 years. There are a few points of interest. Not only did housing prices increase at a rapid rate from 1991 to 2005, the rate at which housing prices increased -- increased. All those gains and then some were given back during the following 6.5 years. Over the past two years, however, the median price of a single-family home has trended significantly higher. More recently, the inflation-adjusted price of the median single-family home has declined and is now testing support of its two-year upward sloping trend channel.

20140723

Notes:
Does the real estate rally continue? The answer may surprise you. Find out now with the exclusive & highly regarded charts of Chart of the Day Plus.

Quote of the Day
"I'm a great housekeeper. I get divorced. I keep the house." - Zsa Zsa Gabor

Events of the Day
August 04, 2014 - PGA Championship begins (ends August 10th)

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Victor Adair: When Quality Means More Than Lower Yields PDF Print E-mail
Written by Victor Adair via Drew Zimmeran @ PI Financial   
Tuesday, 22 July 2014 10:28

We see markets “priced for perfection”…vulnerable to a correction…from a geopolitical shock or from a growing perception that the Fed will raise interest rates more and faster than people think. We think it’s time for investors to get defensive…we see signs that the smart money is already taking money off the table.

We see markets “priced for perfection” as yield-hungry investors pour billions of dollars into the sovereign bonds of obscure countries at tiny premiums over US Treasuries…as option volatility falls to all-time lows…as leverage ramps up to all-time highs. Our good friend BOB HOYE describes the recent market condition as, “Euphoria in the credit markets!”

David Rosenberg reminds us that it’s been 8 years since the Fed raised rates…that we’ve gone 33 months (double the norm) without so much as a 10% correction in the stock market…but last week the DJIA registered a new All Time High Weekly Close…despite geo-political shocks in the Ukraine and Gaza.

BUT…we see signs that the smart money may be quietly slipping out the back door…or at least getting much more defensive. We think capital is moving from the periphery to the center.

For instance, so far in July:

1) Treasury bonds have rallied while “weaker credits” have fallen…credit spreads are widening.

USA-July21

2) The DJIA has made new highs but the broader S+P 500 has gone sideways…while the much broader Russell 2000 is down…the major European stocks markets are down...(L to R: DJI,S&P,Russell)

Stocks-July21

3)The US Dollar has been rising against most currencies and if it rises another 1.5 to 2% (trading above 8100/8150 ) it will register a significant breakout.

DXE-July21

We’ve been anticipating a reversal in bullish Market Psychology to cause:

     A sharp widening in credit spreads
     A break in the stock market
     A higher USD

We think the reversal in Market Psychology has begun…that the key market to watch is the US Dollar…because if the US Dollar starts to rally then EVERYTHING changes. (See: Ambrose Evans-Prichard’s prediction of a  “BLISTERING US DOLLAR RALLY” on www.VictorAdair.com)

We think that over the next few years the US Dollar could rally like in did during President Reagan’s first term (it DOUBLED in just over 4 years) or during President Clinton’s 2nd term ( it rose more than 50% in 6 years) as global capital flows to the relative safety of the USA…to the much freer and more innovative American markets…here’s a quote from our July 2nd blog:

     “Longer term we expect inflation to erode the purchasing power of the dollar….but capital flowing from the rest of the world to the relative safety of America would see the dollar rise against most currencies. We can imagine a rising USD, rising interest rates and rising stock markets all happening at the same time…a “virtuous circle” based on a relatively stronger and safer America drawing capital from the rest of the world…with that capital flow pushing stocks higher and those gains drawing more capital to America…thus continuing to boost the USD Vs. other currencies. Something similar happened during the 1995 to 2001 period (Clinton’s 2nd term) when capital flows created a virtuous circle of rising interest rates/rising USD/rising stocks which caused the US Dollar Index to rally ~50% and the S+P 500 to gain more than 200% (while the US$ price of gold fell from around $400 to less than $300.)”

A US Dollar Bull Market is not typically good for gold, commodities or commodity currencies.

Short term trading:

We remain long the US Dollar Index…and short CAD. We’re looking for other opportunities to make “USD bullish” trades…waiting for markets to “set up” for short positions…possibly in NZD, GBP and EUR. We may buy the Yen Vs. USD and/or EUR.  We have taken very short term short positions in the S+P…waiting for “set ups” (for instance, a break of 1940) to confirm that it’s time to take longer term positions.   

 

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The Greatest Risk To Investors Today PDF Print E-mail
Written by Jody Chudley - Investing Answers   
Monday, 21 July 2014 10:53

safety first 0We've seen this set-up before...

All through 2006 and 2007, I heard some of the smartest minds in the investment game warning about the massive housing bubble that was about to pop. For a long time, these smart folks looked wrong, as housing prices kept going up and up.

Then things changed in a hurry, and we suffered through the worst credit crisis in our country's history and a housing bubble collapse. Anyone that didn't heed the warnings got crushed.

I see the same thing happening today. There have been warnings that we could be in for severe inflation ever since the Federal Reserve rolled out the printing presses back in 2008 with its "quantitative easing" program.

