inflation
What I’d Consider Buying as the Market Moves Higher Again
By George Leong for Daily Gains Letter | Aug 27, 2014
The stock market appears anxious to move higher to new record highs.
In the past week, the Federal Reserve released its Federal Open Market Committee (FOMC) meeting minutes that suggested it wanted to see stronger, sustained growth before deciding on when to raise interest rates. This includes both economic growth and jobs creation.
On Thursday, the Bureau of Economic Analysis (BEA) will report the second reading of the second-quarter gross domestic product (GDP), which came in at a surprising annualized four percent for the advance reading.
The consensus is that the second reading will show the GDP growth holding at the same four-percent level. If it does, it would be excellent for the economy but at the same time, ironically, it would make investors and the stock market nervous about the status of interest rates.
The issue is that the Fed wants to see controlled and steady economic growth and a four-percent reading could raise red flags, pointing to inflation—which means higher interest rates. The inflation rate is benign at this time as consumers continue to hold back on spending.
The stock market will get anxious if the reading remains the same, but we would want to wait to see how the economy fares in the third and fourth quarters of the year before making any drastic moves.
Of course, the stock market is all about expectations going forward and clearly, a strong second reading of the 2Q14 GDP will send some to the exits.
The Fed also wants to see the jobs market continue to expand at its previous trend of generating an average of more than 200,000 monthly … Read More
How to Play the Strong GDP Growth
By George Leong for Daily Gains Letter | Aug 4, 2014
On one hand, it’s great the economic growth is showing renewed progress as the advance reading of the second-quarter gross domestic product (GDP) growth came in at an annualized four percent, according to the Bureau of Economic Analysis. (Source: Bureau of Economic Analysis web site, July 30, 2014.)
Now I realize this is only the advance reading and things can change over the next few weeks as more credible estimates come into play, but I’m sure the Federal Reserve is keeping close tabs on the numbers. Investors are also likely quite nervous.
It appears that the weak showing in the first-quarter GDP was an aberration, driven by the extreme winter conditions. But the reality is that if the GDP continues to expand at this pace, we could see the Federal Reserve begin to increase interest rates quicker than expected in 2015.
The GDP reading saw gains across the board in consumption, investment, exports, imports, and government spending, which will catch the eye of the Federal Reserve.
We know the Federal Reserve doesn’t want to slow the economic renewal, but at the same time, it also wants to make sure inflation doesn’t rise too fast.
The report from the BEA pointed to the fact that the price index for gross domestic purchases used as a measure of inflation increased an annualized 1.9% in the second quarter, well above the 1.4% in the first quarter. Even when you take out the volatile food and energy components, the reading increased 1.7%, versus 1.3% in the first quarter.
And given that the jobs numbers continue to show progress with the unemployment rate standing at … Read More
Why Now Is the Opportune Time to Invest in Gold
By George Leong for Daily Gains Letter | Jun 18, 2014
Gold and oil are finally seeing some upward lift, but it has more to do with the geopolitical landscape than inflation and economic growth.
As I said in recent weeks, the price of gold could be headed higher, but only if we see a rise in geopolitical tensions. That’s what we are witnessing at this time, so there could be quick money to be made.
While the Ukraine situation appeared to be settling down, the destruction of a Ukrainian aircraft with soldiers on board will not help the already tense situation. Russia has also halted the flow of oil into Ukraine after failing to reach a compromise on only owing for past oil and the price for future oil. This failure could cause a bottleneck not only in Ukraine, but also in Poland and other European countries that depend on Russian oil. Of course, in the worst-case situation, this could impact growth in the eurozone at this critical time when the region is still fragile, with high unemployment and mixed economic renewal.
We also have the massive uprising in volatile Iraq, where the brutal ISIS (the Islamic State in Iraq and al-Sham) rebel militia is spreading its control in the country, now marching on Baghdad. The negative implications of ISIS increasing its control over the country could wreak havoc not only on the oil production out of Iraq, but it could also create geopolitical instability in this already volatile region that also includes tensions on Syria and Iran.
The two events will likely drive safe haven buying in gold, which has been moving higher after bouncing off some support around … Read More
How You Could Still Profit from Gold Despite Weakness
By George Leong for Daily Gains Letter | Jun 4, 2014
With money continuing to flow into the equities market and stocks, the gold market has seen an outflow of capital. The Ukraine situation appears to be under control, and with minimal geopolitical influences, the yellow metal has failed to gain any catalyst to move higher.
The prices paid for goods and services, as measured by the Consumer Price Index, are under wraps, despite rising food and energy prices. The headline reading, including these two volatile items, jumped two percent in April in urban areas, which was the highest reading in 2014, matching the highest readings in 2013. Right now, inflation is not a major issue, but it could become more of a factor as we move forward.
Moreover, we all know that the Federal Reserve is expected to eliminate its entire bond purchases by the year’s end, which will likely drive bond yields, interest rates, and the U.S. dollar higher. The result would be a stronger U.S. dollar and pressure on gold prices.
And as I previously mentioned, there’s still broad interest in the stock market, which will impact the buying in the yellow metal. Investors are continuing to look for returns, and at this time, that isn’t gold.
The gold story is a non-factor at this moment, and I think the best gains are behind us for the time being, as the precious metal traded at around $300.00 in 2002 and reached its highs in 2011. The long-term chart below shows the yellow metal in a decline.
Chart courtesy of www.StockCharts.com
The reality is that there’s simply no attraction in buying the yellow metal at this point, in spite … Read More
Student Debt on Course to Sink America’s Economy; Here’s How to Profit
By John Whitefoot for Daily Gains Letter | Jun 2, 2014
In April, the unemployment rate dropped to 6.3%—its lowest level since 2008. While Wall Street and Capitol Hill might be giving each other high-fives, there is still plenty left to lament.
At 12.3%, the U.S. underemployment rate is still eye-wateringly high. (Source: “Alternative measures of labor underutilization,” Bureau of Labor Statistics web site, May 2, 2014.) Sure, it’s down from 13.9% in April 2013, but it’s still at an unacceptable level. And it’s not exactly an encouraging statistic for those entering, already in, or recently graduated from a post-secondary school—or those still struggling to pay off their student debt.
In this economic climate, graduates can either stay unemployed or take lower-paying jobs. Sadly, this could take a serious toll on the so-called economic recovery.
For starters, student debt is the fastest-growing category of debt. At the end of the first quarter of 2014, student debt had soared $125 billion year-over-year to $1.11 trillion. And right now, 11% of all loan debt is either in default or delinquent by 90-plus days. (Source: “Quarterly Report on Household Debt and Credit,” Federal Reserve Bank of New York web site, May 2014.)
Second, it’s going to get worse. With an average graduating debt of $33,000, the class of 2014 is the most indebted ever. They’re also finding it more and more difficult to pay off that debt. Between 2005 and 2012, the average student debt, adjusted for inflation, has climbed 35%. The median salary, on the other hand, has dropped 2.2%. This doesn’t bode well for the graduating class of 2015.
Granted, not all college degrees are created equally. Healthcare and education grads have … Read More
Three Variables to Consider Before Investing in Gold
By George Leong for Daily Gains Letter | Apr 16, 2014
While there continue to be many gold bugs out there, I’m not one of them—but I do see gold as a trading opportunity.
Given what we have seen so far and looking ahead, I just don’t see gold as a buy-and-hold strategy at this time. Yes, there’s money to be made, but it’s going to be for traders only.
The recent break below $1,300 an ounce and the subsequent rally to the current $1,325 level is an example of such a trade, not a new trend that’s developing on the charts, based on my technical analysis. The chart below shows the potential declines in the metal towards $1,200 and $1,100 an ounce.
Chart courtesy of www.StockCharts.com
Many gold supporters will counter that China is hoarding gold and India will soon pick up its buying. While I don’t argue against this, I just don’t see the yellow metal retaining its luster at this point unless a war breaks out in Ukraine and Russia intensifies its threat. If this should happen, it would drive Russia’s gross domestic product (GDP) growth lower and could result in the fragile eurozone and European economies retrenching back into a recession that just ended.
I wrote about gold several weeks back as a trading opportunity on dips below $1,300. I continue to hold on to that belief, but longer-term, the yellow metal could fade and fall back towards $1,200 or less.
My thinking is that inflation is nowhere to be seen in the United States, China, or Europe. (In fact, deflation may be more of a concern here.) And unless inflation picks up, the yellow metal isn’t … Read More
Three Silver Plays That Can Weather a Short-Term Downturn
By John Whitefoot for Daily Gains Letter | Mar 27, 2014
Technically, the Federal Reserve’s job is to oversee the monetary policy (short-term interest rates) of the world’s biggest economy. Obviously, it does, but it’s also important to remember that its opinion and carefully chosen words also have a major impact on the global markets and world economies.
If the Federal Reserve says the U.S. economy is doing well, investors flood the markets. If, on the other hand, the Federal Reserve says the U.S. economy is having difficulty gaining traction, investors turn their attention to precious metals to hedge against a weak U.S. and global economy and inflation.
