Wednesday, September 30, 2009

China makes another HUGE energy investment

China has made aggressive investments in oil production facilities and fields in Venezuela, Brazil, and several places in the Middle East. Almost all its multi-billion dollar deals are aimed at locking up supply to accomodate its ravenous need for energy which fuels is rapidly expanding economy. Many of its recent transaction guarantee crude at market prices.

The most substantial China investment to date is a plan to buy one-sixth of the reserves of Nigeria which is a poor nation with abundant supplies of crude.

According to the FT, “The overall value of the Chinese offer is not disclosed, although some details suggest a figure of about $30bn. Some oil sector executives said the total on the table was $50bn.”

World Bank president: U.S. dollar reserve status in jeopardy

World Bank President Robert Zoellick said the United States should not take the dollar's status as the world's key reserve currency for granted because other options are emerging.

In excerpts released on Sunday from a speech that he is to deliver on Monday, Zoellick said global economic forces were shifting and it was time now to prepare for the fact that growth will come from multiple sources.

"The United States would be mistaken to take for granted the dollar's place as the world's predominant reserve currency," he said. "Looking forward, there will increasingly be other options."

Tuesday, September 29, 2009

Renowned investment author's top recommendation

Robert Kiyosaki, author of “Rich Dad, Poor Dad,” recommends investing in real estate and commodities, but he tells Dan Mangru of Newsmax TV that silver is now his top investment.

“If you’re afraid of inflation, which you should be, I would think silver is the No. 1 investment today.”

Kiyosaki also tells Mangru why he likes real estate, “I like real estate for one reason: debt.”

Investors get no leverage buying stocks, but they do when buying real estate, Kiyosaki points out.

Why you must own this "World Dominator"

When Wall Street research is good, you have to point it out because it's such a rare phenomenon. Rochdale Securities (located in Connecticut, a suburb of Wall Street) says Wal-Mart is its "highest conviction" idea. It says defensive retail stocks, like Wal-Mart, are especially attractive should the recovery prove volatile and economically sensitive stocks like mining and financials fall.

As longtime readers of Extreme Value know, Wal-Mart is an incredible business, one of the greatest ever. These days, it's in a sweet spot of its life cycle. It's a large, mature business whose competitive advantage keeps cash coming in. At the same time, lower capital expenditures and higher dividends and share repurchases are a rational expectation. Wal-Mart defended investors' capital well in 2008, as it was one of only two Dow stocks to rise last year, and the only one to produce a double-digit total return (+18%).

You might be feeling bullish now, but I promise you, with stocks trading at 26 times earnings and yielding 2%, you aren't likely to feel that way for long. World Dominating franchises like Wal-Mart are one of the few ways most investors will make any money if they're buying stocks today.

Arctic Circle may hold up to 200 billion new barrels of oil

BP claims that there may be 200 billion barrels of oil and oil equivalents under the region above the Arctic Circle. Norway is exploring the area of its northern coast in the belief that a large portion of these fields belong to it.

The BP estimate could be confirmed within the next year or so, but the British company’s number has been disputed by the US government which puts the total size of the field under the top of the world at 90 billion barrels.

Monday, September 28, 2009

Are Forex pairs going to surge higher towards the end of the year?

As the summer season ends, market volume tends to increase on the various traded pairs, sending them into a massive trend. This type of scenario normally occurs towards the end of the year, presenting phenomenal conditions for Forex traders, allowing them to benefit dramatically from the so called “End of Year Rally”.

For example, apart from 2008, the EUR/USD presented enormous returns throughout the years of 2004-2007.

Prepare for 2009
  1. Choose the pair you wish to trade.
  2. Determine your entry and exit points.
  3. Make sure you have sufficient funds in your account.
  4. Wait for the move to begin.
  5. Profit from the trade.

For example; search for the break out points, an area that is characterized by large positive candlesticks and then simply enjoy the ride.

Sunday, September 27, 2009

Are You Receiving Zero Interest On Your Money?

Since the beginning of 2007, Forex trading has become one of the most popular forms of investing.

Today with practically zero percent interest on a saving accounts, a plummeting stock market and uncertainty all around, investors are now more than ever seeking new opportunities to make their money grow in a secure market.

Have you been asking yourself recently ” where should I put my money”?

The answer lies in Forex trading.

The Forex market is by far the largest in the world, with a daily turnover of over $3 trillion.

With the vast liquidity the market has to offer, endless trends to profit from and minimum starting requirements, you too can join investors from around the world benefiting from this profitable market.

What most people don’t know is that you can start trading Forex with less capital but yield much higher returns.

What would you prefer, a small investment with potential high returns or a large investment with nearly zero interest?


This week's chart comes to us courtesy of our friends at Casey Research.

Casey's analysts specialize in the natural resource business... and they're long-term bullish on gold stocks. Here's one big reason why: If there's a worldwide rush to own gold and gold stocks in the coming years, well, there's just not many places for that money to flow.

As you can see from this chart featured in Casey's Gold and Resource Report, the market cap of the entire gold mining industry is miniscule compared to the drug and banking industry... or even Wal-Mart.

In other words, if there's a rush to own gold stocks, the small size of the market could make for a giant run higher.

