January 19, 2012
By Peter Andersen
Every January 2 I smile to myself as I approach my health club’s parking lot. We all know it’s always the same thing: gyms burst with new members the first month of the year. Because I belong to two clubs (don’t even wonder why) this plays out in double time for me.
It’s one thing to discuss this phenomenon in the abstract (“It’s a result of human nature and New Year’s resolutions” and so forth). But it is truly stunning to participate in it personally by driving through the crowded parking lots, negotiating the lines at exercise stations, and knowing attendance will diminish by the end of the month.
Why do we act this way? The whole experience is a free ticket to the human nature theatre. Whatever drives us to make resolutions for the New Year must certainly influence the way we make investment decisions, too. These thoughts help center me as I think about the investment outlook for 2012.
Scholars have exhaustedly studied fear and greed’s impact on investors’ behavior. But these two emotions don’t completely explain behavioral investing or our motivation to improve ourselves. I believe a third emotion—the drive for instant gratification—completes the full picture of today’s investors and New Year’s resolvers.
When our efforts don’t produce instant gratification, we simply quit. Like fear or greed, the drive for instant gratification is a primal one, and can probably be traced back to the dawn of humankind. From an anthropological sense, its purpose was most likely to help drive human survival.
January 17, 2012
By Daniel Amerman
Some investors fear that the Dow may go to 4,000 or 5,000. Surely that would be bad, but there is a worse possibility to consider, which is that the Dow could go to 36,000 instead. Now, Dow 36,000 may sound like a “problem” that most investors would love to have! So what’s the danger?
To demonstrate why Dow 36,000 could be a nightmare scenario, we will begin with a review of how 70% of stock investor wealth was annihilated the last time the US endured the combination of sustained high unemployment and high rates of monetary inflation. Using a series of simple steps, we will pierce through the generally accepted but false narrative about that market, and show how even with an assumption of “perfect” market timing – that is, buying on the best single day over a near 12 period, and selling on the best single day over an almost 10 year period – that the historical end result was still crippling investor losses, caused by three distinct wealth-destroying forces.
We will then move to today’s financial world, and show how the little understood interplay between these same three deadly wealth destroyers could create the glittering illusion of wealth that would be Dow 36,000 – even while wiping out 80% of real investment values.
How Inflation Hid A 70% Market Loss: 1968-1982
History has already shown us what can happen to long term investment returns when persistent high inflation collides with stubborn high unemployment, resulting in stagflation. Consider the graph below. As shown in yellow, the Dow Jones Industrial Average reached 919 in May of 1968, and by August of 1982, had fallen to a level of 777, for a loss of 15%.
August 11th, 2011
The Economic Collapse
How far does the stock market have to go down before we officially call it a crash? The Dow is now down more than 2,000 points in just the last 14 trading days. So can we now call this “The Stock Market Crash of 2011″? Today the Dow was down 519 points. Yesterday, an announcement by the Federal Reserve indicating that the Fed would keep interest rates near zero until mid-2013 helped the Dow surge more than 400 points, but all of those gains were wiped out today. It turns out that the Federal Reserve was only able to stabilize the financial markets for a single day. Fears about the European sovereign debt crisis and the crumbling U.S. economy continue to dominate the marketplace. With each passing day, things are looking more and more like 2008 all over again. So what is going to happen if “The Stock Market Crash of 2011″ pushes the U.S. economy into “The Recession of 2012″?
Just like in 2008, bank stocks are being hit the hardest. That was true once again today. Bank of America was down more than 10 percent, Citigroup was down more than 10 percent, Morgan Stanley was down more than 9 percent and JPMorgan Chase was down more than 5 percent.
Bank of America stock is down almost 50 percent so far this year. Overall, the S&P financial sector is down more than 23 percent in 2011 so far.
How soon will it be before we start hearing of the need for more bailouts? After all, the “too big to fail” banks are even bigger now than they were in 2008.
All of this panic is causing the price of gold to reach unprecedented heights. Today, gold was over $1800 at one point. If the current panic continues for an extended period of time, there is no telling how high the price of gold may go.
In the United States, much of the focus has been on the fact that the U.S. government has lost its AAA credit rating, but the truth is that the European sovereign debt crisis is probably the biggest cause of the instability in world financial markets right now.
The European Central Bank has decided to start purchasing Italian and Spanish debt, and there have been rumors that French debt could be hit with a downgrade. Europe is a total financial basket case right now and unless dramatic action is taken things are going to get progressively worse.