It’s worked like clockwork since the Federal Reserve stepped in to help kick-start the U.S. economy with its generous monetary policy after the markets crashed. During the first round of quantitative easing (November 25, 2008 to March 31, 2010), silver climbed 65%.
Sensing the economy was still unstable, the Federal Reserve initiated its second round of quantitative easing (November 3, 2010 to June 30, 2011), during which time silver climbed an additional 39%. In September 2012, the Federal Reserve commenced its third, open-ended round of quantitative easing. If history is any indicator, the third round of quantitative easing should have been a boon for silver—but it wasn’t.
Silver prices edged steadily lower over the ensuing months. In April 2013, The Goldman Sachs Group, Inc. famously trimmed its outlook for gold to $1,450 an ounce by the end of 2013 and $1,270 at the end of 2014. The company noted that the banking crisis in Cyprus didn’t have the expected positive effect on the price of gold.
Silver and gold prices fell lower in … Read More
Global Risks Creating Opportunities in This Precious Metal
By George Leong for Daily Gains Letter | Mar 27, 2014
While the stock market has been struggling this year, under the radar, gold has been moving higher.
The tense stand-off in Crimea is clearly adding some support to gold, as an outbreak there could drive the precious metal much higher in the short term.
The geopolitical risk also includes the tensions between Israel and Iran in the Middle East.
On the fundamental side, we have China continuing to amass significant positions in physical gold, as the country looks to diversify its massive $3.0 trillion in reserves away from U.S. bonds. Buying in India has stalled, but the country continues to be the world’s largest market for the precious metal.
The one major supportive variable that’s missing is inflation, which is a proven driver of gold prices. The reality is that inflation is benign in the United States, along with much of Europe and Asia.
With gold currently holding just above $1,300 an ounce, the precious metal is at a crux. Stabilization in Crimea would remove some of the risk discounted into the price, but I doubt this will happen in the immediate future, as Russia has set the process to annex Crimea from Ukraine.
We know that the contested move by Russia doesn’t sit well with the United States or the United Nations, yet I really do not see Russia backing away for now. That is unless the economic sanctions put forth on Russia intensify and begin to send the Russian economy into a downward spiral.
But until we see a resolution in the stand-off, I expect gold prices will continue to incorporate some risk discounted into the price.
In … Read More
Should You Be Prepared for a Bullish Run in Gold Bullion?
By John Whitefoot for Daily Gains Letter | Mar 26, 2014
After 12 years, gold bullion’s glorious bull run ended with a thud in 2013, retracing 30% and locking in the biggest annual decline since 1981. Many speculate that gold bullion prices melted in 2013 as investors tried to figure out when the Federal Reserve was going to be cutting its generous $85.0-billion monthly bond purchases.
Investors lean toward gold bullion and other precious metals as a hedge against both a weak U.S. dollar and inflation. A tapering of the Federal Reserve’s monetary policy suggests that the U.S. economy is getting stronger. While there was no real sign of sustained economic strength in 2013, just the idea that the Federal Reserve would have to start tapering at some point was enough to send gold bullion prices lower.
That coupled with a strong—but misguided—run on the S&P 500 also helped push gold bullion prices lower. I say “misguided” because quarter after quarter, more and more companies on the S&P 500 revised their earnings guidance lower. At the same time, companies masked their weak earnings and revenues with cost-cutting measures and near-record-high share repurchase programs.
That came to a crushing halt at the beginning of 2014, when the Bureau of Labor Statistics reported abysmal January payroll figures. Instead of adding the forecasted 196,000 jobs—the U.S. economy added just 74,000.
Weak January payroll data coupled with political tension in Ukraine helped send gold bullion prices higher. Between the beginning of January and the middle of March, gold bullion prices rebounded, climbing 15% year-to-date to around $1,390 per ounce.
The bullish run in gold bullion didn’t stop the bears from warning investors to avoid the … Read More
Can This Precious Metal Save Your Portfolio from the Rising Tensions in Crimea?
By Moe Zulfiqar for Daily Gains Letter | Mar 5, 2014
These days, we have been hearing a significant amount of news out of Ukraine. “Pro-Russian troops” are now in control of the security and administrative systems in the Crimea region, which is the mainly Russian-speaking area of the country. World leaders are saying that this is nothing but an act of aggression by Russia, saying that at the very least, the situation is worsening each day and it’s very unpredictable what could happen next.
As a result of the uncertainty, key stock indices here in the U.S. are sliding lower—mind you, the Ukraine is neither a major trading partner with the U.S. nor is it a country in which a lot of American-based companies operate. Considering this, one must wonder why key stock indices are seeing selling then at all.
Here’s what investors really need to know…
It all comes down to this: the Ukraine/Russia issue is a problem for the global economy, with which the key stock indices are highly correlated. If the global economy as a whole faces an issue, then the key stock indices slide lower. This is something investors have to keep in mind.
Ukraine is just one of the issues for the global economy that we see in the news; there are others, which investors need to know about, that may have even more gruesome consequences on the key stock indices than now.
For example, the Chinese economy isn’t getting much attention these days, but we see manufacturing activity in the country is continuously declining. This shows that the demand is slowing down and it will impact the bottom-line of companies on the key stock … Read More
Three Ways to Protect Your Wealth from Global Uncertainty
By John Whitefoot for Daily Gains Letter | Mar 5, 2014
Nothing helps create volatility on the stock market like the threat of war. And just a few short days after the close of the bloated $52.0-billion behemoth in Sochi, Russia has embraced its ne’er-do-well Olympic spirit and invaded the Ukraine. Or, according to Putin, “pro-Russian soldiers” have simply moved into the Ukraine to defend Russian interests.
With a growing threat of war/retaliation on the horizon, investors have been pulling their money from riskier assets, like stocks—sending global financial markets reeling. Crude oil and gold prices, on the other hand, have been on the rebound.
While it seems utterly crass to deconstruct the potential for war down to economics, the fact remains—a stand-off or sanctions could both disrupt gas supplies to the European Union and send U.S. crude oil prices higher.
For starters, any issues in the Ukraine could disrupt the flow of natural gas supplies from Russia to the European Union. That’s because the European Union gets about a third of its crude oil and natural gas supply (and a quarter of its coal) from Russia, mostly piped through the Ukraine. Russia, the world’s biggest crude oil producer, generated 10.9 million barrels a day in 2013 and currently exports close to 5.5 million barrels of crude oil per day.
Since the end of the Cold War, no one really worried about relying on Russia for crude oil and coal. All of that has changed. While the notion of war is remote, it’s still on the table. Nations far removed from Russia and Ukraine might push for economic sanctions, just as the U.S. has done, threatening visa bans, asset freezes, and … Read More
Stock Market Sell-Off Making This Sector an Attractive Buy?
By John Whitefoot for Daily Gains Letter | Feb 10, 2014
With the markets selling off, many may not think now is the best time to consider discretionary stocks. But it’s because the markets are selling off that beaten-down stocks selling non-essential products and services (what people want, not need) might be worth a second look—not just because many discretionary stocks are beaten down, but rather because consumer spending fuels the majority of economic growth in this country.
Normally, when consumers have the money to spend, they do so on discretionary items like travel, electronics, cars, and luxury brands. But, as virtually all of us can contest, this isn’t always the case. Credit card purchases may not be the same as having discretionary income, but they accomplish the same short-term goals.
Granted, there is a mountain of evidence to suggest investors should shun discretionary stocks. Unemployment is high, wages are stagnant, and, for the first time ever, working-age Americans are the primary recipients of food stamps. On top of that, median household income (adjusted for inflation) has declined for five straight years. (Source: DeNavas-Walt, C., et al., “Income, Poverty, and Health Insurance Coverage in the United States: 2012,” United States Census Bureau web site, September 2013.)
That hasn’t stopped us from spending. At $3.04 trillion, consumer credit is up 22% over the last three years. Total household debt is more than $13.0 trillion, close to its 2007 pre-recession level and just below the $17.0-trillion government debt load. (Source: Cox, J., “It’s back with a vengeance: Private debt,” CNBC, October 12, 2013.)
During the last quarter of 2013, the U.S. economy expanded at an annual rate of 3.2%. During the third quarter, … Read More
Top Strategies for an Economically Engineered Market
By John Whitefoot for Daily Gains Letter | Feb 3, 2014
Back in December, Bernanke decided the U.S. economy was on solid footing and initiated the first round of quantitative easing cutbacks to begin in January. Instead of dumping $85.0 billion into the U.S. economy, the Fed added just $75.0 billion.
Last Wednesday, in his final hurray as chairman of the Federal Reserve, Ben Bernanke initiated the second round of tapering. Citing growing strength in the broader U.S. economy, Bernanke slashed the Federal Reserve’s quantitative easing program to $65.0 billion a month starting in February.
At this pace, the Federal Reserve will be out of the bond buying business by Labor Day. As for interest rates, Bernanke reiterated the Federal Reserve’s guidance; short-term interest rates will remain near zero until the jobless rate hits 6.5%. But not even that is an automatic trigger. When unemployment does hit 6.5%, it will take inflation, the state of the labor market, and the state of the financial markets into consideration.
In light of the current U.S. economic environment, I’m not so sure I’d hang my hat on the so-called “growing strength in the broader economy.”
