Joe's Investo-Blog

http://www.bloomberg.com/news/2010-08-30/gold-rallying-to-1-500-for-analysts-as-soros-s-bubble-inflates.html

Investors are accumulating enough bullion to fill Switzerland’s vaults twice over as gold’s most- accurate forecasters say the longest rally in at least nine decades has further to go no matter what the economy holds.

Analysts raised their 2011 forecasts more than for any other precious metal the past two months, predicting a 10th annual advance, data compiled by Bloomberg show. The most widely held option on gold futures traded in New York is for $1,500 an ounce by December, or 18 percent more than the record $1,266.50 reached June 21. Holdings through bullion-backed exchange-traded products are already at more than 2,075 metric tons, within 0.1 percent of the all-time high.

“Either a swift economic recovery or further dismal economic performance should bring new buyers into the market,” said Eugen Weinberg, an analyst at Commerzbank AG in Frankfurt who was the most accurate forecaster in the first quarter and expects the metal to rise as high as $1,400 next year. “A stronger economy would create more jewelry demand. If the economy stays weak or gets worse, then investors will be looking for a safe haven.” Read more…

Asset Allocation, Gold, Inflation/Deflation, Markets Asset Allocation, economy, Gold, growth, strategy

To My Clients:

Our accounts are up 5.3 % for the Quarter and up 11.2 % for the year 2010 to date.

Even though the broad stock market indexes are all down over 10 % this past quarter, we have been fortunate once again to show positive returns in our accounts with a targeted and conservative approach. Our tech stock, Sandisk, was up over 20%, our gold stocks were up 12% and our long-term treasury bonds were up 10%. The largest portions of our accounts remain invested in cash and short-term treasury securities. Short-term interest rates will remain at historic lows and we expect long-term interest rates to continue to decline even as federal debt surges.

The alleged “recovery” recently has been showing signs of weakness and debt problems continue across the globe leading to volatility and weakness in the stock markets. There is considerable discussion among economists and analysts as to whether we will enter into a double dip recession. We don’t necessarily agree and tend to follow a recent new term to describe the current outlook for the economy which is “muddle through”. Read more…

Asset Allocation, Banks, Bonds, Economics, Gold, Inflation/Deflation, Markets, Portfolio Management Asset Allocation, Bonds, debt, Economics, economy, fiscal policy, liquidity trap, monetary policy, Portfolio Management, stock market, stock picks, Stocks, strategy, The Fed

By Paul Krugman
http://www.nytimes.com/2010/06/28/opinion/28krugman.html

Recessions are common; depressions are rare. As far as I can tell, there were only two eras in economic history that were widely described as “depressions” at the time: the years of deflation and instability that followed the Panic of 1873 and the years of mass unemployment that followed the financial crisis of 1929-31.

Neither the Long Depression of the 19th century nor the Great Depression of the 20th was an era of nonstop decline — on the contrary, both included periods when the economy grew. But these episodes of improvement were never enough to undo the damage from the initial slump, and were followed by relapses.

We are now, I fear, in the early stages of a third depression. It will probably look more like the Long Depression than the much more severe Great Depression. But the cost — to the world economy and, above all, to the millions of lives blighted by the absence of jobs — will nonetheless be immense.

And this third depression will be primarily a failure of policy. Around the world — most recently at last weekend’s deeply discouraging G-20 meeting — governments are obsessing about inflation when the real threat is deflation, preaching the need for belt-tightening when the real problem is inadequate spending.
Read more…

Asset Allocation, Economics, Financial Crises, Inflation/Deflation, Markets Banks, collapse, congress, debt, deflation, Economics, economy, EU, fiscal policy, history, IMF, monetary policy, strategy, taxes, The Administration, The Fed

http://www.bloomberg.com/apps/news?pid=20601103&sid=aqpASviGyLQc

April 26 (Bloomberg) — The bond vigilantes who punished governments for profligate spending in past years have gone into hiding.

Sovereign bonds yield an average 2.385 percent, about the same as a year ago and below the average of 3.08 percent in 2008 when the credit market seizure led investors to seek the safety of government debt, according to Bank of America Merrill Lynch index data. The cost to borrow is steady even though the amount of bonds in the index that includes nations from the U.S. to Germany and Japan has grown to $17.4 trillion from $13.4 trillion two years ago.

While the debt helped the global economy recover from its first recession since World War II, yields show bond investors aren’t troubled that the growth will spur inflation. Consumer prices excluding food and energy costs rose 1.5 percent in February from a year earlier in the 30 countries that form the Organization for Economic Cooperation and Development, the smallest gain on record.

