Archive for August, 2010

Gold & Silver Outshines The Markets In August

Tuesday, August 31st, 2010

U.S. stocks finished a lackluster session little changed on Tuesday but finished the month with their worst August performance since 2001 as concerns about the economy continued to pile on. The DJIA closed on Tuesday to end at 10,014.72.  Stocks still posted steep losses for the month as investors lowered their expectations for economic growth in response to a flood of weak data in August. The Dow shed 4.3% this month, its first down August in five years and the blue-chip measure’s worst August since 2001. The S&P 500 and the NASDAQ also posted their worst August performance since 2001, down 4.7% and 6.2% respectively. Small-capitalization stocks, seen as leading indicator of the economy, have taken an even bigger hit this month. Amazingly to the unfortunate, the Russell 2000 index of small-cap stocks posted its worst August performance in 12 years.

Indices and stocks weren’t the only losers. Natural-gas futures, wrapping up their worst month in more than two years, are entering the historically weak month of September dogged by confusion over production. Prices for the most active contract have lost nearly 23% in August, as investors sold off the futures on estimates of abundant gas output.

Oil too has its share of losses for the month. October delivery ended down 3.7% at $71.92 a barrel on the New York Mercantile Exchange Tuesday, with declines accelerating toward the close of the session. Oil finished the month of August with a loss, down 8.9%, its first monthly decline since May. The month started well, with prices surpassing $82 a barrel, but soon got derailed as key reports showed the bad times were far from over.

And now onto our winner for the month (honestly the best performer year over year for the last 10 years) the shiny metal we’ve been touting ever since 2001 when President Bush entered 2 wars and lowered the tax rate for the last 9 years – Gold & Silver.

Gold rallied 5.6% in August. That compares to a decrease of 5% in July and is gold’s largest advance since April. Gold futures rose Tuesday, pushing August gains past 5%, and silver hit a three-month high as investors sought out both metals to protect against signs the economic recovery is faltering. Gold for December delivery added $11.10, or 0.9%, to $1,250.30 an ounce. It closed less than 1% from bullion’s record high of $1,266.50 an ounce on June 21.

Silver for December delivery added 36 cents, or 1.9%, to $19.43 an ounce, its highest close since mid-May. Silver has gained nearly 8% in August.

Gold and silver took advantage of investors’ growing concerns about the pace of the anemic economic recovery. Investors have become so optimistic that they’re 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. 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. As the economy stays weak or gets worse, then investors will be looking for a safe haven.

Buyers accumulated almost 278 tons of gold in 2010 across 10 ETPs, worth $10.4 billion at this year’s average price. Total holdings are almost twice Switzerland’s official reserves of 1,040 tons, data compiled by the World Gold Council show. ETP holdings reached a record 2,078 tons July 19.

One of the biggest buyers has been Soros Fund Management LLC, which oversees about $25 billion. George Soros, who made $1 billion breaking the Bank of England’s defense of the pound in 1992, described gold as “the ultimate asset bubble” at the World Economic Forum’s January meeting in Davos, Switzerland. Buying at the start of a bubble is “rational,” he said.

Bullion gained 13 percent since January, beating an 8.4 percent return on Treasuries, an 8 percent decline in the MSCI World Index of shares. Investors are concerned the recovery is weakening.

People fear another crisis and so they will diversify into gold. Gold will continue to be the safe haven especially when Bernanke confirmed they’re open to a QE 2.0 (Quantitative Easing, Stimulus) \

Let’s not forget the IMF’s 400 tons of Gold they’re looking to sell. The International Monetary Fund said July 7 China, the second-biggest bullion buyer after India, will expand 10 percent in 2010, compared with 9.1 percent last year. Gold imports by India this year may total 600 tons to 625 tons, compared with an estimated 480 tons to 485 tons last year.

Stocks to Buy

Earnings at Newmont Mining Corp.,(NEM) the largest U.S. gold producer, may increase 47 percent to $1.93 billion in 2010.