For starters, U.S. unemployment remains high. It dropped unexpectedly to 6.7% in December, but that number was skewed by a large number of long-term unemployed workers abandoning their search for new jobs. Of those who did find jobs, most were in the retail industry.
Those working in low-salary jobs don’t have much to look forward to. Wages are stagnant. In fact, workers’ wages and salaries are growing at the lowest rate relative to corporate profits in U.S. history.
Furthermore, for the first time ever, working-age people make up the … Read More
Is This Currency Losing Its “Safe” Status?
By Moe Zulfiqar for Daily Gains Letter | Jan 24, 2014
Not too long ago, I wrote about an economic slowdown in the Canadian economy and how it could take the value of the Canadian dollar even lower. (Read “How American Investors Can Profit from the Canadian Economy’s Demise.”) By no surprise, the Canadian dollar (also referred to as the “loonie”) looks to be in a freefall. Take a look at the following chart.
The Canadian dollar is currently trading at its lowest level since September of 2009. Since the beginning of the year, the loonie has declined more than four percent compared to other major global currencies.
Considering all that is currently happening, can the Canadian dollar go down any further?
Chart courtesy of www.StockCharts.com
Simply put, yes, the Canadian dollar may still see some more downside. After the U.S. economy showed a significant amount of stress during the financial crisis, investors flocked to buy the Canadian currency. This may not be the case anymore.
Since the last time I wrote on this topic, some more information on how the Canadian economy is doing has been released. This new information reaffirms my suspicions. It seems the economic slowdown in the Canadian economy is gaining some momentum; even the central bank of Canada looks slightly worried. This could be very bearish for the Canadian dollar.
First of all, wholesale sales in Canada in the month of November remained unchanged from the previous month. Out of the 10 provinces in the country, only four reported an increase in their wholesale sales. (Source: “Wholesale trade, November 2013,” Statistics Canada web site, January 21, 2014.) Wholesale sales can provide an idea about the retail … Read More
As Consumer Confidence Wavers, Gold Bugs Come Back from the Sidelines
By John Whitefoot for Daily Gains Letter | Jan 21, 2014
If you listen to the Wall Street analysts, January consumer confidence numbers weren’t really all that bad. The preliminary University of Michigan Consumer Confidence index came in at 80.4 versus a forecast of 83.4—and down from 82.5 in December. (Source: “Tale of two consumers continues as US consumer sentiment slips,” CNBC, January 17, 2014.)
Some attributed the blip to the polar vortex that swept through most of North America earlier in the month. The warmer winds of February are expected to pick up the disappointing slack in U.S. consumer confidence levels next month.
But I’m not so sure. Friday’s consumer confidence numbers missed expectations by the widest margin in eight years. It also marks the seventh miss in the last eight months. Throughout 2013, consumer confidence numbers only beat projected forecasts three times, which (surprise!) means Wall Street doesn’t really have its finger on the pulse of Main Street America.
What isn’t surprising is that upper-income households have increased consumer confidence, having benefited the most from strong gains in income levels, the stock market, and housing values. On the other hand, low- and middle-income households that are not heavily invested in the stock market are being weighed down by stagnant wages and embarrassingly high unemployment.
And, since there are more middle- and low-income earners than high-income earners in the U.S., and 70% of our gross domestic product (GDP) comes from consumer spending, it’s fair to say that both consumer confidence levels and the economic outlook for the majority of Americans is bleak.
It’s not as if the disappointing consumer confidence levels have come out of a vacuum. A raft of … Read More
Where the Fed Went Wrong When It Decided to Taper
By John Whitefoot for Daily Gains Letter | Jan 14, 2014
The merriment, mirth, and cheer on Wall Street over the holiday season may have been a bit premature; in fact, the optimism about the U.S. economy that ushered in the New Year may have already come to a screeching halt.
In mid-December, the Federal Reserve surprised investors when it announced it was going to start tapering it’s generous $85.0-billion-per-month easy money policy in January to just $75.0 billion per month. The pullback was a surprise, because the Federal Reserve initially hinted it wouldn’t ease its monetary policy until the U.S. unemployment rate fell to 6.5% and inflation rose to 2.5%. At the time of the announcement, U.S. unemployment stood at seven percent and inflation was hovering around historic lows below one percent.
The Federal Reserve moved sooner than expected with its tapering because of a (so-called) stronger U.S. economy and jobs growth. And, going forward, it said that U.S. unemployment figures will improve faster than expected. But, a raft of new economic numbers is calling that optimistic forward guidance into question.
In December, the U.S. economy created just 74,000 jobs, the slowest pace in three years, with the majority of the jobs (55,000) coming from the retail industry. Despite the weak jobs growth, the U.S. unemployment rate managed to fall from seven percent to 6.7%—the lowest rate since October 2008. But numbers are deceiving—the big drop in the unemployment rate was primarily a result of 347,000 people dropping out of the labor force.
Throughout 2013, the U.S. economy created 2.18 million jobs; in 2012, the U.S. economy created 2.19 million jobs. Looking at this from another angle, in 2013, the … Read More
Hidden Value in the Emerging Markets?
By Moe Zulfiqar for Daily Gains Letter | Jan 14, 2014
Are emerging markets worth looking at in 2014? Not too long ago, emerging market equities witnessed a pullback—when the taper talk came on the horizon. As a result, investors are asking if this has now created some value in these markets.
Before going into any details, investors have to keep one very important aspect of investing in mind: cheap doesn’t mean good value. Investors shouldn’t be interpreting falling prices as “value coming back to the market.” In some cases, this may be true, but in other cases, if the prices are falling, there’s a reason.
You see, emerging markets are going through some troubles, and as a consequence, their equity prices are a little vulnerable.
For example, India, the third-largest economy in Asia, reported a decline of 9.6% in 2013 auto sales. This was the first decline in auto sales since 2002. This well-known emerging market is struggling with high inflation and low economic growth—or a period commonly referred to as “stagflation.” In the fiscal year 2013, India’s economic growth was the lowest in almost 10 years, and inflation is running at 10%. (Source: Choudhury, S., “Indian Car Sales Slump for First Time in a Decade,” Wall Street Journal, January 9, 2014.)
China, another major emerging market, has been seeing its fair share of trouble as well. This year the country is expected to post growth that’s nothing like its historical average. In December, the HSBC China Manufacturing Purchasing Managers’ Index (PMI)—a gauge of manufacturing activity in the country—declined to a three-month low. (Source: “HSBC Purchasing Managers’ Index Press Release,” Markit Economics web site, January 2, 2014.)
Brazil, a common … Read More
Will 2013’s Worst-Performing Metal Rebound in 2014?
By John Whitefoot for Daily Gains Letter | Jan 9, 2014
The year 2013 was not kind to gold; the yellow metal closed the year down about 28%—its biggest annual drop in three decades. But in spite of the awful year for gold, it wasn’t the worst-performing metal in 2013. That dubious distinction goes to silver.
On the heels of quantitative easing, a devaluation of the dollar, and inflation, safe haven investors were expecting silver prices to trade in the $30.00–$50.00-an-ounce range. Sadly for these investors, that did not come to fruition.
After starting 2013 at $30.00 an ounce, the white metal finished the year around $19.50 an ounce—an annual loss of 36%. The dismal year is even more cringe-worthy when you consider silver recorded an average price of $31.15 in 2012—the second-highest on record.
Silver prices tanked in mid-April on the back of gold’s violent descent. Gold prices plummeted (in part) on the rumored sale of gold reserves in Cyprus. This decline occurred despite the demand for physical gold remaining strong in India and China. This point is important because, together, these two countries account for more than half of the annual demand for gold.
Still, silver prices fell in step with gold and then continued to slip lower over the ensuing months after the Federal Reserve hinted it might begin to taper its $85.0-billion-per-month easy money policy.
While analysts are divided as to how silver will perform in 2014 (some of them are calling for a range of $19.00–$26.00 an ounce and others are suggesting $30.00–$34.00 an ounce), the year will present investors with some solid opportunities.
For starters, the recently announced pullback in quantitative easing from $85.0 billion … Read More
A New Year’s Resolution in Gold Bullion?
By John Whitefoot for Daily Gains Letter | Jan 7, 2014
Did gold make a New Year’s resolution? If it happened to set its sights on 2014 being better than 2013, then that might not be too hard to accomplish. For gold bugs, 2013 was abysmal. Gold bullion prices ended the year down about 28%—the biggest annual drop in more than 30 years.
Gold bullion prices experienced an unprecedented run-up after the tragic events of September 11, 2001 and soared higher in 2008 as the global economy teetered on the brink of a recession. Investors’ justifiable fears of economic turmoil and inflation sent them running to gold bullion and gold mining stocks to hedge against this economic uncertainty. Between September 2001 and September 2011, gold prices soared more than 560%.
But since then, gold prices have lost their lustre. And in June of this year, the precious metal hit a three-year low of $1,179 an ounce after the Federal Reserve hinted it would begin to taper its generous $85.0-billion-per-month quantitative easing policy. Investors took this as a sign that the U.S. economy was on solid footing.
