Friday, July 29, 2011

MARC FABER: The Debt Fight Is Meaningless, As Governments March Toward Hyperinflation

Marc Faber expects a debt agreement, but nothing that helps in the long run. He tells King World News:

“Yes, I’m sure there will be an agreement, but it doesn’t solve the fundamental problem of excessive debt and of further, very substantial deficits.    They’ll iron out something with lots of compromises and with spending cuts that are backloaded, in other words they won’t happen immediately.  As we go along say in three or five years' time when these spending cuts should occur and when the tax increases should occur, nothing will happen in my opinion.”

America will keep piling on debt and printing money, as will Europe, leading to war and the collapse of governments:

"Well when the reset comes it will be, say, a hundred dollar bill will be exchanged for a one dollar bill or something like this.  Before we have the Great Reset, the government, they will increase the war effort under whatever excuse that will be, but I think that is the likely course of action...The wealth destruction will be interesting because...the people that suffer the most before the reset happens are actually the cash holders."

As for gold:

...I just calculated if we take an average gold price of, say, around $350 in the 1980s and then we compare that to the average monetary base in the 1980s, and to the average US government debt in the 1980s...but if I compare this to the price of gold to these government debts and monetary base, then gold hasn’t gone up at all.  It’s gone, actually, against these monetary aggregates, and against debt, it has actually gone down.    So I could make the case that probably gold is today very inexpensive....

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Marc Faber makes his Case: Gold is “Inexpensive” - Beacon Equity Research

Speaking with King World News (KWN) earlier this week, Marc Faber said when compared to the Federal Reserve’s monetary base, today’s gold is “inexpensive.”

As physical buyers of the yellow metal trounced the paper shorts in yesterday’s option expiration trading, taking the gold price to $1,620 at the close, the typical price smack down, followed by a rally, and then, a subsequent smack down wasn’t evident throughout the day.  If Asian buyers were stepping in to pick up the new shorts, the operation went off seamlessly.

It appears that something very different is going on in the flow to safe haven buying this month.

The ponytailed, Swiss-born, eccentric money manager, who calls Thailand and Hong Kong his stomping grounds, sees the simultaneous fiscal woes in Europe and the United States leaving investors little choice in the duck-and-cover maneuvers since the collapse of Bear Stearns in March 2008.

“Well I think investors are gradually realizing that it’s unusual, with all of the problems in Europe that the euro is actually relatively strong against the U.S. dollar,” said Faber.  “They are realizing U.S. holders don’t want to hold euros because they don’t trust the euro and the Europeans don’t want to hold dollars because they don’t trust the dollar.”

At the open of European trading at 3 a.m. EST, significant dollar weakness could be seen across a broad range of currencies.  In earlier Asia trading, the Aussie dollar broke through 1.10, the Swiss franc cracked 1.25, the NZ dollar reached 86.6, and the Canadian dollar as well as the Malaysian ringgit both trounced the greenback to finish strongly at the close.

Traders fleeing the dollar have been diversifying into “Canadian dollars, Australian dollars, New Zealand dollars, Singapore dollars and so forth,” said Faber.  “But, basically, the ultimate currency and the ultimate safe asset,” he said, “is gold and silver.”

At the open of trading in New York, the Dow-to-gold ratio had breached the 20-year support at 7.8 ounces of gold to buy the Dow.  Except for a brief breakout (to the downside) in the Dow-to-gold ratio during the panic of March 2009, the 7.8 level has been a base of long-term support since 1991.

In 1992, the U.S. economy emerged from recession and simultaneously reinvigorated the bull market in stocks and resumption of the bear market in gold until the peak in the ratio of above 43 was achieved in the second half of 1999—the year the NASDAQ popped.

Since 1999, the Dow-to-gold ratio has moved in a downward trend, with many analysts forecasting a 1:1 ratio when the gold bull market ends.

Investors fearing they missed the boat on the gold trade may take solace in that Faber believes the rally in the gold price is actually still in the early innings.  In fact, when calculated in terms of the Fed’s balance sheet (monetary base), today’s gold price is a comparative bargain.