Eldorado Gold: (EGO) Shares of EGO closed at $19.31 in the previous trading session and opened today at $19.49. EGO is trading above the 50 day moving average and higher than the 200 day moving average. The stock’s 52 week low is $9.74 and 52 week high is $19.72.

Goldcorp Inc: (GG) Shares of Goldcorp traded 2.2% higher

Barrick Gold: (ABX) are up 2.0% on Tuesday. So far this year, the stock jumped over 17%

Hecla Mining Company: (HL) Up 16% in one week. Over the past 52-weeks, the stock has been trading within the range of $2.85-$7.47. At current market price, the market capitalization of the stock stands at $1.40 billion.

Silver Wheaton Corp (SLW) gained 0.70% to $22.96 on over 2.18 million shares. Today, the stock made its new 52-week high of $23.18. After opening the trade at $22.84, the stock is trading within the range of $22.73-$23.18.

Pan American Silver Corp (PAAS) $24.76; During the quarter ended June 30, 2010 the Company recorded sales of a record $147.3 million, a 32% increase compared to the second quarter of 2009.

We believe Gold will head $2,000 within the next 5-10 years. This will be a long term hold. Any weakness in Gold I recommend buying on the dips.

The remaining of the week prior to the Labor weekend, there is a heavy calendar for economic reports this week, including July employment numbers, manufacturing, productivity, and factory orders. I believe the results will be close to mediocre.

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Is Death of Video Gaming Retailers Near?

Tuesday, August 31st, 2010

In the past 10 years we’ve witnessed several game changers with the coming of the Digital Age. In some degree businesses have become extinct today or are on the verge of falling off. I’ll mention two that took the retail business by surprise and then the next that may follow suit.

  1. Photography and Cameras
    • The victim Eastman Kodak (EK) – Kodak was ill prepared. They did not take advantage of the 21st century technology. It took them for surprise which forced them to make  capital burden expenditures. Itwas  to update their niche Photography printing services which run rampant through Pharmacies and Supermarkets. Their stock was at an all time high of $95 in 1998. It now trades just shy of $6. The business remains intact and sits on roughly $1.5 billion in cash. They have lost significant amount of market share the past decade to the likes below.
      • The Game Changers – Hewlett Packard (HPQ) in the Digital Printing and home photo printing; SnapFish & ShutterFly (SFLY)- Low cost Internet Digital Photo printing
      • HPQ continues to chip away at EK market-share as they have recently sealed a deal with Wal-Mart (WM) to roll out 50 HP photo kiosks at their West Coast locations.
  2. DVD‘s & Video Game Rentals
    • The victim Blockbuster (BBI) $ .40, Dollar Video, & West Coast Video. Blockbuster is the only one that remains in this once lucrative business. Again new technology and concept took them for surprise. Their business is catered around stand alone retail locations saturating the US. At one point they had over 9,000 locations in 25 countries. Now they dwindle to approximately 35% of stand alones throughout their portfolio. They have been attacked on all fronts.
      • The Game Changer - Netflix (NFLX) $71 Why drive to to a Blockbuster when you can order home via the Internet and borrow as long as you’d like with no late fee? It was an instant hit! Stock took off, business revenues were increasing 50 fold, year over year while BBI is on the verge of becoming extinct like their former foes.
      • On demand from Verizon, Cablevision, Time Warner, and Comcast has also made on an impact on BBI’s revenues which took an additional chunk of cash flow.
      • GameStop (GME)$18.91 Operates 6,200 locations worldwide. They have  grown at a rapid pace in providing video game new/used purchases in their small shop of 2,000 sqft retail space generating on average $750,000 per store.

Now onto the next game changer which I’m certain will take the Gaming industry by storm. It’s a private company named OnLive. 

OnLive is launching the world’s highest performance Games On Demand service, instantly delivering the latest high-end titles over home broadband Internet to the TV and entry-level PCs and Macintosh computers. Founded by noted technology entrepreneur Steve Perlman (WebTV, QuickTime) and incubated within the Rearden media and technology incubator, OnLive spent seven years in stealth development before officially unveiling in March 2009.