Gold bullion prices remained weak near the end of the year after the Federal Reserve announced on December 18 that it would begin to reduce its monthly bond buying program to $75.0 billion a month starting in January. Gold bullion ended the year at $1,202.
2013 will be remembered as the year when (misguided) economic optimism helped lift the Dow Jones Industrial Average by 26%, the S&P 500 by almost 30%, and the NASDAQ by 34%. In 2013, that same optimism also shaved off half of the value of gold mining stocks.
But it could … Read More
The Contrarian: Why I Think Stocks Will Rise in 2014
By George Leong for Daily Gains Letter | Jan 6, 2014
Now that New Year’s has come and gone, as we look forward into 2014, the big question will be how the stock market performs this year, especially following an impressive advance in 2013 that was beyond my estimates.
The past year was seen as the year of the Fed-induced market rally that resulted in some strong gains across the board from blue chips to technology and growth stocks. It was one of the best years to make money on the stock market in recent history.
At this stage, the economy is looking better and will need to strengthen in order for the stock market to advance higher toward more record gains. A strong January would be positive and would suggest an up year for the stock market.
My early view is that the stock market will head higher in 2014, but not at the same rate as we saw in 2013, which was out of whack.
The key will be how fast the Federal Reserve, under Janet Yellen, decides to taper its bond buying. A slower taper is supportive for the stock market. However, the flow of money will depend on the rate of economic renewal and, more specifically, the jobs market and whether job creation continues to move along at a steady pace. If we see growth and more jobs created, the Fed will continue to cut its bond buying, though it has said that it will keep interest rates near record lows until the unemployment rate falls to 6.5% or lower, which could happen sometime in mid- to late 2014.
I see another up year for the stock … Read More
Why Fed’s Change of Plans Doesn’t Mean a Change in the Stock Market
By John Whitefoot for Daily Gains Letter | Dec 20, 2013
Is it an early Christmas present or a really early April Fools’ Day trick?
In a somewhat surprise move, the Federal Reserve decided the U.S. economy was doing well enough that it could start to cut back on its generous $85.0-billion-per-month quantitative easing (QE) strategy.
I say “surprise” because the Federal Reserve initially said it wouldn’t consider tapering until the U.S. economy was on solid, sustainable economic ground, which meant an unemployment rate of 6.5% and inflation of 2.5%. Today, unemployment sits at seven percent and inflation is near historic lows at below one percent.
Against a weak economic backdrop, the Federal Reserve made a brave and daring decision to slash its monthly QE policy by a paltry $10.0 billion. That means that instead of pumping more than $1.0 trillion into the U.S. economy next year, it is only going to inject $900 billion. In other words, the U.S. national debt is going to increase by $900 billion. (Source: Press release, Board of Governors of the Federal Reserve System web site, December 18, 2013.)
If the U.S. economy really was on solid footing, Fed Chairman Ben Bernanke would have made a bigger dent in his monthly bond-buying program. Instead, he made a token gesture as he gets ready to hand the baton to Janet Yellen early next year.
Yup, after injecting $4.0 trillion into the U.S. economy, the country is little (or no) better off than it was before the Fed initiated quantitative easing. U.S. unemployment is down from its Great Recession high of 10% in October 2009, but it has yet to break the seven-percent level. Meanwhile, the underemployment … Read More
The “For Sale” Sign on Precious Metals
By Sasha Cekerevac for Daily Gains Letter | Dec 13, 2013
Do you feel wealthier today compared to last year?
According to the Federal Reserve, you should, as the household net worth of Americans rose 2.5% between the second and third quarters of 2013 for a total of $77.3 trillion. (Source: “Financial Accounts of the United States,” Federal Reserve, December 9, 2013.)
The Federal Reserve calculates household net worth by looking at the value of stocks, homes, and other assets, minus mortgages and debts.
In fact, the nominal total wealth is at a record high. Adjusted for inflation, the current level of net worth is approximately one percent below the peak prior to the Great Recession. On paper, it appears as though economic growth is booming thanks to the Federal Reserve.
But if you’re like most Americans, you’re probably skeptical of this so-called economic “growth,” and rightfully so, since the underlying fundamentals of economic growth really are missing.
While we are seeing some jobs growth, it’s obvious that the current situation is far from ideal. Millions of people remain unemployed, and the jobs being created are of poor quality.
However, because of the Federal Reserve’s easy money printing, asset prices have been boosted upward, creating a significant amount of wealth for the top portion of America’s society.
Over the long term, we cannot have sustainable economic growth if only the top five to 10% of Americans participate. While the Federal Reserve has tried to create economic growth for everyone, the policies are quite clearly tilted toward the very wealthy.
What does this say about the current level in the stock market?
Many people in the mainstream media are stating that the … Read More
Bitcoin: The New Gold?
By John Whitefoot for Daily Gains Letter | Dec 9, 2013
Back in March, a Canadian man listed his house for sale in exchange for Bitcoins—5,362 of them. At the time, the digital currency was exchanging hands at US$73.00, which means the house was available for about $395,000. (Source: “Canadian house first on sale for Bitcoin currency,” RT.com, March 25, 2013.)
The listing was considered a risky (and bizarre) idea; after all, the digital currency is experimental, decentralized, and can be transferred to anyone, anywhere in the world. Until recently, it was debatable as to whether or not this currency would even gain traction.
Because it is digital, the currency does not exist in a physical sense. It also isn’t issued by any central bank, and that might be part of the appeal; without a central bank, accounts cannot be seized or frozen. (That’s an attractive point for those in Cyprus who had 10% of all savings and deposits seized by the government.)
The lack of an intervening central bank also means the currency cannot be manipulated. While the digital currency is regularly being “minted,” there is a limit to how much can be created; this is to prevent inflation. There are currently around 12 million Bitcoins in circulation. After the year 2140, no more will be minted, and the total amount available will stand at a maximum 21 million.
Still, the price of a Bitcoin can fluctuate wildly. First introduced in early 2009, the digital currency floundered, coming in at about US$14.00 earlier this year. Now, the digital currency is “worth” around $1,080. Had the above-mentioned house sold for 5,362 Bitcoins, and had the owner held onto those coins, his … Read More
Wal-Mart Asking Employees to Donate Food to Fellow Employees in Need?
By John Whitefoot for Daily Gains Letter | Nov 21, 2013
The recent rise on the key stock indices might just be masking a fundamentally flawed economic recovery. Since the beginning of the year, the S&P 500 has gained 25%, the Dow Jones Industrial Average is up 21%, and the NASDAQ is 27% higher. At the same time, unemployment remains high, wages are stagnant, and our day-to-day life costs more.
With the S&P 500 on pace for the best yearly gain in a decade, well-heeled shareholders are rejoicing—at the other end of the scale, many employees aren’t.
You know it’s a touchy economic climate when Wal-Mart Stores, Inc. (NYSE/WMT), the world’s biggest retailer, which reported third-quarter profits of $3.7 billion, is asking employees to donate food to fellow associates in need, so they can enjoy Thanksgiving this year.
A weak economy and stiff competition is taking a toll on Wal-Mart. While Wal-Mart reported third-quarter earnings that beat Wall Street estimates by a mere penny, revenues of $114.9 billion were shy of the $116.8-billion mark Wall Street was hoping for. Not surprisingly, perhaps, Wal-Mart said holiday sales would be flat. (Source: “Walmart reports Q3 EPS of $1.14, updates full year guidance; Aggressive holiday plans to drive sales,” Wal-Mart Stores, Inc. web site, last accessed November 14, 2013.)
In light of Wal-Mart’s recent employee Thanksgiving food drive, it’s interesting to note that third-quarter sales from Neighborhood Market, Wal-Mart’s chain of grocery stores, rose a solid 3.4%.
Where other grocery store chains have reported underwhelming third-quarter results, Wal-Mart’s grocery chain actually bucked the trend. Fourth-quarter results may be muted. Thanks to a U.S. economy that continues to look fragile, grocery store stocks are competing … Read More
How to Profit from Fed’s Easy Money Mistake
By Moe Zulfiqar for Daily Gains Letter | Nov 19, 2013
The Federal Reserve has been very accommodative. Its goals are very simple: it wants economic growth in the U.S. economy. As a result, the Federal Reserve is taking extraordinary measures, printing $85.0 billion a month and using it to buy U.S. bonds and mortgage-backed securities (MBS). The hope is that the money will go to the banks, which will lend it to consumers who then spend it, leading to economic growth.
Sadly, the problems continue to persist in the U.S. economy, leaving economic growth still far from sight. The techniques used by the Federal Reserve aren’t working: the unemployment rate continues to be staggeringly high, troubling trends have formed, and the inflation continues to be low—threats of deflation loom.
Given all this, one would assume there might be something else that the Federal Reserve can do. Unfortunately, instead of using different measures to fight the problems in the U.S. economy, the Federal Reserve is planning to keep on doing what it has been doing for years now. I believe the techniques used by the Fed will continue on for some time.