Of course the U.S. is also certainly contributing greatly to this crisis. The federal government is on track to have a budget deficit that is over a trillion dollars for the third year in a row. The U.S national debt is a horrific nightmare, but our politicians keep putting off budget cuts.
The debt ceiling deal that was just reached basically does next to nothing to cut the budget before the next election. Unless the “Super Congress” does something dramatic, the only “budget cuts” we will see before the 2012 election will be 25 billion dollars in “savings” from spending increases that will be cancelled.
The modest spending cuts scheduled to go into effect beginning in 2013 will probably never materialize. Whenever the time comes to actually significantly cut the budget, our politicians always want to put it off for another time.
But in the end, debt is always going to have its day. Our politicians can try to kick the can down the road all they want, but eventually a day of reckoning is going to come.
In fact, if the U.S. and Europe had not piled up so much debt, we would not be facing all of the problems we are dealing with now.
Things could have been so much different.
But here we are.
The truth is that this debt crisis is just beginning. There is no magic potion that is going to make all of this debt suddenly disappear.
Most Americans have no idea how much financial pain is coming. We have been living way beyond our means for decades, and now we are going to start paying for it.
Now that long-term U.S. government debt has been downgraded, huge numbers of other securities are also going to be affected. In fact, according to a recent Bloomberg article, S&P has already been very busy slashing the ratings on hordes of municipal bonds….
August 11th, 2011
The Raw Story
By: Agence France-Presse
President Barack Obama has no plans to cancel his summer vacation to deal with the US debt crisis and market turmoil sparked by fears over Europe’s finances, the White House said Wednesday.
The president is due to head to his normal summer vacation spot on Martha’s Vineyard, an upscale resort island off the coast of Massachusetts, later in the month with his family.
But as turmoil rocks world stock markets and fears of a second recession mount, some commentators have called on Obama to stay in Washington and recall Congress to discuss ways to create jobs and reboot the stagnant recovery.
“I don’t think Americans out there would begrudge that notion that the president would spend some time with his family,” said White House spokesman Jay Carney,” arguing that Obama was working round the clock to fix the economy.
“There’s no such thing as a presidential vacation. The presidency travels with you. He will be in constant communication and get regular briefings from his national security team, as well as his economic team.
“And he will, of course, be fully capable if necessary of traveling back if that were required. It’s not very far.”
Obama’s vacations have been frequently interrupted by the events which pull a president back into the public eye, even when he is trying to recharge his batteries away from the cameras.
Two years ago, he left his rented vacation farmhouse on Martha’s Vineyard to attend the funeral in Boston of senator Edward Kennedy, his friend and political mentor who died of brain cancer.
During his Christmas holiday in 2009 in his native Hawaii, Obama was criticized for responding too slowly to an alleged attempt by a Nigerian man to bring down a US airliner over Detroit with explosives sewn into his underwear.
Obama is enduring one of the most testing periods of his presidency, and facing a volley of unusually harsh media criticism after many commentators said he came off second best in a debt showdown with Republicans.
He has said he will unveil a new set of measures to create jobs and cut the US deficit in the coming weeks and will leave for vacation next week after a three-day bus tour of midwestern states hit hard by the recession.
May 12th, 2011
By: Yatin Karnik
U.S. gold turned and fell on Wednesday. Gold dropped $14.80, or 0.98%, to close at $1,501.00 an ounce. Gold prices hit an intraday low of $1,495.90 and a high of $1526.20 an ounce. Gold prices are right at Bollinger band’s middle band. Relative strength indicator is sitting at 52.38.
Silver futures prices for July delivery, now the most active contrast, dropped a whopping $3.31, or 8.60%, to close at $35.16 per ounce on the Comex in New York. Silver prices hit an intraday low of $35.00 and a high of $39.46. The relative strength indicator sits at 37.13.
For every stock that rose, there were three stocks that declined. Total volume of shares that traded on New York Stock Exchange was north of 980 million. The correction in commodities last week is the first shaking of the tree that should not be ignored. In my opinion it was an early indication of short term top being put in both commodity markets and equity markets. I think, the recent turbulence in equities and especially in commodities market is not transitory. These head winds are here to stay in the short to medium term.
On the currency front, the euro fell more than 1% against the U.S. dollar, because Standard & Poor’s thinks that Portuguese banks may need additional government support. China’s CPI (consumer-price index) climbed 5.3% in April year-over-year, while wholesale inflation climbed 6.8%, year-over-year. Analysts’ expectations were 5.2% for the CPI and 7.3% for wholesale inflation. In my opinion, when some traders cite China inflation numbers behind Wednesday’s commodities sell-off, that’s just not true. These numbers were mixed at best, with CPI above expectation but wholesale inflation well below expectation.