OnLive, together with its Mova subsidiary, lies directly at the nexus of several key trends, all of which are reshaping the way we think about and use digital media:

  • The shift to cloud computing, (i.e. Vmware and Google) displacing the limitations, cost and complexity of local computing;
  • An explosion of consumer broadband connectivity, bringing fast bandwidth to the home;
  • Unprecedented innovation, creativity and expansion within the video game market.

Pioneering the delivery of rich interactive media to the home, OnLive will change the way that entertainment applications are created, delivered and consumed.

It’s set to Launch June 17, 2010. They have partnered with EA Sports, Ubisoft, AMD, Gameloft….ect.

The actual game is hosted on the company’s servers, and streamed in real-time to the customer’s PC or TV. The company spent several years developing technology so that gamers would not experience any controller delays. The service has been in beta tests for the last several months. It’ll become commercially available on June 17 for $14.95 per month – though that fee will not cover the additional costs of buying or renting games. Prices for games will be set by publishers and be announced as the games become available. OnLive is part of a larger trend in the video game industry, which is moving aggressively to new digital distribution models. While any games are still sold as packaged goods through retailers, more services are allowing gamers to buy and download games through the Web.

Console makers such as Microsoft Corp. MSFT 29.11, Sony Corp. SNE 37.94, and Nintendo NTDO 38.30, all operate online game channels.  

Whether OnLive succeeds or not I believe Sony, Microsoft, and Nintendo already see this as a threat as cloud computing takes hold. Sony has already launched a cloud themselves coded “PS Cloud”

The real threat is to GME

Or opportunity for investors as we cannot recommend Gamestop as a lucrative long term investment. You’re hearing this first here! Gamestop will follow BlockBuster’s path to non existence of course if they can adapt as Kodak has done so the past decade. (Odds of succeeding very slim 20%) Games of the future will be streamed online rather purchased via street stores. The only caveat that remains which gives Gamestop some time for survival (3 years)  is that the infrastructure is not in place to transfer fast and constant stream of High Definition over lines. BUT….Google and Cisco recently stated they have the routers and Technology to launch super high speed Internet connections. (CSCO splashed the headlines this past Tuesday. It’s ironic how everything relates to one another)

Take this note of warning to GME investors first heard here!!

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Monday Doldrums Continue; DJIA Off 140

Monday, August 30th, 2010

The DJIA fell 140.92 points, or 1.4%, to end at 10,009.73, near session lows. The Dow is currently off 4.4% for August, with only one trading session left in the month.

The Commerce Department reported that personal spending climbed .04% in July more than the expected rise of 0.3% – the figures were quickly overshadowed by discouraging personal income data. More specifically, the government said personal income rose only 0.2% last month, falling short of economists’ prediction for 0.3% growth, and leading many to believe that the jump in spending is only temporary. Furthermore, the disappointing results loomed even more ominously ahead of Uncle Sam’s highly anticipated employment figures for August, which are set to hit the Street on Friday. Against this backdrop, stocks extended their retreat through the final hour of trading, with the Dow Jones Industrial Average harboring a triple-digit deficit by the time the closing bell mercifully rang.
In what is going to be a busy week on the economic-data front, today’s sell-off is rather disappointing, as it continues to show the bulls can find no consistent buyers.

The problem is Friday’s unemployment number, and investors may be staying on the sidelines concerned about it. Businesses should step up and start hiring people or we need one more shot of stimulus.

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Stocks Slip After Consumer Spending Report

Monday, August 30th, 2010

The DJIA is down more than 40 points. The S&P is also down. All key S&P sectors are lower, led by financials, consumer discretionary stocks and industrials. The major indexes ended the previous week with a rally after the Federal Reserve signaled it was ready to support the recovery with monetary policy. Still, the Dow, and S&P are on track to post a loss in August for the first time since 2005.

The Commerce Department said consumer spending rose 0.4 percent after being flat in June. The results were better than the 0.3 percent rise estimated by analysts polled by Reuters. Personal incomes rose 0.2 percent in July.

In corporate news, Hewlett Packard’s shares are up more than 3 percent as the company’s board announced plans to buy back $3 billion in stock in the fourth quarter.