Here’s my reasoning: in a testimony before the U.S. Senate Committee on Banking, Housing, and Urban Affairs, the newly nominated chairman of the Federal Reserve, Janet Yellen, said, “We have made good progress, but we have farther to go to regain the ground lost in the crisis and the recession. Unemployment is down from a peak of 10 percent, but at 7.3 percent in October, it is still too high, reflecting a labor market and economy performing far short of their potential. At the same time, inflation has been … Read More
If It Looks Like a Bubble and Acts Like a Bubble…
By John Whitefoot for Daily Gains Letter | Nov 19, 2013
Maybe I’m reading into the economy too much, but the current state of the U.S. economy and Wall Street isn’t adding up. The vast majority of people don’t think we’re in a bubble, including Federal Reserve chair nominee Janet Yellen. Granted, you can only really point to a bubble in retrospect, but still, it certainly looks and feels like we are in one.
Talking before the Senate Banking Committee during her first public appearance as Federal Reserve chair nominee, Janet Yellen said she plans to keep printing $85.0 billion a month and set no timetable for when the Fed will begin to taper.
Truth be told, the Federal Reserve has been, for the most part, pretty straightforward about when it will taper its quantitative easing policy: when the U.S. economy improves. For most, that means an unemployment rate of 6.5% and inflation at 2.5%.
At the same time, other scenarios have been floated about, including no tapering until the unemployment rate hits 5.5%, or better yet, the Federal Reserve begins to taper in early 2014, but continues to keep interest rates artificially low until, by some estimates, 2020. Really, what’s the rush?
And why should they? Since early 2009, the S&P 500 has climbed more than 160% and is up more than 25% year-to-date. The Dow Jones Industrial Average, on the other hand, is up 132% since early 2009 and is up 21.5% year-to-date. And it looks like the good times are going to continue to roll, because, in the words of Janet Yellen, “It could be costly to fail to provide accommodation [to the market].”
Take a few steps … Read More
Coming Hyperinflation a Real Threat to the U.S. Economy?
By Moe Zulfiqar for Daily Gains Letter | Oct 31, 2013
One of the questions being asked by investors these days is “where’s the inflation?” After the financial crisis and the fall of Lehman Brothers, the Federal Reserve and the U.S. government stepped in to help the financial system. As a result, they promised to print money, and thus quantitative easing was born. Banks received billions of dollars in bailout money.
With this, there was a significant amount of speculation that the increased money supply in the U.S. economy would lead to a period of out-of-control inflation, or hyperinflation.
Fast-forwarding to now, it’s been more than five years since the collapse of Lehman Brothers, but out-of-control inflation has yet to occur. Were those who said there will be hyperinflation wrong? What’s the inflation situation right now?
In August, the Bureau of Labor Statistics reported that the prices in the U.S. economy increased by 0.1%. From January to August, prices increased in the U.S. economy by only one percent. (Source: “Consumer Price Index – All Urban Consumers,” Bureau of Labor Statistics web site, last accessed October 29, 2013.)
Other indicators of inflation ahead signal it’s going to remain dismal as well. For example, I look at the producer price index (PPI) as one of the key indicators of inflation.
In September, the PPI showed that producers in the U.S. economy experienced a deflation of 0.1%. Since the beginning of the year, the inflation in producer prices has only increased by 1.1%. (Source: “Producer Price Index-Commodities,” Bureau of Labor Statistics web site, last accessed October 29, 2013.)
With all this in mind, I stand little different from those who say there will be … Read More
How to Protect Your Portfolio Entering QE Year Five
By John Whitefoot for Daily Gains Letter | Oct 7, 2013
For the last five years, the U.S. has relied on quantitative easing, one of the most unconventional monetary policies, to kick-start its economy. By printing off trillions of dollars and increasing the money supply on the back of artificially low interest rates, the government is hoping financial institutions will increase lending and liquidity.
Will it work? Not if history is any indication.
On December 29, 1989, during the heyday of the Japanese asset price bubble, the Nikkei Index hit an intraday high of 38,957.44, capping off a decade in which the index soared more than 500%. Despite those dizzying heights, no one could see what the next 25-plus years would bring.
Over the ensuing decade, the Nikkei continued to slide. To shore up the economy, the Bank of Japan held interest rates near zero and had, for many years, claimed quantitative easing was an ineffective measure.
In March 2001, the Bank of Japan unveiled its first round of quantitative easing. It didn’t take, and since then, Japan has initiated 11 rounds of quantitative easing, dumping trillions of dollars into the markets. Instead of stimulating the economy, it has been saddled with a negative real gross domestic product (GDP) growth rate and record-low interest rates.
By late October 2008, the Nikkei hit an intraday low of 7,141—an 80% loss from its 1989 highs. While it rebounded in 2013 and is currently sitting near 14,170, it’s still down more than 63% since the halcyon days of the late 1980s.
After a quarter century, quantitative easing and record-low interest rates are a regular part of Japan’s economic diet. Thanks to uncertainty in the … Read More
How to Profit from Gold’s Current Price Instability
By John Whitefoot for Daily Gains Letter | Sep 24, 2013
Gold prices hit one-week highs after the Federal Reserve did exactly what it said it would do (not what the market feared it would do)—continue it’s $85.0-billion-per-month bond buying program until unemployment numbers decrease and inflation increases.
Gold, often seen as a safe haven investment and hedge against inflation, had lost more than 20% of its value since the beginning of the year after the Federal Reserve hinted it would start to taper quantitative easing, which would put an end to its loose monetary policy.
More recently, gold prices had been on the decline since the beginning of September on encouraging U.S. economic data and suggestions that a war in Syria would be averted. Between September 3 and 17, gold lost approximately six percent of its value.
But in spite of gold’s year-long tumble, it’s important to remember that gold prices are still roughly 60% higher than they were in late 2008, before the Federal Reserve kick-started its first round of quantitative easing.
Gold was poised to fall even further had the Federal Reserve announced it would begin to taper its quantitative easing policies. It didn’t, however, and the markets responded in kind.
The price of gold bullion soared 4.2% last Wednesday to around $1,367 per ounce, its largest daily gain since June 2012, after Federal Reserve chairman Ben Bernanke said it would stick to its stimulus plan (for now).
The correction in gold prices was inevitable. That’s because gold, and many other sectors, have become overly reliant on the Federal Reserve’s support. Gold prices drop when investors think the Fed’s going to taper, and they rise when it doesn’t. … Read More
Taper or No Taper, Here’s How to Protect Your Portfolio
By Moe Zulfiqar for Daily Gains Letter | Sep 12, 2013
Will the Federal Reserve taper quantitative easing in September? This question has become the main topic of discussion among investors, since reducing or ending quantitative easing can have significant implications on the broader market. By the way, the Federal Open Market Committee (FOMC) meets on September 17 and 18. (Source: “Meeting calendars, statements, and minutes (2008-2014),” Federal Reserve web site, last accessed September 9, 2013.)
It’s no surprise that there is speculation. We are hearing some say the Federal Reserve will start to slow its purchases, and others are saying it won’t. It’s all becoming very confusing, to say the least.
Investors who are looking to invest for the long term need to first evaluate the situation by looking at what we know.
Last year, when the Federal Reserve started buying $85.0 billion worth of mortgage-backed securities (MBS) and government bonds, it said it would continue this operation until the unemployment rate hit 6.5% and the inflation outlook was 2.5%. (Source: “Press Release,” Federal Reserve web site, December 12, 2012.)
Where do we stand on unemployment and inflation?
Unemployment
Unemployment in the U.S. economy has certainly improved—if you look at the numbers on the surface, at least. In August, the jobs market report found that the unemployment rate in the U.S. economy was 7.3%, slightly lower from July, when it was 7.4%. Sadly, this is nowhere close to the Federal Reserve’s target; as a matter of fact, it’s running at more than 12% from its target. (Source: “The Employment Situation — August 2013,” Bureau of Labor Statistics, September 6, 2013.)
Inflation
According to the data provided by the Bureau of … Read More
How to Stop Inflation from Burning a Hole in Your Retirement Savings
By John Whitefoot for Daily Gains Letter | Aug 12, 2013
American investors are sitting on a lot of money. According to the Investment Company Institute, total U.S. money market mutual fund assets for the week ended July 31 came in at $2.612 trillion. Of that total, 65%, or $1.69336 trillion, is attributed to institutional investors, while $918.93 billion belongs to retail investors. (Source: “Money Market Mutual Fund Assets,” ICI.org, August 1, 2013.)
Even though the stock market has been bullish since early 2009, with the S&P 500 advancing around 140%, investors sitting on the sideline remain skeptical. And on one hand, it’s not hard to see why: the financial crisis that led to the Great Recession may have started back in 2007, but the ripple effects are still being felt today.
U.S. unemployment has been above seven percent for over four years, underemployment has been at least 14% since 2009, and the minimum wage hasn’t budged from $7.25 an hour since July 2009. On top of that, personal debt is up, disposable income is a myth, and consumer confidence is down.
Hints that the Federal Reserve could begin tapering its $85.0-billion-per-month bond-buying program have also made global investors jittery, resulting in markets that are increasingly volatile—and for good reason.
On May 22, the Federal Reserve hinted it might scale back its quantitative easing policy. Over the following weeks, the S&P 500 lost 6.5% of its value. After clawing back the losses throughout July, the S&P 500 took another hit in early August after two Federal Reserve Bank presidents said it was possible the bond-buying program could end in September.