“The fact that inflation is very well behaved, that provides the cover for central banks to remain on the sidelines and continue to pursue accommodative policies to help the economy,” said Thomas Girard, a senior money manager who helps oversee $115 billion in fixed-income assets with New York Life Investment Management in New York.
Read more…

Asset Allocation, Bonds, Economics, Inflation/Deflation, Markets Asset Allocation, Bonds, collapse, debt, deflation, Economics, economy, fiscal policy, inflation, monetary policy, Politics, Regulators, strategy, The Fed, US treasury

To My Clients:

Our accounts are up 5.4% Y-T-D and up 25.1% for the last twelve months.

The markets continue to show buoyancy as the economy very slowly begins a recovery. To a degree, this is largely a result of the Fed’s ineffectual efforts of getting money in circulation. Using the lowest interest rates in generations, the tactic is still seeking evidence of success. The curse of our banking system that in order to create money in circulation, it is wholly dependent upon loan and debt creation to inject money into the economy. However, consumers having been severely burned, no longer want to be in debt and, banks likewise, don’t really want to lend, sometimes even to their best credits. Money in circulation cannot grow unless people borrow and banks lend. Given the recent rising markets, it appears that banks are largely pumping and loaning money into financial assets instead of into bricks and mortar businesses that create jobs. Full recovery will still take some time.

Having said all of that, the economy is Read more…

Asset Allocation, Banks, Economics, Financial Crises, Gold, Markets, Portfolio Management, Stocks Asset Allocation, Banks, collapse, debt, Economics, economy, monetary policy, performance, Portfolio Management, stock market, Stocks, strategy, The Fed

By JAMES ALTUCHER

Last Updated: 4:51 AM, April 18, 2010
Posted: 1:21 AM, April 18, 2010

http://www.nypost.com/p/news/business/rally_believing_it_D49EqJdvdwnjU0aHSrGygJ

The data suggest that the economy is starting to surge upward. Here are 25 statistics and anecdotes that suggest that the strength in the economy is real:

1. Average hourly wagesare $18.90, up from $18.52 a year ago. (Before employers hire full-time, they get their workers to work overtime, resulting in higher pay).

2. Aggregate weekly hours worked is the highest it’s been since June 2009 — again, suggesting overtime. Only so much overtime can be worked before hiring begins.

3. Industrial production index up 9 months in a row after plummeting 13 percent from December 2007 to June 2009.

4. Retail sales up 10 percent year over year.

5. GDP last quarter showed 5.9 percent annual growth.

6. Initial unemployment claims have gone from a peak of 643,000 in April 2009 to 480,000 now.

7. The Greek debt crisis seems to be ending without major fallout in the form of other nations defaulting.
Read more…

Asset Allocation, Markets, Portfolio Management, Stocks Asset Allocation, performance, Portfolio Management, stock market, Stocks, strategy

• Force Credit Default Swaps onto Transparent Exchanges
• “Too Big to Fail” Must Go
• Excessive Leverage Must Go
• Separate Commercial and Investment Banking – Again

Read the entire John Mauldin article here: http://www.frontlinethoughts.com/article.asp?id=mwo040910

Credit Default Swaps

What happened in the last credit crisis was that interlocking credit default swaps among so many banks made the ENTIRE system too big to fail. AIG basically sold naked options in the form of credit default swaps to all. Yet nothing has changed. We again have credit default swaps (CDS) growing, and no one knows who could be overextended. Once again, everyone could be dependent on everybody else, and we have no idea if there is a Bear, Lehman, or AIG in these woods. CDS’s are good things, just like futures. But they must go to a transparent exchange. There needs to be position limits, just as there are in futures and commodities. There needs to be very transparent pricing and commissions. And someone needs to monitor who owns them and what risks they are taking.

Too Big to Fail Must Go
We have large banks that take massive risks, which allow them to pay huge bonuses to management and traders; and then if they have problems the taxpayer has to take the losses. We can see why the banks like it. The problem is that parts of these large banks are essentially hedge funds, working with cheap commercial deposit money and putting the entire bank at risk. As taxpayers, we don’t want to be taking the risk so some big bank can have a trading desk and make large profits that only benefit their shareholders and management, where we have to pick up the pieces with our tax dollars when they fail. Separate traditional banking and investment banks. Commercial banks should be boring, traditional lending to customers, services, etc.

Excessive Leverage Must Go
The problem of too big to fail is ultimately one of leverage. If a small bank fails, no one really notices. If a giant bank fails and puts the system at risk, it costs us a lot. We must reduce the allowable leverage the larger a bank gets? This would clearly reduce their risk and encourage them to only make prudent bets (otherwise known as loans), as their risk capital would be limited. If they wanted to make more loans, then they could raise more capital or retain more earnings. Would that hurt earnings and shareholders and limit share prices? Yes, but the world of privatizing the gains and socializing the risks must become a thing of the past.