Wednesday’s sell-off triggered a brief and unusual halt in petroleum products’ futures trading. This prompted the CME Group, that operates the New York Mercantile Exchange and electronic trading platform CME Globex to expand daily trading range allowed by the exchange. Intuitively, expanding daily trading range would allow for higher volatility and larger price swings, but the thesis behind expanding the trading range is to allow traders with long exposure to commodities futures to exit their positions safely.
For the long term investor, both gold and silver are undoubtedly heading higher. But for a swing trader, silver will pose an excellent buying opportunity to get long at lower prices in coming day or two. I think silver and gold, both will settle the week lower. For the faint heart, staying away from precious metal for next couple of trading sessions might be a good idea. For aggressive traders, best risk reward is presented by getting short exposure to silver.
If you believe in the gold and silver story, you can take advantage of the drop in gold prices by getting short exposure to GLD (iShares Gold Trust) or UGL (ProShares Ultra Gold). You can also benefit by getting long exposure to GLL (ProShares UltraShort Gold). You can take advantage of the drop in silver prices by getting short exposure to SLV (iShares Silver Trust) or AGQ (ProShares Ultra Silver). You can also benefit by getting long exposure to ZSL (ProShares UltraShort Silver).
April 7th, 2011
By: Douglas McIntyre
For most Americans, it is unimaginable that the U.S. could put its iconic properties on the market. But as the nation struggles to balance its balance sheet, should the federal government take a look at selling some of its most valuable assets?
It wouldn’t be the first time that a large nation has pondered taking such drastic steps in recent years. Just two years ago, the Greeks and the British probably never would have thought that some of their famed assets would hit the auction block.
But since then, Greece has been saddled with such onerous budget restrictions due to E.U. bailout guarantees that some have suggested that it sell some of its popular islands. A number of the country’s politicians are attempting to block the transactions. One of the jokes about Greece — which sadly now has some basis in reality — is that it will have to sell the Parthenon. The Greeks don’t find the joke very funny.
The British have also begun the sale of assets, which could eventually include the Royal Mail.
Asset sales by governments have a long history. A large percentage of the geographic area of the United States was acquired through the purchase of land from other governments. In the Louisiana Purchase, Napoleonic France, strapped for cash due to its wars in Europe, sold the United States land that is now part or all of 14 states for the 2010 equivalent of $219 million.
24/7 Wall St. has identified nine U.S. assets that could generate a total of $543 billion — or about a third of the annual budget deficit for the government’s current fiscal year. The list is by no means comprehensive, but shows that the U.S. has salable assets that, in some cases, are worth hundreds of billions of dollars.
Each of the nine assets on this list were compared to private companies or entities that already have established public valuations. For example, to put a value on the U.S. Postal Service, 24/7 Wall St. looked at FedEx (FDX) and United Parcel Service (UPS), and to estimate a sale price for the New York Federal Reserve building, they examined nearby Wall Street real estate. We looked at cash flow and revenue figures when comparable values were not available. We determined the size and dimensions of each asset using U.S. government data, which was taken from dozens of departments and agencies.
It’s worth noting, though: While these nine sales and licensing agreements might make a big dent in a single year’s budget deficit, they wouldn’t balance the budget, and the current federal debt — the overall amount we owe — is around $14 trillion. That $543 billion is just a drop in the bigger bucket — we’d need to find many, many more assets to put on the auction block to significantly reduce the debt. But this is a huge country, and this list is just the tip of the iceberg.
1. New York Federal Reserve Building
Guesstimated price tag: $750 million
Location: Manhattan, New York
U.S. ownership: 87 years
Who should buy it: Donald Trump, SL Green, Tishman Speyer
Why it’s valuable: Location
The Federal Reserve Bank of New York is located in a massive building that takes up an entire block in Manhattan’s Financial District. Construction of the building was completed in 1924. It’s 14 stories tall and features an additional five floors underground. If the bank relocated to less valuable real estate, the government could make a significant amount of money. A recent notice issued by the New York City Department of Finance estimated the building’s value for the 2011 to 2012 tax year to be $88,594,000. While this may be the value for tax purposes, a review of comparable buildings in Manhattan revealed this wold likely be significantly less than its market price. On Madison Avenue, a similar building was sold for just under $1 billion. In all likelihood, considering its location and the historical significance of the building, the government could fetch closer to $750 million from a buyer like Donald Trump or SL Green.