Saturday, September 26, 2009

How China could send interest rates soaring

China may soon begin importing more than it exports thanks to rising income levels and government stimulus programs.

That, says one economist, may mean bad news for U.S. Treasuries and ultimately, higher interest rates.

If China saves much less and spends more as a nation, it has less money to buy U.S. Treasuries, which would force up rates and make borrowing more expensive here.

Legendary trader Julian Robertson: Two big trades to make if the economy tanks

Julian Robertson is regarded as one of the greatest hedge-fund managers of all time. His Tiger Management firm has trained a handful of the world's biggest hedge-fund players today.

Robertson was recently interviewed by CNBC. His latest opinions: The U.S. is going to "pay the piper" in the form of higher interest rates, so short bonds. He's also looking to short copper on his forecast the economy will weaken. Names to consider shorting if Robertson is right are huge copper miners Freeport-McMoRan (FCX) and Southern Peru Copper (PCU).

Today's entertainment: The United States of McDonald's

If our pictures of fast food haven’t totally put you off, you’re in luck: In the United States, it is never more than 145 miles to the nearest McDonald’s. And that’s in North Dakota.

As you can see from the map above, you usually are a lot closer. In the east, south, and midwest, the country is basically blanketed with the Golden Arches.

The big banks are in serious trouble

The latest Fed data shows that syndicated loan losses for major banks tripled in 2009 to $53 billion.

Furthermore, "Criticized Assets", ie. those assets which are rated as bad loans at risk of loss (Special mention, substandard, doubtful, or loss) rose 72% in a single year to a whopping $642 billion. The result is that 22.3% of the loans now held by institutions under federal supervision carry the Criticized designation (Shown in red below).

Clearly the bad loan situation remains extraordinary, with a mountain of bad debt in the system.

Friday, September 25, 2009

Debt BLOWOUT: Treasury has issued $7 trillion this year

When the current fiscal year ends next week, the U.S. government will have officially issued an unimaginable $7 trillion in bonds, according to the latest figures from the Treasury.

The issues were "necessary" to meet the record $1.7 trillion in deficits run up by the Feds on wasteful stimulus plans, bailing out their buddies in the banking industry, and subsidizing underwater homeowners, which was more than a 100% increase over last year's record deficit.

Treasury officials say that debt issuance is likely to level off next year, but the combination of increasing government spending and an eroding tax base might make that unlikely.

Have we mentioned you should own some gold?

Peak Oil theory blasted: Record oil finds this year

So much for Peak Oil...

The oil industry has been on a tear this year, reporting over 200 new discoveries on five continents, including what si likely the biggest oil discovery ever in the Gulf of Mexico.

The industry is just now beginning to see rewards from large investments in research and new technology made earlier in the decade, when oil prices began to rise. "That's the wonderful thing about price signals in a free market -- it puts people in a better position to take more exploration risk," said James T. Hackett, chairman and chief executive of Anadarko Petroleum.

Nearly 10 billion barrels of oil were discovered in just the first half of this year, a record-breaking pace likely to result in the most discoveries since 2000.

The world's best ways to get out of debt fast

Here is one of the most frequently asked questions in all of personal finance: "How do I get out of debt?" At one level, eliminating debt is simply about following a few steps:
  1. Stop going into more debt
  2. Spend less than you make
  3. Pay off debt with the difference

If you follow these steps, eventually you'll be debt free. The problem is that following these steps isn't always so easy.


A brilliant "spending stock" message from our colleague Porter Stansberry...

We've checked out the soaring shares of Starbucks and Dillard's this week as proof that, for better or worse, the government's massive "goosing" is getting money back into restaurant and retail businesses. Scores of restaurant and retail stores top the new-highs list nearly every day.

Here's another example... and "probably the best one," according to Porter. It's the past year's trading in the world's largest credit-card company, Visa. Shares are up 43% this year.

A Visa-facilitated transaction ranks right up there with breathing and walking as the most frequent activity the average American performs each day... and Visa takes a sliver of each one. This makes Visa's profits and share price a "real time" read on the velocity of money and credit.

Porter forecasted the bull market in Visa and recommended the stock as a way to play the flurry of financial transactions the Great Goosing would produce. Put this one on your watch list. As the Great Goosing continues, it's going to go higher.

Thursday, September 24, 2009

China begins buying world's supply of diamonds

One of the great investment themes of the next decade is "China is buying up everything, so figure out what they want and sell it to them."

China is basically colonizing Africa with cheap loans and infrastructure buildouts… it's encouraging its citizens to buy gold and silver… and it's investing heavily in gold mines, base metal mines, heavy oil deposits, and natural gas networks.

So it's no surprise that the Chinese are also starting to play a major role in the diamond market. This article details how China's diamond demand is growing at double-digits… while other major consumers are tailing off their buying.

Wednesday, September 23, 2009

Forex Trading System

Forex trading system is normally made using various technical indicators which are nothing but series of information in the form of data points that are plotted in the form of charts. The data points of the forex trading system are obtained using mathematical formulations and they allow the traders to visualize the aspects of cost or price. Technical indicators are very important aspects when it comes to forex trading system, but action on price in the forex trading system is the one which determines the probability of profit in the trade.