On the merger front, Genzyme (GENZ) shares rose after the pharmaceutical company’s board unanimously rejected an $18.5 billion offer that translated into $69 per share from Sanofi-Aventis. The U.S. shares of Sanofi were modestly higher. Intel (INTC) shares are lower after news it will buy the wireless unit of German chipmaker Infineon // (IFNNF)  for $1.4 billion in cash. The unit will be operated as a standalone business. 

Also, 3M // (MMM) // shares were down more than 1 percent after the company said it would buy biometric identification systems company Cogent // (COGT)   // in a deal valued at $943 million. COGT is up more than 20%.

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Bernanke Saves The Day; Market Up 160

Saturday, August 28th, 2010

What might Bernanke’s speech have said or implied that triggered the market response we’ve witnessed today? “Don’t fight the Fed” The economy is anemic, and the outlook might be uncertain-to-poor, but the Fed will pump, buy, and do whatever it takes to turn it around. The Fed will keep short rates at ZERO for an extended time, and force companies and investors to take risk.

If anything expressed above proves reasonable and accurate, the risk trade is where investors have to be making any return at all! Cash will continue to be trash and treated as such indefinitely. It is as if Bernanke held up a big sign that says: “Buy stocks, buy gold, buy commodities, buy houses, and, perhaps as a corollary, SELL BONDS — and take the money and put it into riskier markets…

With the foregoing in mind, let’s have another look at my updated comparison chart of Bonds and Gold, two markets that could provide the most insightful reaction to the GDP data and to Bernanke’s speech, are gold and 10-year bonds. Purely from a price perspective, the bond market is showing signs of exhaustion since its mid-Aug peak, while gold prices appear poised to continue higher towards a retest of the June highs at $1263/65. If my perceptions about the technical set up reflect “reality,” then my sense is that Bernanke is “desperate” to create inflation, which argues for higher gold and lower bond prices ahead.

The speech by Fed Chairman Bernanke was all over the map and was noncommittal in terms of offering an iron clad forecast despite the title being The Economic Outlook and Monetary Policy.

The sermon was littered with caveats in the form of “should”, “despite”, “although”, “possibly”, and “however” – but in the end, he expressed optimism (then again, what else can he do in public?). He obviously learned his lesson from using words such as “unusually uncertain”, which he used to describe the economic outlook at his recent Congressional testimony in July when the Dow responded by diving 109 points (as if things haven’t become even more uncertain since, but why tell anyone?).

Here are some of the snippets from the speech – Mr. Bernanke seems to have a different crystal ball than we do, as he is optimistic that growth will be sustained in the second half of this year and improve next year. At the same time, he acknowledges that the economy has not improved as much as the Fed was forecasting earlier (that is old news). But what really stood out in his speech was the extent to which it was so “on the one hand, but then on the other hand”, which of course is why economists are constantly ridiculed.

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Will Helicopter Ben Save Markets With QE 2.0

Friday, August 27th, 2010

In an all effort to stave off deflation, and get the economy moving again, Federal Reserve Chairman Ben Bernanke may be getting ready to take his money-creating helicopter to a new altitude. Bernanke earned the moniker “Helicopter Ben” after the then-Fed governor referenced Milton Friedman’s famed “helicopter drop” favorably in a 2002 speech outlining how the Fed could defeat deflation. (Friedman had argued hypothetically that a central bank could drop currency from a helicopter to stimulate spending.) here. Nearly eight years on from that speech, Alan Greenspan’s successor is due Friday at 10 a.m. Eastern to deliver another vital keynote at the Kansas City Fed’s annual symposium in Jackson Hole, Wyo., with the straightforward title, “The Economic Outlook and the Federal Reserve’s Policy Response”

Bernanke’s comments on the economic outlook will be scrutinized closely, particularly since the Fed downgraded its view earlier in the month. He will once again be able to sway markets in either direction, but will he provide confidence just as had done in March of 2009 or continue this downward slippery slope of a huge sell-off? Friday’s markets will also get a look at the revisions made to second quarter GDP at 8:30 a.m. That could put the growth rate for the quarter ended June 30 at just 1.3 percent, compared to the previously reported 2.4 percent. That would also be the starting point for the current quarter, which by all signs is showing a continuing drop off in activity.