For many Americans, risk in the stock and bond markets is … Read More
Is Retirement at Risk for Late Baby Boomers?
By John Whitefoot for Daily Gains Letter | Jul 29, 2013
On July 23, the Dow Jones Industrial Average hit an all-time intraday high of 15,604.22. That same day, the S&P 500 also hit a new high of 1,698.78. With the markets doing so well, you could be forgiven for thinking today’s baby boomers are laughing all the way to the bank.
But that’s not so! Most baby boomers haven’t really benefited from the bull market. While it runs with reckless abandon, it’s leaving behind most Americans who are in retirement. Over the last five years, stocks and bonds have rallied, but the housing market has remained relatively flat. That means affluent Americans who park their assets in stocks and other financial products have done quite well. Those Americans with their wealth tied up in the value of their homes, however, have not.
Since the beginning of the current bull market in 2009, the S&P 500 has climbed more than 160%. U.S. housing prices, on the other hand, are still more than 25% below their 2006 highs.
Retiring baby boomers are also facing another challenge. Early boomers—those between 61 and 65—are more financially stable (for the most part) than their younger peers (those between 50 and 55). The early boomers worked during a period of economic stability in an era when defined benefit plans were the norm. In 1965, the inflation rate was 1.59%; by 1970, it had risen to 5.84%.
The late boomers, in contrast, started working in a more unsettled economic time. In the 1980s, many companies rolled their retirement plans over to 401(k) accounts, tying their self-directed retirement savings to the ups and downs of the stock market. … Read More
How to Protect Your Assets While the Majority of Americans Aren’t
By John Whitefoot for Daily Gains Letter | Jul 15, 2013
You can’t always believe the markets. Since 2009, the S&P 500 and Dow Jones have been on a tear and are, thanks to the Federal Reserve, making new record highs. Since the markets are considered an indicator of the health of the U.S. economy, one could be forgiven for thinking the economic recovery has been benefiting most Americans. It isn’t.
In fact, the economic recovery has left the majority of Americans in the dark. But there are a number of investment opportunities available to those who think they missed the so-called economic recovery—opportunities that can protect them from inflation.
During the first two years of the economic recovery (2009-2011), the wealth held by the richest seven percent of households rose 28%, while the net worth for the bottom 93% fell four percent. (Source: Fry, R. and Taylor, P., “A Rise in Wealth for the Wealthy; Declines for the Lower 93%,” Pew Research web site, April 23, 2013.)
Why the large discrepancy? During the start of the economic recovery, stocks and bonds rallied, but the housing market remained flat. Wealthier households park their assets in stocks and other financial products, while less affluent Americans have their wealth tied up in the value of their homes.
Between 2009 and 2011, the S&P 500 rose by 42%—and has since climbed another 30%—while the S&P/Case-Shiller Home Price Index fell by five percent. While housing prices have benefited from the economic recovery, they are still 25.5% below their 2006 highs.
And don’t forget about the millions of Americans not fortunate enough to own a home. After bottoming on March 6, 2009, the S&P 500 closed … Read More
How Holding Cash in Your Portfolio Could Mean Opportunities for You When Others Run for the Exit
By Moe Zulfiqar for Daily Gains Letter | Jun 6, 2013
While talking to a friend of mine about general economics and the current market conditions, discussing topics such as where the stock market is headed next since it has gone up significantly and what these low interest rates mean in the long run, he opened the debate to an interesting front: how much cash should an investor have in their portfolio? Is cash any good to hold for investors who are in the market for the long term, saving for their retirement?
One of the most basic strategies to manage a portfolio is to invest the funds into different asset classes, which is referred to as “asset allocation.” The reason for asset allocation is that if one asset class (i.e. stocks) declines in value, the other class (those with a negative correlation to stocks), can rise and minimize the losses. Most often, investors who are saving for retirement allocate their portfolio to stocks and bonds completely—because they tend to have a negative correlation—and not hold any cash at all.
To say the least, investors who hold cash in their portfolio can benefit significantly, and may be able to earn a higher rate of return compared to those who don’t. But before going into further detail, how much cash should the portfolio of an investor actually have?
To assess how much cash an investor should have in their portfolio, they need to look at certain factors, such as how long they are planning to invest and if they need any funds in the short term.
Going back to the discussion with my friend, he, for example, plans to invest for the … Read More
Should Investors Still Diversify with Gold?
By John Whitefoot for Daily Gains Letter | Jun 6, 2013
When it comes to investing, it’s important to diversify and spread your money around. Put all your assets in one basket and it could evaporate overnight if the markets go into correction mode. As a result, diversification is a good strategy to follow, because it can protect you from losing your entire retirement portfolio should the markets turn.
Having a number of different stocks does not make a portfolio diversified. A diversified portfolio means having different kinds of investments, including stocks, bonds, cash, and so on. While we all know diversification is key, it’s important to know where you should park your assets.
When the markets are bad, people turn to inflation hedges like gold. When the markets are doing well, they park a good portion of their portfolio in the stock market. Right now, a lot of people are turning to the stock market. And why not? The current bull market is now in its fifth year, the Standard & Poor 500 is up more than 18% since December 31, 2012, and the Dow Jones Industrial Average is up almost 20% since the end of 2012.
Many economists think this is just the beginning and that investors should keep their money parked in stocks. Others are not so sure, pointing to a raft of terrible economic news, including stubbornly high unemployment, falling median incomes, an increasing number of Americans receiving food stamps, high personal and student loan debt, and stagnant wages.
Wall Street is even getting a little nervous. Almost 80% of S&P 500 companies have issued a negative outlook. The S&P 500 may be reporting strong returns, but … Read More
Why Investors Need to Stop Wondering Where the Market Is Headed Next
By Moe Zulfiqar for Daily Gains Letter | Jun 4, 2013
Jitters in the stock market—or any other market, for that matter—sometimes confuse investors and make them question its direction. They often ask where the market is headed next, or how the recent events will play out. Even worse, they may completely lose trust in the market and just let their life savings decline as inflation continuously takes its toll.
To say the very least, these are genuine concerns, because their life savings are often at stake and a significant move can wipe out their wealth. The broad market sell-off in 2008 and 2009 was a prime example of this, when investors, unsure about the direction of the market, took a major hit to their portfolio—and missed out on the stock market rally that began in March of 2009.
As a matter of fact, according to the findings of the Federal Reserve Bank of St. Louis, when adjusted for inflation, American households have only recovered 45% of the wealth they lost during the Great Recession. (Source: Derby, M.S., “Households Still Haven’t Rebuilt Lost Wealth,” Wall Street Journal, May 30, 2013.) They are still underwater, despite the key stock indices like the S&P 500 being up more than 100% since then.
The recent market action, which occurred after a few members of the Federal Open Market Committee (FOMC) showed concerns about the steps taken by the Federal Reserve and wanted it to reduce its size of asset purchases, has investors rattled once again. The noise is increasing, and bulls and bears are suggesting where the markets are headed next. Some are calling that the stock market has reached its top, while others … Read More
Top Three Places for Bears and Bulls to Invest in Gold
By John Whitefoot for Daily Gains Letter | May 24, 2013
After a decade of consecutive gains, it looks like gold’s reign as the precious metal darling could be in jeopardy. Between early 2002 and September 2011, the price of gold soared over 590% to an all-time high of $1,923.70. Since then, gold has lost some of its luster, down almost 18% since the beginning of the year and more than 28% since the record-highs posted in September 2011.
During the first quarter of 2013, demand for gold slipped 13% year-over-year. On the paper front, investors sold 177 tonnes of gold (or six percent of global demand) through exchange-traded funds (ETFs) worth approximately $9.3 billion. (Source: “Global demand for gold jewellery up 12% in Q1 2013 driven by significant increases in India and China,” World Gold Council web site, May 16, 2013.)
But it wasn’t all bad news. Total jewelry demand was up 12% year-over-year. China led the way, up 19% at a record 185 tonnes. Demand in the Middle East and India was up 15%, respectively, and demand in the U.S. increased for the first time since 2005, climbing six percent.
Sales of gold bars and coins were also up in the first quarter. Sales increased 22% in China and 52% in India; in the U.S., sales jumped 43%. Central banks continued to increase their holdings, purchasing in excess of 100 tonnes for the seventh consecutive quarter.
ETFs may be liquidating their holdings, but the average person on the street isn’t—and neither are central banks. Even though sales of bars and coins, jewelry, and the technology sector make up about 80% of the market, the total demand for gold each … Read More
U.S. Next to Witness Long Period of Deflation?
By Moe Zulfiqar for Daily Gains Letter | May 23, 2013
While there’s a significant amount of talk among investors about inflation being ahead in the U.S. economy, the indicators are, against all odds, currently showing the complete opposite.
The Consumer Price Index (CPI), the most quoted indicator of inflation, declined 0.4% in April, continuing its slide from the previous month, when it decreased 0.2%. (Source: Bureau of Labor Statistics web site, last accessed May 22, 2013.) So far, from January through April, inflation in the U.S. economy has increased only 0.1%.