In order to come up with a best possible forex trading system, the trader should pick up a forex trading system which would best suit his trading personality, or else it might be very hard for his to follow and to make profit. Each and every person is different with various objectives and requirements that one particular forex trading system might not be suitable for all.

A trader should conduct his own research about different technical indicators and styles until he zeros in on a system which would work perfectly for him. Next, the trader should apply price action in his trading system. Most important of all, the trader should follow his forex trading system judiciously and rigorously. First he can start with a demonstration account and then can start a smaller account before moving on to a bigger account.


Another picture of the amazing rally in "spending stocks"... This time it's department store chain Dillard's.

To recap, analysts have predicted the death of the American consumer for years. In 2008, those bearish analysts were right. Consumer spending plunged... and it took restaurant and retail stocks down with it.

But an amazing thing happened on the way to the morgue. As we've seen by the soaring shares of Starbucks, consumers are back to boosting share prices in America's restaurants and retailers. For proof, we point to the huge rally in Dillard's, a shopping mall linchpin. The stock just reached a new 52-week high.

Dillard's is no outlier, either. The charts of Macy's, Sears, and JCPenny look the same.

Granted, many consumers face huge problems like unemployment and falling home values. But the government just gave the economy an enormous, never-seen-before "goosing." Whether or not it's rooted in reality, we have to mind this uptrend. And we can only say it will end when it ends.

How to Legally Smuggle Gold

Did you know the President confiscated all the gold of American citizens in 1933?

It's true... all in one quick swoop of the pen:

  • Issued April 5, 1933
  • All persons are required to deliver ON OR BEFORE MAY 1, 1933
  • all GOLD COIN, GOLD BULLION, AND GOLD CERTIFICATES now owned by them to a Federal Reserve Bank, branch, or agency, or to any member bank of the Federal Reserve System.

It was the height of the Great Depression. And the U.S. government desperately needed to shore up its financial position. So in a dramatic move, it took everyone's gold.

Could it happen again? Well, put it this way: Who could have imagined it would happen the first time around?

Every day on the radio, I hear ads about buying gold as a store of wealth. But folks who held gold as a store of wealth in the Great Depression had that "wealth" confiscated by the government.

I had lunch with my longtime friend Michael Checkan on Saturday. Michael's business is called Asset Strategies International. He finds legal ways to protect and diversify your wealth. Michael told me about a neat little idea he came up with. I thought the idea was worth sharing with you...

"When the U.S. government confiscated gold back in 1933," Michael told me, "you were allowed to keep your gold jewelry. The President didn't ask for Grandma's wedding ring."

So Michael started a gold jewelry company, called First Collector's Guild. This company is different from other jewelry companies. It thinks about the gold first...

For example, each piece of First Collector's jewelry measures exactly one ounce or five ounces of gold. Most gold jewelry is 14-karats (which is only 58% pure) or 18-karats (which is 72% pure). But each First Collector's piece is 24-karat gold – which is 99.99% pure.

These pieces are, of course, jewelry... not currency.

For example, if you wanted to, you could carry 100 First Collector's necklaces out of the country, and you wouldn't run afoul of the currency laws. And then you could convert them to money at most gold dealers in the world. It's like legal gold smuggling.

Now, I don't recommend doing this on any scale. First off, you'd look like Mr. T. going through customs. And secondly, it's just not cost effective.... First Collector's jewelry is handmade and costs a premium over the price of gold. But a gold dealer will only pay you a discount to the gold price. Finally, I'm not a lawyer, but I'm sure that if you tried to bring a load of First Collector's jewelry across the border, someone would decide you're somehow breaking a law.

However, for a small portion of your gold, First Collector's jewelry is an interesting idea...

My DailyWealth colleague Tom Dyson was also at the lunch, and he was considering buying some for his wife. "My wife would like some jewelry, but I don't like getting ripped off through jewelry-store markups. If I bought this, my wife would get something she wants to wear... and I'll be confident that it's not worthless. It has real gold value."

If you feel the way Tom does, you might consider Michael's necklaces or bracelets... You specify the length, gold weight, and style you want. It takes four to six weeks to arrive at your doorstep.

With this idea, you can keep your significant other happy while you're confident you own something with real value. And in the extreme case, if we see another 1933 again, your gold should be safe.

It's an interesting idea. For a small portion of your gold holdings, jewelry from First Collector's is worth considering...

Good investing,

Money managers are universally bullish on gold

That gold should take a pause to catch its breath after its breakaway move above $1,000 shouldn't surprise anyone. But the recent hand-over-fist buying by investors has got some traders concerned about further weakening.

The latest data from the U.S. Commodity Futures Trading Commission showed the net long position held by reporting speculators stood at a record-high 255,183 lots. Proportionally, 93.6% of open contract positions held by these traders were purchases.

Among speculators, money managers have turned almost universally bullish. Fully 99.6% of the contracts held by buy-and-roll index funds, together with trend-following managed accounts and institutional funds, are on the long side.

A golf course so exclusive Tiger Woods can't get in

The money required to become a member of a planned, two-course Scotland golf resort will be too much even for Tiger Woods, says Malcom James, its developer.