2. Hoover Dam
Guesstimated price tag: $415 million
U.S. ownership: 75 years
Who should buy it: Duke Power, Con Edison, Southern Company
Why it’s valuable: Hydroelectric power
The Hoover Dam includes one of the largest hydroelectric installations in the country. If a company were to purchase the structure, it would most likely do so to privatize the dam and reap the benefits from the sale of the power it generates. According to the Department of the Interior, the average annual net generation for the Hoover Dam from 1947 through 2008 was about 4.2 billion kilowatt-hours. The Energy Information Administration calculates the average retail price of a single kilowatt-hour, as of 2010, at 9.88 cents. That means the energy produced by the dam each year is worth roughly $415 million. Of course, the operators of the power plant must deal with additional, necessary costs, such as flood control. Without the benefit of a profit and loss statement for the dam, one year’s revenue is a reasonable — though quite conservative — valuation.
3. Randolph Air Force Base
Guesstimated price tag: $1 billion
Location: San Antonio, Texas
U.S. ownership: 81 years
Who should buy it: City of San Antonio
Why it’s valuable: Could be converted to a commercial airport
There are many cases of former Air Force bases being converted into commercial airports, including the fields that are now Bangor International in Maine and Southern California Logistics in the Golden State. This usually happens only after a base has been closed, but there’s no reason to believe the government wouldn’t sell an operating base in an area where it could get a premium price for it. According to the Census Bureau, San Antonio is the fourth fastest-growing city in the U.S. The metropolis also happens to have a nation-high three Air Force bases within its city limits. Randolph AFB has two substantial runways capable of supporting all but the largest jetliners. Incorporating the costs the city of San Antonio would have to sustain to upgrade facilities and build a new terminal, Randolph could be sold for as much as $1 billion.
4. Naming Rights to the Grand Canyon
Guesstimated price tag: $1 billion
U.S. ownership: Became a national monument 103 years ago
Who should buy it: Large international brand
Why it’s valuable: Brand recognition
It’s very common for large venues, like stadiums and convention centers, to sell naming rights for tens of millions of dollars. The new Citi Field in New York (formerly the Met’s Shea Stadium) sold naming rights to Citigroup for $400 million. The U.S. government would likely get much more for a major national attraction like the Grand Canyon, which has more than twice as many visitors each year as Citi Field, and has the added branding value of being a major national landmark. This trend could spread to any of the hundreds of national monuments in the U.S., such as Mount Rushmore or the Washington Monument.
Today, Kevin exposes more lies and corruption within the media and government. Plus, Thomas James of HempUSA.org stops by to explain the advantages of adding hemp into your diet and how his Micro Plant Powder will protect you from radiation exposure.
ATM Fees Rise as Banks Feel Funding Squeeze
Take Trudeau on the Go! Click here to download this show to your iPod, mp3 player, or PC through iTunes!
March 14th, 2011
By: Alex Veiga
The number of U.S. homes receiving a foreclosure-related notice fell to a 36-month low last month, as lenders delayed taking action against homeowners amid heightened scrutiny over banks’ handling of home repossessions.
Some 255,101 properties received at least one of the notices in February, down 14 percent from January and 27 percent versus the same month last year, foreclosure listing firm RealtyTrac Inc. said Thursday.
The firm tracks notices for defaults, scheduled home auctions and home repossessions — warnings that can lead up to a home eventually being lost to foreclosure.
While severe winter weather was likely a contributing factor, the sharp drop-off was primarily due to lenders taking a more measured approach to their foreclosure processes since the industry came under fire last year.
State and federal officials launched investigations last fall into foreclosure procedures used by mortgage servicers and lenders after evidence surfaced that some major banks pushed through hundreds of foreclosures a day without giving many borrowers a fair shot at keeping their homes.
Several large banks, including Bank of America, Citigroup and JPMorgan Chase, have been in talks to settle a probe launched by 50 state attorneys general over their handling of foreclosures.
Many lenders temporarily froze foreclosures last October while they reviewed and, in some cases, re-filed foreclosure documents. That process has continued this year, but in less-than-speedy fashion due to backed-up court dockets and other procedural road bumps.
Initial default notices fell 16 percent from January and 41 percent from a year ago, while scheduled foreclosure auctions declined 10 percent versus last month and 21 percent from February last year, RealtyTrac said.
Meanwhile, lenders repossessed 64,643 homes last month, down 17 percent from January and 18 percent from the same month last year. Repossessions declined 35 percent in states where courts play a role in the foreclosures process.