Looking at other indicators of inflation—such as the Producer Price Index (PPI), considered to be an early indicator of inflation—these indicators suggest the same and show a steep decline. The PPI registered a decline of 0.7% in April, after declining 0.6% in March. (Source: Ibid.) The index has turned negative from the beginning of the year.
Going by all this, can the U.S. economy go through a period of deflation, when prices decline?
To say the very least, looking at inflation data from the last two months (March and April), it is still too early to say if the U.S. economy will experience a period of deflation—but it shouldn’t be ruled out.
Consider the Japanese economy: it has been experiencing deflation for more than a decade, despite the efforts taken by the Bank of Japan to jumpstart the economy. Similar to what the Federal Reserve is doing now in the U.S., the Bank of Japan has kept interest rates artificially low and has taken more aggressive steps to bring in inflation; however, it continues to fail.
Considering deflation as one of the possible scenarios in the U.S. economy, what … Read More
One Strategy to Profit from Gold Bullion Prices, No Capital Required
By Moe Zulfiqar for Daily Gains Letter | May 22, 2013
Gold bullion prices have taken a beating; since the beginning of the year, they have declined about 20%, and the pessimism towards the precious metal continues to increase. Investors are fleeing from gold bullion and selling at a very high pace. As EPFR Global (a firm specializing in tracking inflows and outflows of money) notes, money managers are withdrawing their investments from funds that invest in the precious metal at the highest rate since 2000—withdrawals have amounted to $20.8 billion since the beginning of the year. (Source: Campbell, E., “Gold Bears Pull $20.8 Billion as BlackRock Says Buy: Commodities,” Bloomberg, May 13, 2013.)
The reason behind the price decline is that there is no use for gold bullion anymore. The shiny metal is used in times of uncertainty as a safe haven, and now economic conditions are much better. To say the very least, uncertainty isn’t there as it was back when the financial crisis struck the U.S. economy—depression was becoming a very likely scenario, with staggering unemployment, failing banks, and the financial crisis on the cusp of collapse.
On top off all this, the inflation isn’t picking up as it was expected. The Bureau of Labor Statistics reported the Producer Price Index (PPI)—an early indicator of inflation—has been posting a negative performance for two months. It registered a decline of 0.6% in March and 0.7% in April. (Source: “Databases, Tables & Calculators by Subject,” U.S. Bureau of Labor Statistics web site, last accessed May 17, 2013.) Remember: gold is considered a good hedge against inflation.
With this, investors are asking how low can the metal prices really go, and … Read More
Why Knowing the Currency Risk Can Pay Off
By Moe Zulfiqar for Daily Gains Letter | May 16, 2013
Portfolio management is the key to growing savings over time. The implication behind this is that if an investor manages their portfolio regularly, adjusting asset classes based on market and economic conditions, they can reduce their risk and earn a decent rate of return, as well as peace of mind.
That said, investors need to look out for many different types of risks. To name a few, investors need to protect their portfolio from market fluctuations, reduce industry-specific risks, and keep in mind the rate of inflation.
While these risks may be known to investors—and they are very often quoted in the financial media—sometimes they may be exposed to currency fluctuation in hindsight. This type of risk is often referred to as “currency risk.”
Simply stated, currency risk is how the portfolio will react to the fluctuations in the exchange rates of currencies.
To say the very least, it can affect the rate of return investors earn on their portfolio, and without a doubt, investors need to be aware of this phenomenon.
For example, if an investor buys shares of a company that trades on a Canadian stock exchange, and their broker’s account is valued in U.S. dollars, upon buying the Canadian stock, investors will need to convert their U.S. dollars into Canadian dollars and buy the shares.
Now, let’s say if the stock goes up by five percent over a month and investors want to sell their position. But assume that, as the stock price appreciated, the value of the Canadian dollar went down by two percent compared to the U.S. dollar. As a result, investors’ actual gains would … Read More
Bulls vs. Bears: What’s the Best Strategy for Gold?
By Moe Zulfiqar for Daily Gains Letter | May 14, 2013
Gold bullion has attracted a lot of attention lately from both the bull side and the bear side. The main reasons: the continuous decline in the prices since the yellow metal reached its highs in 2011, and the recent sell-off, which caused more pain to the investors. Will gold go down further? Or is it headed much higher?
The Bull’s Argument
The bulls argue that the sell-off in gold bullion was nothing but panic selling—that the decline was in the futures market or the paper market, but the demand by consumers and central banks remains the same. They argue fundamentals haven’t changed.
As the gold prices plummeted in April, retail investors rushed to buy gold bullion. Consider this: the U.S. Mint reported that in April, it sold 209,000 ounces of gold bullion in coins. (Source: U.S. Mint web site, last accessed May 10, 2013.) In April of 2012, when gold bullion prices were soaring higher, the U.S. Mint only sold 108,000 ounces of gold bullion in coins. (Source: Ibid.)
Similarly, central banks have been continuous buyers of gold bullion. As the bigger central banks around the world are busy printing more money out of thin air—look at the U.S. Federal Reserve and the Bank of Japan—others are looking at gold bullion as an alternative to holding currency in their reserves. Why? Because printing more money devalues the currency.
As a matter of fact, central banks have actually become net buyers of gold bullion, and in 2012; they bought the largest amount in many years.
The Bear’s Argument
The gold bears say that the yellow metal is a good investment when … Read More
Two Reasons Why Dividend Stocks Have Room to Run
By John Whitefoot for Daily Gains Letter | May 3, 2013
Thanks to artificially low interest rates, the Federal Reserve has taken the “income” out of “fixed income,” and made saving for retirement that much harder for the average American.
Back in the 1980s, the interest rate on a 10-year Treasury was above 15%. Investors planning for retirement could rely on their fixed incomes providing them with solid, reliable profits; they knew what their annual returns would be, and could budget and spend accordingly.
Today, the 10-year Treasury interest rate is less than two percent. That’s not much for the average American to bank on when it comes to retirement investing. In fact, low interest rates have essentially eliminated the chance for Americans to earn a decent income from fixed equities.
In an effort to eke out as much income as possible from their retirement portfolios, investors are turning their attention to high-yield investment stocks. On one level, it makes total sense—replacing one income-generating investment vehicle with another. At the same time, it’s important to remember that dividend stocks are still stocks—and a lot riskier than fixed-income investments.
The current challenge, some contend, is that income-starved investors have elevated dividend stocks to unsustainable levels. Once interest rates begin to rise, investors will pour out of dividend stocks and into the safety of government equities, at which point, dividend-yielding stocks—and their once reliable income—will tumble.
While it is true that dividend-yielding stocks are more popular than ever before, that does not mean they will fall out of favor once the economy rebounds.
Companies are sitting on cash. You need cash to pay out dividends, and companies have been hoarding cash. According to … Read More
Why Are Short Sellers Avoiding These Two Gold Stocks?
By John Whitefoot for Daily Gains Letter | May 2, 2013
Is the global economy recovering? While the economic indicators aren’t exactly robust, that hasn’t stopped some investors from seeing the silver lining. Gold, held in exchange-traded funds (ETFs) and other gold-related equities, is primed for the biggest monthly drop ever as investors, sensing the global economy is in recovery, are selling off bullion.
And it’s selling fast. Gold slipped into bear-market territory in mid-April, on the heels of improving global growth and weakening fears of rampant inflation. On Friday, April 12 and Monday, April 15, gold prices sank 14%, the biggest decline in 20 years. And on Tuesday, April 15, gold hit an intraday low of $1,321.50 per ounce.
You can’t keep a hard asset like gold down, though. Over the last couple weeks, the price of gold has rebounded and is currently trading up more than 11%, near $1,472. That’s still 19% below the $1,559 per ounce gold was trading at on April 11, the day before it was trounced.
Gold still has a long way to go to make up for the mid-April rout. At depressed prices, though, many astute investors realize some gold companies are sitting in attractive ranges—the operative word being “some.”
The path to recovery is still fraught with challenges. With global production costs currently hovering around $1,200 an ounce, a further price depreciation could send some of the lesser financially stable gold producers into a tailspin.
One indicator investors like to consider when looking at stocks is the number of short sellers. Short sellers are those who are betting a company’s share price is going to fall.
While no single indicator can predict a … Read More
Three Reasons Why Institutions Are Buying Stocks and Why Investors Need to Be Extremely Cautious
By Mitchell Clark for Daily Gains Letter | May 1, 2013
Very soon, the stock market will be overbought. It’s time to be extremely cautious.
Even in the face of mixed earnings and economic news, institutional investors keep buying this market. And while fundamentals don’t particularly support a rising stock market, there are a number of reasons why institutions have to buy. Here are just three of the reasons:
1. They Have the Money
There is a tremendous amount of cash sitting on the sidelines. Both individual and institutional investors have been very frazzled over the last few years, and corporations have, as well.
Earnings results from large mutual funds and investment corporations recently revealed billions of dollars of new cash inflows allocated to equities. That money has to be put to work, because that’s what customers are paying for.
2. There Is Nowhere Else to Go
Because interest rates are so artificially low, there is no other asset class, other than real estate, where investors can allocate their capital and expect to get a return that is greater than the rate of inflation.