According to a recent article in Scotland’s Press & Journal newspaper, “[James] boasted that while Tiger Woods will be welcome to play at the championship courses as a guest, the world’s wealthiest sporting superstar won’t be rich enough to secure membership.”

Are you taking advantage of this popular currency pair

Traders often become very confused when just starting out in the Forex market, as they find themselves jumping from one pair to another, searching for the ideal currency pair to trade. Others tend to give up too quickly, as they are unable to find answers to a few simple questions.

Have you ever asked yourself the following questions?
  • Which pair should I trade?
  • What should I buy?
  • What is the best time to trade?

The Forex market is a complex market, which allows traders to take advantage of its 24
hours trends.

The Euro was introduced as an electronic currency on January 1, 1999. At this time the Euro replaced all the pre-EMU currencies, except Greece’s currency, which was converted to the Euro in January 2001. As a result, the EUR/USD currency pair is now the most liquid currency in the world and its movements are used as a primary tool to gauge the health of both the European and U.S economies.

Some of the advantages of trading on this pair include:

  • 24 hour constant movement
  • Tight spreads due the market’s liquidity
  • Presents orderly trends
  • Rarely gaps

By taking a quick glance at the EUR/USD chart above, you can quickly understand why this pair has become the most popular currency pair, due to its predictable long trends and smooth price movements.


America is back to the business of frivolous spending. That's the point of today's chart.

Longtime DailyWealth readers know we track shares of coffee chain Starbucks (SBUX) for a read on frivolous spending in America. You don't need to spend $4 on a fancy coffee when you can make it at home for 10 cents.

As today's chart shows, America is spending money on expensive coffee again... SBUX just punched through to a new 52-week high, gaining 48% in the last three months. SBUX isn't an isolated case. The charts of many other high profile "spending stocks" look the same. Shares of Nordstrom (expensive retail), Tiffany (expensive jewelry), and Coach (expensive handbags) are soaring right now.

These charts remind us of the claim that in the event of an apocalyptic nuclear war, two hardy species would survive to inherit the Earth: cockroaches and the American consumer. For better or worse, he is spending money again.

Afghanistan now entering Vietnam-like levels of disaster and waste

The top U.S. and NATO commander in Afghanistan says in a confidential assessment of the war that without additional forces the mission "will likely result in failure."

A request for more troops faces resistance from within U.S. President Barack Obama's Democratic Party, which controls Congress, and opinion polls show Americans are turning against the nearly eight-year-old war.

Army General Stanley McChrystal wrote: "Failure to gain the initiative and reverse insurgent momentum in the near-term (next 12 months) -- while Afghan security capacity matures -- risks an outcome where defeating the insurgency is no longer possible."

China set to buy a massive amount of gold

China is considering buying gold being offered for sale by the International Monetary Fund, Market News International said on Monday, citing two unnamed government sources, but the report could not immediately be confirmed.

"China will consider buying if the price is right and the return is relatively high," MNI quoted one of the government sources as saying.

Gold, which had dipped just below $1,000 an ounce, rebounded to $1,003.45 after the report. That would put the market value of the 403.3 tonnes on offer from the IMF at close to $13 billion.

An incredible technology coming to your phone soon

A neat bit of technology headed for your phone soon: Augmented Reality (AR).

Augmented reality is a technology that overlays digital information on what you see in real life. One of its most widely used applications will be in cell phones. Users will look at real life things with their cell phones, and AR will overlay information about what is in view.

Say you're in Paris. If you look at the city, AR can provide you with a review of a restaurant you're looking at … a Wikipedia entry on the Eiffel Tower… or bits on the history of the French Revolution. For information junkies, it's going to be terrific stuff.

Energy guru predicts huge crude oil plunge

Philip Verleger is one of the most respected energy analysts in the world. In addition to being a professor at the University of Calgary, he's also the principal of energy consultancy PKVerleger LLC.

Given Verleger's standing, it's always worth noting when he makes a bold claim… like that he's now "fairly certain" crude oil prices will decline below $40 per barrel this year.

Saturday, September 19, 2009

Could China Push Gold to the Moon?

Inside sources have recently confirmed the Chinese government is actively promoting gold and silver investment to the masses.

Some analysts now contend that China can no longer afford to let the gold or silver price slump.

The rationale behind that contention is that with the Chinese government now telling the general populace to buy precious metals, it would be highly problematic should gold and silver subsequently take a nose dive.

In many cases, what a government wants and what ultimately occurs can be wildly different, due to unintended consequences rarely foreseen by officialdom, and because once the masses get it into their heads to break one way or another, government's desires are largely ignored.

"You shall not smoke marijuana," says the government. "Roll me another," says John Q. Public.

But in the case of gold, interestingly enough, the Chinese government has the means at its disposal to actually do something about prices. Namely, at $1,000 an ounce, the total value of all the gold ever mined comes to about $5 trillion.

Of that amount, less than $1 trillion is held in official reserves, the rest under mattresses, in jewelry and family heirlooms, and in various ETFs – GLD being the biggest, by far, holding about $34 billion worth of gold.

Against these totals, China has foreign reserves in excess of $2 trillion.