The decline in foreclosure notices has slowed not only the pace of homes lost to foreclosure, but also stemmed the tide of additional properties potentially at risk for repossession.
That’s good news for homeowners in trouble, but it’s unlikely to portend fewer foreclosures in the long-run.
“The issue isn’t whether we’ll see the repossessions — it’s when,” says Rick Sharga, a senior vice president at RealtyTrac.
Should the foreclosure process slowdown continue for several months, it’s likely foreclosure notices and bank repossessions will remain artificially low, Sharga says.
That could help stem home price declines and the number of homes taken back by banks, which hit a high of more than 1 million last year.
Such a reprieve would only be temporary, however.
“Even though foreclosure activity would look better, it would take the housing market and the economy longer to recover,” Sharga said. “We might not see the market come back until 2014 or 2015.”
However, if banks’ foreclosure paperwork issues get resolved sooner, rather than later, foreclosure activity is likely to spike again, Sharga added.
Around 5 million borrowers are at least two months behind on their mortgages, and experts say more people will miss payments because of job losses and loans that exceed the value of the homes they are living in.
RealtyTrac’s data captures new foreclosure-related filings on a given property, not repeat filings. As a result, some 70,000 notices that mortgage servicers re-filed on properties in some stage of foreclosure were excluded from February’s data.
Factor in those re-filed notices, and the month’s foreclosure activity comes closer to the monthly rate seen last year before the banks’ foreclosure documentation problems came to light.
At a state level, Nevada posted the nation’s highest foreclosure rate for the 50th consecutive month in February, with one in every 119 households receiving a foreclosure notice.
Arizona had the No. 2 spot, while California held the third-highest rate of foreclosure.
Rounding out the top 10 states with the highest foreclosure rate in February were: Utah, Idaho, Georgia, Michigan, Florida, Colorado and Hawaii.
Today, Kevin explains how buying organic not only creates a healthier new you, but also saves you money in the long run.
Take Trudeau on the Go! Click here to download this show to your iPod, mp3 player, or PC through iTunes!
March 2nd, 2011
By: Chris Isidore
Just when the U.S. economy seemed to be getting its footing, a number of new obstacles risk tripping it up.
A spike in oil prices due to spreading unrest in the Middle East is the highest profile problem, but not the only one.
Economists are also worried about the push to cut government spending, the end of stimulus from the Federal Reserve and the bull market in stocks running its course.
While none of these factors might be enough to tip the economy back into a recession individually, “pile up enough headwinds and you’re going backwards,” said David Wyss, chief economist with Standard & Poor’s.
Danger #1: Rising oil prices: The spike in oil prices has not only sparked a sell-off in stocks, it’s made economists far less bullish about the strength of the recovery.
But most believe that oil prices at $100 a barrel isn’t high enough to cause a problem.
“At $100, it’s a significant problem, but it’s not a killer,” said Wyss.
Wyss said $150-a-barrel oil would be the problem level. Others put the tipping point closer to $120 or $125 a barrel. And uncertainty in the Middle East has many wondering how high it will go.
“The big geopolitical changes we’ve been seeing didn’t stop with Tunisia, and didn’t stop with Egypt. So maybe it’s not a good idea to assume it’s all going to stop with Libya, either,” said James Hamilton, economics professor at the University of California-San Diego. “If there is a disruption for Saudi Arabia, it would be off the charts in its impact on the world economy.”
But it is possible that oil is already at a level that will cause a new recession, although it could take months to know for sure, according to David Rosenberg, chief economist with Guskin Sheff. He believes the problem with this oil spike is that the economy, while growing, is still weak.
“When oil prices were ratcheting up to record levels a few years ago, unemployment was at 5%, not 9%,” he said. “The Fed had ammunition left. There was still appetite for fiscal stimulus. There’s nothing in the cookie jar today as an offset.”
Danger #2: Sharp spending cuts: The push to cut government spending is another cause for concern.
Goldman Sachs put out a note Tuesday estimating that Republican spending proposals which would cut $61 billion between March and Sept. 30 could reduce economic growth by 1.5 to 2 percentage points in the second and third quarters.
And it said if there is a shutdown of the federal government, gross domestic product could be reduced by 0.2% for each week it lasts. A government shutdown is possible if there is no budget agreement by March 4.
“A shutdown lasting more than a week could be meaningful,” said the note.
State and local budgets are also being slashed and that could hit growth hard in the second half of this year when new fiscal years start in most jurisdictions.