“I just calculated if we take an average gold price of say around $350 in the 1980s and then we compare that to the average monetary base in the 1980s, and to the average U.S. government debt in the 1980s,” explained Faber.  “But if I compare this to the price of gold to these government debts and monetary base, then gold hasn’t gone up at all.  It’s gone actually against these monetary aggregates and against debt it has actually gone down.  So I could make the case that probably gold is today very inexpensive.”

According to St. Louis Fed statistics, the Fed’s balance sheet stood at approximately $150 billion, compared with the latest report which shows that the Fed’s balance sheet has reached $2.7 trillion, or an expansion of 18 times in 31 years.  If gold topped out at $850 in 1980, a rough estimate of gold’s potential climb in terms of the Fed’s balance sheet could take the world’s ultimate currency to more than $10,000—a number, by the way, that jibes with Jim Sinclair’s $12,500 gold price prediction.

Tagged as: bull market, dollar value, gold market, gold prices, investing in gold, investing in silver, Marc Faber, silver market, silver prices, trading gold, trading silver, world currency

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Thursday, July 28, 2011

Expect $85 Silver, says Legendary Market Technician - Beacon Equity Research

As Asia continues to report soaring CPI statistics, with Vietnam’s 22% inflation rate as the most recent evidence of the Fed’s QE2 “liquidity” rippling through the world’s economies, legendary technician Louis Yamada told King World News (KWN) the precious metals are set to takeoff again as a result of Bernanke’s monetary actions.

Yamada’s fame as the market technician with a track record of “getting it right,” began as director and head of technical research at Smith Barney (now of Citigroup (NYSE: C)).  After being voted as the leading market technician in 2001-2004, she went off to found her own research group, Louis Yamada Technical Research Advisors, in 2005.

“Gold continues to be in an uptrend in our work,” Yamada told KWN.  “You had a little bit of a consolidation, seasonality would suggest a rise into the fall. The primary support level remains at $1,475 … Our next target is $2,000, and we did a gold special in our last piece that suggested from a very long-term perspective … we could see $5,200 on gold.”

Yamada is the latest of a raft of highly credible analysts, money managers and bullion dealers coming out during the past two weeks to tell KWN and other news organizations of the imminent explosion in the price of precious metals.  James Turk, Jim Sinclair, John Taylor, Ben Davies, John Embry, Peter Schiff, and Jim Rogers (who announced he is adding insult to injury to the U.S. dollar fiasco by shorting U.S. Treasuries) have all advised to go long the anti-dollar trade.

The lone hold-out of considerable import to the precious metals market is Marc Faber, the favorite go-to guy for the most steamy of quotes and anti-establishment rhetoric of all hard money advocates.  His forecast for this summer is for the monetary metals to succumb to the 30-year track record of weakness and relatively thin volume.

As gold makes new highs above $1,600 and silver makes its way past $40 amid a fierce “250 million ounces of silver in 1 minute” smack down attempt by the cartel last week, according to Precious Metal Stock Review’s Warren Bevan, the majority of our favorite talking heads, so far, have it right, and Marc Faber has it wrong.  But the summer isn’t over yet, and Faber hasn’t budged from his forecast for the metals.

Yamada, who, incidentally, didn’t offer a time frame for her targets for the gold and silver price, said her next target for silver is for a double “over time” from the $40 print.

“We hit part of our silver targets at $50, (expect) $65, even $80, $85 over time,” speculated Yamada in the KWN interview.  “We had an 88% rally in a very short period of time from January and a one third retracement, 34% down, so that was pretty normal. We saw some support at $33 and would loved to have seen it go sideways a little bit longer to be honest with you,” noting considerable dollar weakness in light of the  sovereign debt crisis with the PIIGS of Europe has revealed the dollar’s diminished status as the world’s safe haven currency.

“I think that one of the observations that one has to take into consideration is that with each of the Euro financial crises and our own financial crisis in 2008 to 2009, the dollar has rallied less!” she said.

“In other words you had a rally in 2009 that carried 25%,” Yamada explained.  “Then, in early 2010, the rally was only 19%.  And the second one in 2010 was only 7%.  And this time, you haven’t even seen 7% with the crisis that has evolved.  So that suggests to us that it (the dollar) is becoming less and less considered a really safe haven.”