In other words, more than enough to push the tiny gold market around in any way it wishes. Given that much of its reserves are now denominated in fragile U.S. dollars that it would sorely love to replace with something more tangible, and that China is the world's largest gold producer, the country's involvement with gold is something more than just a passing fancy.

Simply, there is a new gorilla in the room in global gold markets. The extent to which the broader market hasn't yet figured this out is the extent to which you as an early mover can ultimately profit. Especially in the more leveraged gold stocks, which continue to be strong even as the broader markets show weakness.

That all of this comes before the dollar hits the wall it must hit, or before the inflation that is now baked in the cake arises, lends a lot of credibility to the idea that when the gold bubble begins to expand, it could reach all the way to the moon.

No need to chase gold at these levels, as opposed to buying on dips. But buy.


"Risk be damned... just give me a good story." That's our theme for Chart of the Week.

Back in 2007, we used shares of China's largest air carrier, China Southern Airlines (ZNH), to gauge the speculative frenzy in Chinese shares. As we predicted, the stock was destroyed when the China bubble popped. This week, we introduce a new poster child for China speculation: Baidu (BIDU).

Baidu has a wonderful growth story. It controls a giant share of the Chinese search engine market – you could call it the "Google of China." This makes it a favorite among "hot money" speculators.

Baidu suffered a terrific fall in 2008, declining from $373 to $104. But as you can see from this week's chart, the stock is soaring right now... and is closing in on its 2007 bubble peak. We're back to "risk be damned... just give me a good story."


Volatility, we hardly knew ye.

Back in 2006, we pointed to depressed levels of the VIX as an excuse to buy cheap "portfolio insurance" against the likes of terrorist attacks and government-sponsored disasters.

The VIX measures the price investors are willing to pay for forms of portfolio insurance... so it's a great gauge of investor fear.

Back then, only the paranoid thought about home foreclosures, job losses, or market crashes. Nobody cared much about insurance. Which – as any good contrarian can tell you – is precisely the time you should buy some. The VIX sat at an "asleep at the wheel" level of 12.

Disaster hit in 2008... and sent the VIX to a "we're scared to death" level of 80. But as you can see from today's chart, complacency has returned to the market. The VIX has come down the mountain to reach 24. It's amazing proof that most investors have very short memories...

Friday, September 18, 2009

Insider report: Gold mania developing in China

Gold is quickly reaching the mania phase in China, and there are clear signs of it on the ground.

About a month ago, we reported that for the first time ever, the Chinese government is promoting gold and silver as investments. And by "promoting," we meant cramming it down people's throats.

We knew this was ground-breaking news at the time– a clear indication of long-term demand growth, as well as a sign that the government will be accepting higher inflation in the future.

Ironically, this story was little noticed in the gold industry at the time, mostly because the information was only being circulated in China (in Chinese, for that matter). Fortunately, my friend and China insider Christine Verone was able to get me the scoop, and we ran it here first.

Thursday, September 17, 2009


A quick note for all the vacation planners out there: Don't ski in Switzerland this year, stick to Colorado. Don't sip wine in France, stick to Napa Valley.

Today's chart gives you the reason. It's the abysmal performance of the U.S. dollar in 2009.

You can view currencies like the "stock" of a country. When times are good and its finances are in order, a country's currency tends to rise. When times are bad and its finances are a debt-soaked mess, a country's currency tends to fall.

Measured against a basket of other currencies, the dollar is down 10% since the spring. This is an enormous drop for a major currency. It's a drop that has eroded the purchasing power of your savings account, the cash in your wallet, and your "vacationing power" as well. It's the sort of fall that leads American tourists in Europe to shake their heads and say, "Good lord, things are expensive here!" Our advice right now: Keep the vacation in the States.

The No. 1 reason gold could enter a bubble phase soon

Several months ago, we told you the biggest reason gold could enter a mania phase is that people can easily claim "this time it's different."

This is the tagline of every great investment mania… and an excuse to pay any price for an asset. After all, if "this time is different," then it's nearly impossible to accurately value something.

This recent WSJ piece is looking at just this idea: What is an ounce of gold really worth?

The answer is, "nobody really knows."

As governments around the world continue to increase the supply of credit at incredible rates, there's really no good way of gauging what gold is worth if millions of people flock to the metal. Best to just own some and hold on for the ride.

Leading gold expert: Sell now

One of London's leading gold experts has urged his clients to dump their gold and silver holdings.

John Reade, an analyst at UBS, told investors to erase all their positions until the latest upward price surge ends, Ambrose Evans-Pritchard writes in the London Telegraph. Last week, gold ran up to $1,011 an ounce, not far from 2008's record high of $1,030.

Gold has climbed amid the dollar's drop to a one-year low.

Reade says futures contracts on New York's Comex exchange are flashing warning signals. The Comex experienced a surge of 6.4 million ounces in net long contracts last week.

Dollar panic developing: Gold moves closer to record high

The world is waking up to the fact that America cannot tax and spend its way to prosperity… which pushed gold up for the third straight session this morning. People are starting to go gold crazy.