Friday is going to bring a meaningful downward revision to GDP. Bernanke needs to infuse confidence back into the markets. He needs to outline clearly and decisively what the Fed Reserve is willing to do, to back stop further losses. If we revert back to 1000 in the S&P we’re in for some trouble. The Fed President had indicated that he will charge negative interest (a.k.a fee to reserves) to Reserve’s that banks hold with the Fed, so they are forced to lend. I think that alone will not entice ordinary people to take out loans. Society is up to their throats with debt. We’re in a debt deleveraging cycle. Society prefers to revert back to savings. Look at the savings rate. We have not reached a 6% of savings rate since the late 50′s and 20′s. We are reverting back to the Great Depression ideology. SAVE, SAVE, SAVE. We are no longer a consumer based economy like we once were. I feel that Bernanke will infuse confidence but I think the revised Q2 GDP figure will be countertutitive. We’re set to open up as future’s indicate a positive 30 point gain.

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Market Sells Ahead Of GDP Report Due Friday

Thursday, August 26th, 2010

The Dow Jones Industrial Average (DJIA) settled south of the key 10,000 mark. Technical resistance and a lack of leadership led stocks to roll over in the face of a better-than-expected weekly jobless claims report, but near-term support helped keep the averages from closing at their session lows.  Given that the jobs report wasn’t as ugly as some had feared, stocks were able to open higher and build on the prior session’s advance. It didn’t take long for the move to run into resistance, though. Once the S&P came into contact with 1060, which marked a 50% retracement of the slide that spanned this week’s high to this week’s low, stocks stalled.

Following a couple of hours of muddled, listless trade, stocks rolled over. The slide stopped when the S&P found support at 1045, which acted as a spring ahead of the close. However, sellers redoubled their efforts so that stocks finished with their fifth loss in six sessions. The final drop also offset the prior session’s gain and left stocks to settle at a new monthly low. Today’s market action was a weird reversal of Wednesday’s run. Yesterday, a negative housing report sparked early losses which were then erased by an afternoon wave of bargain-hunting. Today was a different story. Seems as if traders are locking in their gains in anticipation of bad news Friday.

In particular, a bit of bad news from the Kansas City Fed seems to have sparked the sudden shift in sentiment; the region’s manufacturing index dwindled to zero in August, down substantially from July’s reading of 14. As a result, the major market indexes reversed course from respectable gains to modest daily losses — and if traders seem unusually skittish this week, it’s probably due to a pair of highly anticipated economic reports hitting the Street Friday, Between the revised GDP number and Federal Reserve Chairman Ben Bernanke’s scheduled speech on the economy, no one was willing to make a big bet today.

Advancing Sectors: (None)

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Jobless Slightly Better Markets In Black

Thursday, August 26th, 2010

Stocks recently ran into a sudden flurry of selling pressure, which sent the Dow briefly into the red and dropped both the Nasdaq and the S&P to the neutral line. Stocks have since made a modest bounce back.

The dollar has dropped to a fresh session low. It is now down 0.5% against a basket of major foreign currencies. Meanwhile, the euro is up 0.6% and near the session high that it set amid news of a solid debt auction from Ireland.

 U.S. stocks advanced modestly Thursday as investors welcomed a bigger-than-expected drop in weekly jobless claims and hoped that the market’s recent battering has been overdone.

As it stands The Dow Jones Industrial Average rose 27 points, boosted by rare encouraging news from the labor market.

Initial unemployment claims declined by 31,000 to 473,000 in the week ended Aug. 21, the Labor Department said in its weekly report. New claims for the previous week, ended Aug. 14, were revised upward to 504,000 from 500,000. Economists surveyed by Dow Jones Newswires had predicted filings would decline by 10,000.

In a troubling sign, however, the four-week moving average, which aims to smooth volatility in the data, rose by 3,250 to 486,750, the highest since Nov. 28, 2009.