So far, not much has happened. However, similar to the housing bubble, that "nothing" could turn into something very quickly.

After years of easy money policy by countries around the globe, the inflation pump could be primed.

As prices begin their steady incline and wages stay stagnant, our dollar value could plummet. In addition, if interest rates drop lower than inflation, then negative real interest rates will slowly bleed millions of savers dry.

In other words, inflation could push the U.S. into another recession, or at the very least cut golden years short and push retirement dates back further and further.

Now several great investors believe that the biggest risk to their portfolios today is a rapid increase in the rate of inflation.

For example, Stephen Leuthold (CEO of Leuthold Strategic) is known as the contrarian’s contrarian and has been in the investment business for 45 years. He built the Leuthold Group from nothing to a $5 billion asset manager. In a recent interview with Liz Claman from Fox Business News, Leuthold was asked if he could choose only one investment today, what would it be.

His answer? An inflation hedge.

At this same interview, Hedgeye senior macro analyst Darius Dale also reconfirmed the need for protection against inflation. In fact, he made a strategic case for how he's combating this emerging financial threat. More on that in a moment.

Leuthold and Dale aren't alone. Jim Grant, an inductee into the Fixed Income Analyst Society Hall of Fame, believes that the easy money policy has set the stage for what could be painful inflation.

Grant has a long and distinguished track record for making great macro investment calls. He steered investors away from the technology bubble in the late nineties and predicted the collapse of the housing market. He was also featured in the documentary "The Bubble" alongside over a dozen of renowned economists, investors and business leaders.

In an interview with Forbes Media Chairman, Steve Forbes, he asserts that the Federal Reserve has accelerated inflation by going way too far in its massive stimulus program. He warns, "First and foremost the patient is overmedicated -- that is, the economic patient."

It’s hard to ignore these warnings from renowned investors and strategists. But what can we do about it?

Leuthold, Dale and Grant all own -- and recommend having exposure to -- gold.

In an appearance on Hedge TV last month, Jim Grant exclaimed "Gold to me is an example of an opportunity. Gold and mining shares are very, very cheap… but nobody even bothers to poke them with a stick."

To me that screams that it's time to make a contrarian play...

One gold stock that recently caught my attention is Pershing Gold (OTC: PGLC), a gold-focused royalty company, run by Stephen Alfers.

In accepting the job as CEO, Alfers gave up a very high-ranking position (Chief of U.S. Operations) at the multi-billion dollar Franco-Nevada Corporation (NYSE: FNV). With 30 years of mining industry experience under his belt, he has made extensive progress in getting this company on the right course.

For example, at a time when gold companies are struggling to raise capital, Pershing recently raised over $9 million. Furthermore, the company remains debt-free and unhedged.
Pershing acquired its main property in August 2011 with the opportunistic purchase of the Relief Canyon Mine property located in Pershing County Nevada.

Since acquiring Relief Canyon, Pershing third party resource estimates of gold in place at Relief Canyon have skyrocketed from a starting point of 155,000 oz on June 2010 to 717,000 oz as of March 2014.

And the company estimates that less than 10% of their current acreage has been explored leaving room for significant future resource expansion.

If that isn't enough, in the June corporate update, a new gold/silver zone was revealed just 2 miles north of Relief Canyon. This site among others has lead analysts to predict an annual yield of 80k ounces as soon as 2016 from Pershing Gold's land.

Keeping in mind that the current gold price per ounce is over $1,300, 80k ounces a year is pretty impressive. If these estimates are correct, Pershing Gold could generate over $100 million dollars in pure gold revenue -- per year.

And the stock is starting to get noticed.

Cantor Fitzgerald initiated coverage on Pershing on May 28, 2014 and established a $0.55 per share price target which is a 1.0x multiple to Cantor’s net asset valuation.

That is roughly a 60% upside from the recent share price and assumes a long term gold price of $1,300/oz. If the price of gold goes higher, that valuation is going to prove extremely conservative.

Cantor also notes that this valuation does not assume any future resource expansions. I expect that is another conservative assessment, given Pershing’s recent track record of resource growth and company expectations. That growth keeps continuing as they drill up their 25,000 acres.

Keep in mind that Pershing Gold is a development stage mining company. This is a risky business, not a blue chip cash flow machine.

But as far as development stage mining companies go, Pershing Gold is as solid as they come. I like Pershing on its own merit. The fact that it helps provide an inflation hedge (that Leuthold and Grant insist upon) makes it even more promising.

Actions to take -- Buy shares of Pershing Gold, which provides direct exposure to both gold and the value creating abilities of its management team.

Potential Risks

 

  • Potential cost inflation from the service industry
  • Potential for cost overruns bringing the project to completion
  • Reliance on the capital markets for financing

 

Any bet on a commodity producer is a bet on a commodity; that makes the company very leveraged to both declines and rises in that commodity price

In the past year, Street Authority recommendations on individual stocks have gained +72%, +26% and +60% all in less than six months... and recently, their trades could have made you +26% in 42 days and +42% in less than one month. Click here to get the free trading advisory -- Trade of the Week.

 

 
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