Gold tends to rise when the dollar falls. With the dollar reaching a fresh 11-month low this week, gold touched $1,006 this morning to close in on the September 11 high of $1,013.

But contrarians should consider this: Hedge funds are now massively long gold… so a natural shake out is likely.

How the next government bailout will go down

Who is the FHLB? Even if you heard their name, you probably haven't been worrying about what they do. They were created in 1932 as a government-sponsored entity (GSE) made up of 12 regional Federal Home Loan Banks, each of which is an individual corporation. Founded in the depression, they have carried on, providing money for mortgages.

Even though there is no explicit government guarantee, the FHLB has been able to borrow at attractively low rates, because the public assumes such a guarantee. (Sound familiar? Fannie and Freddie pop to mind?) As such, the debt issued by FHLB is considered AAA by Standard & Poor's - so it's used regularly as a substitute for cash. Municipalities often invest here.

The real question is whether they are playing the same game that all the other big financial institutions have been playing; namely, keeping toxic waste on their books that isn't worth as much as its face value. Given their leverage, if as little as 5% of their loans were ultimately written off, the capital base of FHLB would be wiped out.

It's no easy task ascertaining what is actually on the balance sheet of these complex institutions, but I saw a lot of references to Alt A mortgages and more than $281 billion of interest rate swap derivatives with counterparties of Deutsche Bank, JPMorgan, and Barclays - and this in just the San Francisco branch operation alone.

If, in total, the FHLB ultimately suffers defaults equal to just 10% of the face value of their assets, a reasonable expectation, they'll be forced to write down more than $110 billion - which is better than twice the capital on their dwindling books. That sets the stage for another federal government takeover or receivership like Fannie and Freddie. That means even more bailouts, and eventual Fed monetization to fund it. Credit collapse is destructive for housing, but it is dollar-destructive to bail out everybody.

My bet is some of both will happen, with the easy path toward bailouts and dollar destruction being the more likely.

George W. Bush: Obama has no clue

President George W. Bush's former speechwriter Matt Latimer reveals that Bush considered Barack Obama unfit for the White House and predicted that vice presidential candidate Sarah Palin would be a disaster for the GOP.

"After one of Obama's blistering speeches against the administration, the president had a very human reaction: He was ticked off," Latimer writes in his forthcoming book, "Speech-Less: Tales of a White House Survivor," which has been excerpted in the October issue of GQ.

"He came in one day to rehearse a speech, fuming. 'This is a dangerous world,' he said for no apparent reason, 'and this cat isn't remotely qualified to handle it. This guy has no clue, I promise you.'"


This week's "worth pondering" idea on gold and silver...

The Chinese government presents itself as an all-powerful, all-knowing steward of its economy... and it's obsessed with keeping a good public image. Recently, it started encouraging citizens to invest gold and silver. So the government would look pretty foolish in the eyes of citizens if gold and silver suffered a big drop of, 10% or 15%.

Now, consider China also has the biggest pile of excess currency reserves in the world... several trillion dollars worth. If you were the Chinese government, wouldn't you squeeze a few billion dollars into the gold market if prices declined... rather than look like the worst financial advisor on Earth?

It would be a PR disaster for China if gold and silver took a big fall. If you're an owner of gold and silver, you now have a whopper of a backstop for your position.

Wednesday, September 16, 2009

Secretive bank lobby urging Obama to continue failed policies

The Institute of International Finance (IIF) is urging President Obama and the rest of the G-20 countries to keep "supportive policies" in place and not to impose leverage limits to banks.

The IIF is a lobbying group representing the world's largest banks. Its board has executives from Citigroup, Bank of America, Barclay's, Credit Suisse, Bank of China, and BNP Paribas.

These "supportive policies" include keeping short-term interest rates close to zero, printing money, and making taxpayers guarantee financial institutions that are "too big to fail."

These policies are intended to stimulate economic growth by making lending more accommodative for consumers and creating more jobs. But with consumer credit falling by a record $21.6 billion from a year ago and unemployment at 26-year highs and, it's clear these policies aren't working.

Why then does the IIF think these policies must remain in place? Maybe it's because the banks they represent are seeing enormous profits. In January, Bank of America, Citigroup, Goldman Sachs, and JP Morgan Chase recorded more than $20 billion in losses. As of last quarter - mostly because of "supportive policies" - profits for these four institutions surged to $13.6 billion.

The IIF states on its website, "Our mission is to support the financial industry in prudently managing risks."

If this is your mission, how are you still in business?

Avalanche of insider selling: Up 85% in last two weeks

For the latest two week period ending yesterday, insiders purchased just $4.6MM in stock while selling an astounding $471MM in stock. That is a $217MM jump over last week’s reading of $254MM.

The trend in insider selling has been negative for quite some time, but even more alarming is the total lack of insider buying.

Massive credit contraction says the recession isn't over

Team Obama has taken to trumpeting the idea that the recession is over. As Ed Harrison likes to point out, the fact that we will see inventory restocking will produce a statistical recovery, at least in reported GDP.

But the US in 1931 and Japan after its bubbles burst both featured a period in which the economy stabilized, and pundits for the most part concluded the worst was over. And in both cases, the economy resumed its slide.