Banks, Economics, Financial Crises, Markets, Politics Banks, collapse, congress, debt, economy, Politics, Regulators, The Administration

To My Clients:

Our accounts are up 24.1 % for the year 2009.

Our accounts, together with the stock and bond markets, have performed quite well this past year despite large holdings in each account of low yielding T-bills and Treasury bonds. It is still quite difficult to find reasons not to continue our successful defensive strategies of the past three years in which we’ve been quite fortunate to obtain positive returns in each year.

The credit crisis is far from over, and although there are indications that the recession is coming to an end, it also appears that it will be a far from robust recovery. The best that can be said of the economy is that it has stopped declining. Employment continues to lag and will continue to be a severe drag on any recovery. In spite of the Federal Reserve’s efforts to stimulate monetary growth, it is not happening, as banks remain fearful of lending and continue to leave their reserves on deposit at the Fed. What little stimulus we are seeing seems to be finding its way into the financial markets so far, with little to show in the real economy.

The dollar has been declining for most of this past year with only recent signs of a turnaround. This has contributed to our Read more…

Asset Allocation, Banks, Bonds, Currencies, Economics, Financial Crises, Gold, Inflation/Deflation, Markets, Portfolio Management Asset Allocation, Banks, Bonds, Currencies, debt, deflation, economy, exchange rates, Gold, inflation, monetary policy, performance, Portfolio Management, stock market, strategy, The Fed, trade

Harsh lessons we may need to learn again
By Joseph E. Stiglitz (China Daily)

http://www.chinadaily.com.cn/opinion/2009-12/31/content_9249981.htm

Joseph Stiglitz recounts five “harsh lessons” from 2009:

1. Markets are not self-correcting.
2. Recent Markets failed because too-big-to-fail financial institutions had perverse incentives.
3. Keynesian policies do work.
4. There is more to monetary policy than just fighting inflation.
5. Not all innovation leads to a more efficient and productive economy – let alone a better society.

The best that can be said for 2009 is that it could have been worse, that we pulled back from the precipice on which we seemed to be perched in late 2008, and that 2010 will almost surely be better for most countries around the world. The world has also learned some valuable lessons, though at great cost both to current and future prosperity – costs that were unnecessarily high given that we should already have learned them.

The first lesson is that markets are not self-correcting. Indeed, without adequate regulation, they are prone to excess. In 2009, we again saw why Adam Smith’s invisible hand often appeared invisible: it is not there. The bankers’ pursuit of self-interest (greed) did not lead to the well-being of society; it did not even serve their shareholders and bondholders well. It certainly did not serve homeowners who are losing their homes, workers who have lost their jobs, retirees who have seen their retirement funds vanish, or taxpayers who paid hundreds of billions of dollars to bail out the banks.

Under the threat of a collapse of the entire system, the safety net – intended to help unfortunate individuals meet the exigencies of life – was generously extended to commercial banks, then to investment banks, insurance firms, auto companies, even car-loan companies. Never has so much money been transferred from so many to so few.
Read more…

Banks, Economics, Financial Crises, Inflation/Deflation, Markets, Politics Banks, collapse, deflation, Economics, economy, fiscal policy, history, inflation, monetary policy, Politics, taxes, The Fed, US treasury

In today’s Senate hearings to confirm the re-appointment of Federal Reserve Chairman Ben Bernanke, Senator Bunning succinctly lays out the greivous mistakes of the Fed in the years leading up to, during, and in the aftermath of the recent financial meltdown. It is hard to refute his argument that the privately owned Fed did nothing for the taxpayers and everything for it’s stockholders, the member banks of the Federal Reserve System.

Statement of Senator Bunning

Four years ago when you came before the Senate for confirmation to be Chairman of the Federal Reserve, I was the only Senator to vote against you. In fact, I was the only Senator to even raise serious concerns about you. I opposed you because I knew you would continue the legacy of Alan Greenspan, and I was right. But I did not know how right I would be and could not begin to imagine how wrong you would be in the following four years.
Read more…

Banks, Economics, Financial Crises, Markets, Politics Banks, collapse, debt, deflation, economy, history, monetary policy, Politics, The Fed, US treasury

To My Clients:

Our accounts are up 20.41 % Year-To-Date.
The Dow Jones Average is up 10.66 % Year-To-Date.