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SPY, QQQQ Put Options Gaining Momentum

Wednesday, August 25th, 2010

I want to congratulate all our readers that have been following me during the down cycle. As you recall on April 28 when I had indicated markets were beginning to top off. And boy did it top off. On August 20th I predicted we were in a confirmed down pattern. Hit that on the nail. I want to tell you my initial PUT options had garnished a whopping +200% gain and transferred the gains to the September Puts @ 107. That has already gained 80% and counting. Remember to take gains off the table as markets can change in  a blink of an eye. We’ve made more money in the last 2 months during this down cycle than the first 3 months.

Our next stop ladies and gents will be towards the kneck line of the head and shoulders pattern. For the S&P that is around 1000. If markets bounce around this mark for 2-4 days then you must buy. This could possibly be a buying point for the short term. Again I’m speaking 2-3 weeks ahead of time. This does not mean this is a long term entry point. Please do not drop all your pennies into one bucket.

Rhetoric against Obama heats up further. Until mid year elections are finalized I continue to see several head winds. Ireland’s down grade last night is just another reason the credit agencies are behind the ball. We’re smart money, we think ahead!!!

Read here for my incredible prediction

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DJIA Down 4th In A Row

Tuesday, August 24th, 2010

The National Association of Realtors said sales of previously occupied homes plunged in July to an annual rate of 3.83 million, much worse than the 4.7 million estimate from economists polled by Thomson Reuters. Home sales have fallen sharply since a homebuyer tax credit expired at the end of April, despite mortgage rates reaching record lows. A stubbornly high unemployment rate of 9.5 percent has been keeping home sales down, and banks have also been cautious in making new loans. Without a boost in job creation, (buyers) just won’t have the confidence to step in and buy a new home.

Stocks fell for a fourth day after another disappointing report on housing deepened worries that the economic recovery could be fading. Bonds yields fell as investors sought out more stable investments. The  DJIA lost 134 points Tuesday following news that sales of previously occupied homes fell last month to their lowest level in 15 years. The 27 percent drop from the previous month was the biggest since record-keeping began in 1968. The Dow dipped briefly below 10,000 for the first time in seven weeks and has now lost 375 points since its four-day slump began last Thursday. The yield on the two-year Treasury note reached another record low as cautious investors piled back into the bond market. The S&P fell 15.49, or 1.5 percent.

Stocks have been sliding in recent days as investors focus on signs that economic growth is slowing. A new wave of corporate dealmaking gave stocks a temporary boost Monday, but those gains quickly faded.

Reports due out later in the week will also provide insight into the health of the economy. Data on new home sales, durable goods orders, weekly jobless claims and consumer sentiment are scheduled for later in the week.

The government will also release a revised report on second-quarter gross domestic product. The broadest measure of the country’s total economic output is expected to be lower than initially thought, adding to concerns about the pace of the domestic recovery.

Worries about the economy and another poor round of economic data (this time July existing home sales) continue to weigh on the markets today. The Dow & S&P are now down 4 straight days, and they are hovering at their lowest levels since the beginning of July.

Quite noticeable today is a troubling spike in new lows at the NYSE. 148 NYSE-listed companies are hitting new lows today – the greatest number since the markets closed at multi-year lows back on March 9, 2009. Over at the NASDAQ, over 200 stocks are seeing new lows today – the highest since July 1 of this year. Meanwhile, 8% of the S&P 500 is hitting new lows today.

Here’s a selection of some of the more notable individual names hitting new lows today:

2 Dow components, Bank of America and Hewlett-Packard, continue to fall to new lows.

Retail new lows: New York & Co., Best Buy, Office Depot, Staples, Gap, Gymboree.

Homebuilder new lows: KB Home, Toll Brothers, Pulte Homes, Ryland.

Industrials new lows: Oshkosh, L3 Communications, Raytheon.

Financials: Wells Fargo, BB&T, Bank of New York, CME Group, Charles Schwab

Techs: Dell, Seagate, Western Digital, Applied Materials, Yahoo!

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