The data have moved from bad to mixed, which is a relative but not absolute improvement. But one of the negative developments, highlighted by Ambrose Evans-Pritchard, is ugly indeed. Despite massive bailouts and liquidity supports, credit is contracting, and at a very rapid clip.

If we are lucky, this may be a short-lived aberration. But if this pattern persists for any length of time, the prospects are not good at all.

Why central banks are starting to hoard gold

What's the real solution to the constant boom and bust of our credit markets? Simple: a sound currency whose price (interest rates) is set by the demands of the global market, not by any government.

Calling our current system "modern" is a misnomer. Our current system is barbaric. It has proven to be a failure every single time in history when it has been tried. Paper money has been used for thousands of years to steal the wealth of the middle class, impose a secret tax on the productive, and swindle, through speculation, the fortunes of those who are honest and hard working. On the other hand, only one monetary system has proven to work, every single time it has been tried – gold. And yet it is the gold system that has been labeled "barbaric" by the politicians who fear it.

Just because the U.S. is unlikely to ever return to the gold standard doesn't mean you can't. One year ago today, gold was trading for $635. Today, it sits near $1,000. There is a very good reason for this. Gold is no one else's liability. And it is difficult to produce. Over the last year, our Federal Reserve increased the size of its balance sheet by 126%. So far, this has only resulted in roughly 20% more currency in circulation. But eventually, all of this new credit will end up as money, greatly devaluing the value of the paper you hold in your wallet.

The same thing, at various rates of growth, is happening around the world at every major central bank. And that is why, according to sources in the gold market, central banks themselves are for the first time in more than a decade net purchasers of gold. The politicians want you to use their paper money. Meanwhile, they've decided to stockpile gold. So should you.

Tuesday, September 15, 2009

How natural gas could plummet more than 50%

If storage does fill up—and it is on track to do that—these next five weeks or so are going to be very, very interesting. It will affect prices violently.

September is the lowest-demand month for natural gas, and it's also the lowest-demand month for power. September is maintenance season for power plants all over the country. You also have industrial demand, which is about 30% of total gas demand. Refining is a big portion of that, and September's also refining turnaround season as well. So gas demand's going to be very, very low, which is just going to exacerbate the issue.

So if it does happen, and we do run out of storage, it could drive natural gas to $1.00 or even lower. I'm not saying we're going to get there. But if all the stars line up, it could get really ugly. People look at historical charts and say, "Well, gas has never been this low, and the oil/gas ratio has never been this extreme." But it can always get more extreme.

U.S. starting trade war with China

China voiced unusually strong objections to tariffs put on its tire exports to the US.

The American government believes that the Chinese are targeting the industry which is costing US jobs. Labor unions will like the decision, as will a number of members of Congress who think China does not work on a level playing field when it comes to trade.

China has already begun the process of retaliation. It has the upper hand in a trade war with the US and it is about to use that hand to prove its supremacy.

How to choose a reliable online broker

Without a reliable broker, even the best traders may have a limited chance of success. Every trader I know has at least one horror story about his/her broker. What happens if you try to sell your position because the value is quickly depreciating only to find out that your broker's server is down. By the time they fix the problem you may be out of 100's even 1000's of dollars. This is especially true when trading E-minis.

When choosing your broker, you'll need to take into account several factors. You also need to understand that while one broker may be an excellent choice for one form of trading it may be a terrible choice for another form of trading. If you are not happy with service and performance that you receive from your broker you should look for another one. It is not worth your time or money to be loyal to someone whose service isn't working for you. While it is not in the interest of your broker to cause you to lose your money you need to remember that your broker makes a profit whether you win or lose.

More trades you make, more money your broker makes in commissions. This is why many brokers that cater to day traders give advice or even hold courses on scalping. Scalping is a form of day trading in which a trader makes up to a hundred trades in one day. Scalpers are closely monitoring 1-minute chart and are attempting to catch small movements in the price and as soon as the trade turns against them they get out of the trade.

Although this approach has worked out for some traders who were trading high flying Nasdaq stocks in the late 90's for an e-mini futures trader it is a sure way to slowly lose all of his money. For most traders, scalping is a slow death while at the same time for your broker it is the most profitable way of trading. How much would an average scalper pay in commissions while trading e-minis? If he trades 50 times a day, two contracts at a time and his commission is $3 per contract each side, such trader would pay approximately $600 per day or $12,000 per month in commissions.

There are literally hundreds of brokers that you can choose from. When it is time to choose your broker, take the time to get informed about several prospective brokers. Although you can always change your broker later it is often a frustrating experience, so try to do everything in your power to make sure that you do it right the first time. By choosing your broker carefully you will save valuable time and money.

“Learn How To Trade S&P 500 and Nasdaq-100 E-mini Contracts.”

Overnight: Emerging markets take a big hit

Emerging market stocks – the shares of companies in countries like China, India, and Thailand – suffered a 1.5% decline in Monday's trading.

We're watching this decline closely for two big reasons: These markets are wildly popular with retail and professional investors right now. They're also trading for their highest valuations in nine years.

It's a recipe for a short-term, tradable decline.