Although the stock and bond markets have been quite buoyant over the last several months, it is still quite premature to declare the longest postwar recession, over. There are still considerable risks to the economy. The massive fiscal stimulus together with the central bank’s printing of money is beginning to unnerve central banks around the world that hold huge portfolios of dollars. Consequently, the dollar, which is the world’s reserve currency for trading commodities such as oil, is in decline. This means that it will become more difficult for the government to borrow massive amounts of money from foreign sources, and imports, such as oil, will rise in price. Interest rates will also rise as necessary to attract the needed capital. Likewise, gold has been rising in price and is reaching all time highs. Read more…

Asset Allocation, Bonds, Currencies, Economics, Financial Crises, Gold, Inflation/Deflation, Markets, Stocks Asset Allocation, Banks, Bonds, Currencies, debt, economy, exchange rates, fiscal policy, Gold, inflation, monetary policy, performance, stock market, stock picks, strategy, The Fed

The Secrets of China’s Growth: The Government Owns the Banks rather than the Reverse

By Ellen Brown

“The banks — hard to believe in a time when we’re facing a banking crisis that many of the banks created — are still the most powerful lobby on Capitol Hill. They frankly own the place.” — U.S. Senator Dick Durbin, Democratic Party Whip, April 30, 2009

While the U.S. spends trillions of dollars to bail out its banking system, leaving its economy to languish, China is being called a “miracle economy” that has decoupled from the rest of the world. As the rest of the world sinks into the worst recession since the 1930s, China has maintained a phenomenal 8% annual growth rate. Those are the reports, but commentators are dubious. They ask how that growth is possible, when other countries relying heavily on exports have suffered major downturns and remain in the doldrums. Economist Richard Wolff skeptically observes:  Read more…

Banks, Currencies, Economics, Financial Crises, Inflation/Deflation, Markets Banks, collapse, Currencies, debt, Economics, economy, exchange rates, Gold, inflation, monetary policy, strategy, The Fed, US treasury

HOW LITTLE WE KNOW

by Harry Browne

August 22, 1984

You’ve probably had the experience of reading a newsletter’s (blog’s) explanation of what is about to happen in the world. The writer presents a sensible, logical, compelling argument that something is inevitable based on what has gone before and where we are now. His case is so plausible and rational that it’s obvious he must be right.

But then you pick up another newsletter (blog) and find another preview of the inevitable -and it’s exactly opposite to the forecast in the first newsletter. And the second writer’s arguments are just as logical, sensible, plausible, and rational as the first writer’s.

Which one are you supposed to believe? The question could be critical. Each writer might be urging you to invest all your capital in line with his forecast. To choose wrongly could be disastrous.

So how do you decide which one of them is right?   Read more…

Asset Allocation, Economics, Gold, Humor, Markets, Portfolio Management, Stocks Asset Allocation, deflation, Economics, economy, fraud, Gold, Humor, inflation, performance, Portfolio Management, stock brokers, stock market, stock picks, Stocks, strategy

Humor, Markets, Portfolio Management, Stocks Humor, performance, Portfolio Management, stock brokers, stock market, stock picks, Stocks, strategy

by Jonathan Clements

Wall Streeters talk a great game. The real challenge, however, is figuring out what they are really saying.

Below are 33 phrases often heard on Wall Street and how you might interpret them. The list was compiled with help from investment advisers William Bernstein, Eleanor Blayney, Harold Evensky, Deena Katz, Ros Levin, Gerald Perritt and Larry Swedroe. I also got a hand from Journal colleagues Greg Ip and William Power.

But my biggest debts are to Kevin Berozott, an investment adviser in Camarillo, Calif., and John Rekenthaler, research director at Chicago’s Morningstar Inc., both of whom shipped me e-mails filled with hilarious examples.  Read more…

Humor, Markets, Portfolio Management, Stocks Humor, Portfolio Management, stock brokers, stock market, strategy

To My Clients:

Our accounts are up  5.7 % Y-T-D.
The Dow Jones Average is down 3.75 % 

Very briefly, the administration is soon to engage in massive stimulus fiscal spending while the Federal Reserve continues its massive monetary stimulus activities. While these endeavors always take time to filter into the economy, the stock market and the bond market have recently been somewhat buoyant, not necessarily because an economic recovery is imminent, but possibly because of the monetary stimulus taking place. The U.S. Treasury is making enormous demands on the bond market with the huge amounts of debt it needs to sell to finance the fiscal spending and the Federal Reserve is accommodating the Treasury by purchasing large portions of the U.S. Debt.  Read more…

Economics, Financial Crises, Markets, Portfolio Management Asset Allocation, economy, fiscal policy, monetary policy, performance, Portfolio Management, stock market, Stocks, strategy, The Fed, US treasury

To My Clients:

Our accounts were up 1.01% during the first quarter of this year.  The major stock market indexes are all down between 3-13%.