Even if the stock market doesn’t do anything and corporations don’t show any growth in earnings, dividend payments and share buybacks are very well assured.
Institutional investors need to invest in this stock market, because bonds, currencies, and commodities no longer offer the right combination of income, safety, and prospective capital gains. This is why so many blue chips have been outperforming—they offer what the rest of the world does not.
3. They Have to Keep Up with the Joneses
Without a doubt, a herd mentality exists on Wall Street. Investment companies have been chasing the safest … Read More
Protect Your Portfolio from the Consequences of Inflation—Without Gold
By Moe Zulfiqar for Daily Gains Letter | Apr 26, 2013
Inflation is when the general price level increases. As a result, purchasing power diminishes; simply stated, every dollar buys less than it did before. Central banks around the world, including the Federal Reserve, continuously try to tame inflation so that it doesn’t get out of control, usually targeting for an inflation rate of anywhere from one to three percent.
One of the main causes of inflation is an increase in money supply. The reason behind this is very simple: as more currency is printed, its value diminishes; hence, more money is needed to buy things. For example, in the U.S., what $1.00 could buy you in the year 2000 now costs $1.35—inflation has increased 35% in just a matter of a few years. (Source: “CPI Inflation Calculator,” Bureau of Labor Statistics web site, last accessed April 24, 2013.)
Please look at the chart below of the Consumer Price Index (CPI), a measure used by the Bureau of Labor Statistics (BLS) to record inflation. The CPI has increased significantly over time.
Chart courtesy of www.StockCharts.com
The impacts of inflation are immense. While inflation affects the daily expenses of families, it can certainly take a toll on the portfolios of long-term investors as well.
Using the earlier example, just to maintain the same buying power, an investor’s portfolio must have earned 35% at the very minimum, or their portfolio would be at a loss.
To say the very least, a portfolio must beat the inflation rate for an investor to have at least the same buying power when it’s time to use their funds for whatever they were saving for, be … Read More
Time to Add Commodities to Your Retirement Portfolio?
By John Whitefoot for Daily Gains Letter | Apr 17, 2013
In an effort to reduce volatility and protect their investments against the rising cost of living, many investors add commodities to their retirement portfolios. That’s because a large number of commodities are influenced by inflation well before it impacts the overall economy.
The perfect reflection of supply and demand, commodity prices climb when there is strong demand and taper off when the economy is doing poorly; in the latter case, the future looks bleak.
Gold prices collapsed earlier this week, suffering their sharpest fall in 30 years. Silver is also down; so, too, is copper, oil, lead, aluminum, corn, wheat, soybeans—simply put, commodities are getting hammered.
It’s not as if there isn’t news to support the decline in commodities. The U.S. has seen a raft of negative economic news trickle in. April consumer confidence levels fell from 78.6 in March to 72.3—its lowest level in seven months. (Source: Smialek, J., “Consumer Sentiment in U.S. Declines to a Nine-Month Low,” Bloomberg, April 12, 2013.) U.S. retail sales fell 0.4% in March—the largest drop in nine months. (Source: Kowalski, A., “Retail Sales in U.S. Decline by Most in Nine Months,” Bloomberg, April 13, 2013.)
Weaker-than-expected growth in China, Asia’s largest economy, is weighing on global sentiment. China’s economy expanded just 7.7% during the first quarter, below the forecasted eight percent. Industrial output was expected to expand by 10%, but it only climbed 8.9%. (Source: “Market Buzz: Negative outlook on weak data from China,” RT web site, April 15, 2013.)
And conditions in the 17-member eurozone are still dismal. Joachim Starbatty, one of Germany’s pre-eminent economists, said he wants to see the dissolution … Read More
Why Plunging Commodity Prices Are Great for the Stock Market
By Mitchell Clark for Daily Gains Letter | Apr 17, 2013
The big drop in the value of many commodities is very good news for this stock market.
All of a sudden, raw materials are cheaper in price. This is going to translate right to the bottom line of many corporations.
And one of the best developments is the weaker price of oil. Big oil stocks have done consistently well in the stock market, but smaller corporations have struggled due to the fact that the spot price has not been able to move much past the $95.00-per-barrel level. Now that spot oil is below $90.00 a barrel, transportation stocks are really going to benefit.
Of course, it takes time for big oil corporations to reduce gasoline prices. It’s common knowledge that when the spot price of oil spikes, gasoline prices immediately go higher. But when oil drops, it always takes much longer for gasoline prices to reflect reality. This is the nature of big oil, and there’s nothing that can be done about that.
The stock market is currently digesting a slew of earnings from corporations, as well as economic news that continues to show economic struggle.
But with gold, silver, and oil all trending lower, this is an absolute gift to the majority of old economy corporations.
It never used to be this way until recently, but the U.S. stock market now trades off of China’s economic data. And while China is still growing significantly, it’s all about expectations for high growth, not the degree to which the economy may be contracting.
The plunging spot price of gold is partially a reflection of the sentiment that investors have regarding risk. … Read More
Mountains of Cash Growing; Will Corporations Stop Hoarding and Pay Out?
By Mitchell Clark for Daily Gains Letter | Apr 12, 2013
Corporations, like investors everywhere, are very reticent about current business conditions. They have been this way for years. And they have way too much cash, which is why dividends have been increasing.
The financial crisis really was the catalyst for a huge change in the way corporations allocate their capital. Corporations hunkered down on costs and became extremely tight with their money.
It is highly likely that large corporations will increase their dividends this earnings season. Of course, this will be great news for those investors who seek out dividends from blue chips.
This market is at a high, but it is fairly valued and has a lot of potential to increase further—if corporations can produce growth and there is no major new shock from an event, like a currency default in Europe, for example.
There is still tremendous reticence on the part of corporations to invest in new business operations, new plant and equipment, and new full-time employees. And while this is not a positive for the Main Street economy, it is a positive for shareholders collecting dividends.
Corporations are sitting on a mountain of cash. In many of the earnings results so far, large corporations are reporting too much free cash flow. And they need to do something with all this money, because cash does not earn a rate of return greater than the rate of inflation.
One of the easiest ways to do this is to return the money in the form of dividends to stockholders. I still firmly believe that blue chip investing will do well over the long term.
There may be some spectacular downside … Read More
Worried About Inflation? Profit from It Instead
By Moe Zulfiqar for Daily Gains Letter | Apr 9, 2013
Central banks around the world are printing in overdrive mode. Their goal is to bring economic prosperity to their countries. For example, the Federal Reserve is printing $85.0 billon a month—buying mortgage-backed securities and government bonds. The Federal Reserve wants to improve the U.S. economy by lowering the unemployment rate.
The Japanese central bank is taking similar actions—its goal is to boost economic growth by lowering the value of its currency, the yen. Japan is an export-based country, and with higher currency value, it’s hard to sell to other currencies. Japan is in recession and the slump in its exports has been taking a heavy toll.
Regardless, what holds true is that a number of central banks printing their currency to spur growth in their respective countries is increasing. As a result of all this, many are worried these actions will trigger inflation to rise in the future—some are even calling for hyperinflation and the prices will skyrocket.
Keeping all this in mind, one question comes to mind: how does an investor actually make money with high inflation?
Gold and Inflation
Gold is known as one of the best hedges against inflation. The idea behind this is very simple; as central banks print money, the value of the currency declines. This phenomenon causes the value of gold to increase.
If inflation rises quickly, then gold prices will see a similar effect. Investors concerned about inflation in the future can buy gold to protect their wealth from deteriorating from rising prices.
Consider this: what $1.00 could buy in 1975, costs $4.35 now. (Source: Bureau of Labor Statistics, last accessed April … Read More
What Cyprus Taught Me About Retirement Savings
By John Whitefoot for Daily Gains Letter | Apr 2, 2013
In light of the events that occurred in Cyprus over the last couple weeks, many investors may be wondering if it’s safer to hide your retirement savings under a mattress. After all, what’s to say it couldn’t happen here?
In June 2012, Cyprus, like many members of the European Union (EU), sought a bailout after suffering heavy losses. The company’s banking sector was hit by the economic crisis that crippled Greece. Cypriot banks had made loans to Greek borrowers that were worth 160% of the country’s gross domestic product (GDP).
In mid-March, the EU and the International Monetary Fund (IMF) agreed on a bailout for Cyprus, which included Cyprus raising billions of euros of its own money by taxing bank deposits—essentially seizing money. The government said it would impose a one-time tax of 6.75% on savings of $26,000–$130,000, and would tax higher savings at 9.9%. Not surprisingly, this didn’t sit well with wealthy Russians who shelter their money in Cyprus. It also didn’t sit well with the rest of country.
As one would expect, Cyprus managed to cobble together an 11th-hour deal with the EU and IMF, taxing only those accounts with deposits over $130,000.
Could it happen here? What couldn’t? Since 2008, the U.S. and much of the Western world have experienced an economic implosion no one would have otherwise thought possible. In response, governments around the world have taken unprecedented action to “remedy” the situation.
Cyprus aside, there are many reasons why we shouldn’t stash our retirement savings under the mattress.
First, cold-hard cash provides little protection against inflation and increases in the cost of living. While the … Read More