Blowout: U.S. deficit reaches unbelievable $1.38 trillion

The federal deficit surged higher into record territory in August, hitting $1.38 trillion with one month left in the budget year.

The soaring deficits have raised worries about the willingness of foreigners to keep purchasing Treasury debt. The Chinese, now the largest foreign owners of U.S. Treasury securities, have expressed concerns about runaway deficits.

Treasury Secretary Timothy Geithner and other administration officials have sought to address those concerns by insisting that once the recession is over and the financial system is stabilized, the administration will move forcefully to get the deficits under control.

Asia's secret tax haven

I attended a conference today sponsored by the government of Labuan, Malaysia at the Grand Hyatt here in Shanghai. Labuan is Asia’s newest financial center, and the government there is heavily courting wealthy Chinese investors and businesses to migrate their capital.

There are a lot of rich Chinese businessmen who are looking for a way to reduce their tax burden, and most don’t have a clue where to begin. This conference was a significant step in educating high net worth individuals, as well as their advisers, on the advantages of proper offshore planning.

Christine, my local contact and old friend here in Shanghai, pulled some strings to score us some tickets. We were nearly the only white people at the conference… but her insider connections have paid off because the contacts I met could turn out to be priceless.

Sunday, September 13, 2009


A big question for the precious-metals investor is "Gold or silver... which do I choose?"

Our chart of the week might help you pick. It says: Long term, the returns are similar... but holding silver requires a bottle of Tums at your side.

This chart compares silver's performance (black line) versus the performance of gold (blue line) over the past seven years.

Up until a few months ago, silver and gold were both up 200% since 2003. Silver has enjoyed a surge since August to nudge higher in the race. But the major thing to take away is this: Silver goes through much bigger swings than gold. It suffered a 56% downswing in 2008, for instance.

So... the market's answer to the above question is, "Unless you have a strong stomach, keep most of your precious metals portfolio in gold."

Jim Rogers' best advice on investing... and life

Called the "Indiana Jones of finance" by Time magazine, Jim Rogers is one of the world's most successful investors. He co-founded the Quantum Fund before he was thirty and retired at thirty-seven.

Since then, he has served as a sometime professor of finance at Columbia University's business school, and as a media commentator worldwide. But ask Jim Rogers about his most important venture and he will answer without hesitation: fatherhood.

A Gift to My Children: A Father's Lessons for Life and Investing is Jim Rogers' love letter to his daughters, Happy and Baby Bee. Reminiscent of The Autobiography of Benjamin Franklin, which was also written by a father to his child, Rogers' book is full of no-nonsense, unsentimental fatherly advice.

Marc Faber: Dollar will continue to implode

Marc Faber, investing guru and publisher of the Gloom, Boom and Doom Report, said today that record high deficits from government spending and near-zero interest rates will create a great deal of inflation “down the road.”

“Money printing will be unprecedented because the deficit will need to be financed,” Faber said, and most of this money will flow into “speculative assets,” pushing the stock market, as well as gold and commodities much higher.

Faber continues to tell investors to buy equities and stay away from bonds and cash. He also thinks investors “have to own some resources, some commodities, some mining companies and some physical precious metals,” and can’t understand “why someone would hold dollars and not own gold.”

Get The Best Trading Tips

Forex Automoney would like to welcome you to the world of Forex trading.

To help you begin we would like to share with you a list of common mistakes that new traders tend to make and therefore you should try to avoid.

Remember, the key to becoming a successful trader is discipline and following a set of rules:

  1. Accept that a part of trading is losing. Every new trader must understand that even experts lose on trades. The number one rule when making money is to make sure your profits are much larger than your losses.
  2. Money management and a trading plan. Always enter a trade knowing how much you are willing to risk and how much you want to profit from the trade. This is called a risk/reward ratio. The difference between successful traders and unsuccessful ones is that the former always enters a trade with a plan and the latter doesn’t.
  3. A man’s best friend- the Forex Market. Many new traders are often hesitant to open trades due to the risk and uncertainty involved in trading. Those who overcome their fears often go on to yield enormous profits.
  4. Personal responsibility. Great traders accept personal responsibility for everything they do. Remember that you're the one who is pulling the trigger. Great traders know that they are responsible for all the trades they make, either good or bad.
  5. Becoming greedy. When traders have an open trade that is making them profit they often forget their pre-determined target for the trade, as they are sure that the trade will continue to make them profits. Remember that the markets are dynamic and trends don’t last forever. If the price reaches your target, bank the profits or move your stop-loss to prevent a loss.
  6. Trading the News. Despite what most people might think, most of the really big market moves occur around news event. Trading volume increases and the moves are normally significant allowing traders to grab quick and rapid movements. News-traders often make only one trade a day due to the large potential profits involved.
  7. Never trade on wishful thinking. If you place a trade and it's not working out for you, get out! Don't compound your mistake by staying in and hoping for a reversal.
  8. Psychological Factor. Emotions are the number one cause of losses. Don't let your emotions sway you, stick to your trading plan and remember to set your stop-loss.
  9. "The Trend is Your Friend". When trading in the direction of the trend you're results are almost guaranteed to improve.

By following these set of rules, you will see almost immediately see an improvement in your trades.

All that is left now is to start trading!