The current recession, the longest and deepest in decades is the result of massive debt defaults and deleveraging. Banks are now undercapitalized and are preserving capital by tightening lending standards (if they lend at all) resulting in a vicious cycle of a shrinking economy making money become even more scarce. Read more…

Asset Allocation, Banks, Bonds, Economics, Financial Crises, Gold, Markets, Portfolio Management Banks, Bonds, collapse, debt, economy, fiscal policy, Gold, monetary policy, performance, Portfolio Management, stock market, strategy, The Fed

There is yet one other indicator that almost perfectly and successfully has predicted recessions and recoveries, yes, it’s the yield curve. You can count on a recession when the yield curve is flat, negative or inverted. Furthermore, you can count on economic growth when the yield curve has a positive slope. Given that the yield curve was flat or inverted for most of ’06 and ’07 were we really *that* surprised that a recession landed on us in ’08? And again, what does the yield curve portend for the future when it turns positive? Read more…

Asset Allocation, Economics, Markets, Portfolio Management Banks, collapse, Economics, economy, performance, stock picks, Stocks, strategy

I recently wrote about two charts we’ve shown you previously to identify the symptoms of the current liquidity trap. Well, looking at the same two charts as of today, it appears that the liquidity trap is easing and that some of the Fed’s medicine is finding its way into the economy. Note the beginning of a decline in the banking system’s excess reserves. This is money that is finding its way into the economy.

As always, I suggest one look at leading indicators, as opposed to lagging indicators such as unemployment, when making investment decisions. Money supply happens to be one of the best and most important of the leading indicators. It even leads the stock market. Read more…

Economics, Markets Banks, economy, monetary policy, The Fed

Capitulation theory holds that when when everyone throws in the towel and is “sure” the market is going further down, that it will then actually go up. A derivative theory, the front page/cartoonist theory holds that when you finally see doom and gloom on the front page of newsmagazines or in the cartoonist’s columns, then “everyone” now “knows” the market is going down further and, yep, at that point it starts going up… or so goes the theory.

Very Best Regards,

Joe

Markets, Portfolio Management economy, performance, Portfolio Management, stock market, Stocks, strategy

Does this rule still really apply?

Comparisons of economic conditions of today with those of the Great Depression abound, as well as comparisons with Japan’s “lost decades”, most implying that we are doomed to a repeat of those woeful eras. We know of course that the Fed did everything wrong in the 30′s and made things worse. Beginning in 1990, the Bank of Japan did everything right but it did no good. Why would this time around be any different? Read more…

Markets economy, fiscal policy, monetary policy, performance, Portfolio Management, stock market, stock picks, Stocks, strategy, The Fed

To My Clients:

This past year we continued the full defensive strategy we adopted in late 2007. It has certainly performed well as the stock markets literally collapsed. In all candor, the positive performance in your account is the most gratifying performance of my entire 26 year career. While we continue to stay away from stocks in general, in late November we began Read more…

Economics, Gold, Markets, Portfolio Management Bonds, collapse, Economics, economy, fiscal policy, Gold, monetary policy, performance, Portfolio Management, stock market, strategy, The Fed

Yep. There’s yet another cardinal rule that tells you when to get into the market and when to get out (more or less). It has never failed me and following it, helped me avoid entirely the catastrophic markets last year and turn in positive performance for 2008.  You’ve all heard it before but let’s review because it does work. Read more…

Bonds, Economics, Gold, Markets, Portfolio Management, Stocks Bonds, Economics, economy, fiscal policy, Gold, monetary policy, performance, Portfolio Management, stock market, Stocks, strategy, The Fed

I must confess that last years positive portfolio performance is the single most gratifying performance I’ve experienced in my entire 26 year career. I was fortunate to have been able to perceive a deepening credit crunch (thanks to our concerns about the excessive debt and leverage in the economy) and aggressively followed an ancient investment rule, to wit; Read more…

Economics, Gold, Markets, Portfolio Management, Stocks debt, Economics, performance, Portfolio Management, stock market, stock picks, strategy

Nouriel Roubini is arguably the single most sought after economist today as the world’s leading finanical gloom and doom soothsayer. In an article today he provides his “after the fact” analysis of the roots of the current crises:

Today’s global crisis was triggered by the collapse of the US housing bubble, but it was not caused by it. America’s credit excesses were in residential mortgages, commercial mortgages, credit cards, auto loans, and student loans. Read more…

Economics, Gold, Markets, Stocks collapse, debt, Economics, stock market