While the systemic problems with the euro and dollar come fully into focus, we should be mindful of U.S. Treasury Secretary Tim Geithner’s recent comment on Meet the Press of July 10, when he said, for a lot of people, “it’s going to feel very hard, harder than anything they’ve experienced in their lifetimes now, for a long time to come.”  Bloomberg reported that Geithner may step down from the head of the Treasury.

As of 12:36 in New York, gold trades at $1,612.79 and silver at $40.05.

Tagged as: ben davies, federal reserve, gold prices, James Turk, jim rogers, Jim Sinclair, john embry, john taylor, Marc Faber, peter schiff, precious metals, silver prices, Timothy Geithner, trading gold, trading precious metals, trading silver, u.s. economy, U.S. Treasury, value of american dollar, warren bevan

Investing in Gold: An irrational exuberance? - Forbes (blog)

It is official: gold is an asset–a store of value, as chairman Ben Bernanke explained to Senator Paul Ryan. But how good of an asset is it?

It depends on two factors: First, on the prospect of economic outlook, especially on inflationary expectations—gold is a hedge against inflation. Second, on how bad other assets, such as stocks, bonds, especially those denominated in dollars that has been falling like a stone, since the Federal Reserve launched its two rounds of Quantitative Easing; and on how bad assets of heavily indebted countries like those of Southern Europe—gold is a hedge against sovereign debt risks.

It comes as no surprise, therefore, that investors around the globe have been reaching for the shinning metal to add some luster to their portfolio—sending its price soaring. SPDR Gold Shares (NYSE:GLD), for instance, has gained 20 percent in one year, 50 percent in three years, and 100 percent over five years—with analysts coming up with all kinds of wild guesses, 2,000 by the year’s end and 5,000 within the next three years!

Does it sound familiar? Remember predictions about Dow 20,000, 30,000 or 50,000 in 2000? Investors who buy gold as a hedge against sovereign debt, should be reminded that governments have the power to cut spending and raise taxes—it is called fiscal austerity; and credit markets will force them to do so, whether citizens like it or not, as has been the case throughout Europe. Credit markets will further perform what central banks aren’t willing to perform, unwind quantitative easing, pushing long-term rates to the levels where they should be given the size of sovereign debt—it is called monetary austerity. Politicians may lose elections, central bankers may come and go, but institutions won’t collapse.

Investors who buy gold as a hedge against inflation should be reminded that fiscal austerity and higher long-term rates will push a weak world economy into stagnation, even a recession that hardly provide a bullish scenario for gold.

The bottom line: Gold isn’t an asset for all seasons. When financial analysts argue so, it is time for prudent investors to stay on the sidelines or even take the other side of the trade.

Disclosure: Short on Gold

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Risk Investing from Myanmar to Florida - Business Insider

“Why don’t you move to Myanmar for six or eight months,” a friend suggested a few months back. “Seriously. You go down there, get a feel for the place, buy a bunch of beachfront real estate and wait for the military junta to collapse. It’s a long term play, sure, and it’s pretty speculative. But it’s not as crazy as it sounds, really.

“Vietnam and Thailand have long been exposed to the region’s tourism industry,” he continued. “They’re already developed, more or less. But the real bargain in that part of the world has got to be Myanmar. It has an enormous coastline and, unlike Vietnam and Thailand, dynamite fishing hasn’t destroyed the coral reef there.

“There are literally hundreds and hundreds of miles of pristine, untouched beaches. It’s truly paradisaical…and paradises usually don’t stay untouched forever. Someone eventually comes in and makes good for the place. Then prices really go through the roof. Play it right and you could end up sitting on the next Phuket, the next Nha Trang. An entrepreneurial individual could really clean up. Think about it.”

We recalled this advice yesterday, while talking to another mate here in Vancouver. Our Vancouver friend was telling us about a real estate bargain in another risky part of the world: Florida.

“Four blocks from the beach…in Delray…three bedrooms…$75k,” he told us. “And there are plenty of others just like it.”

“Sounds like a bargain,” we replied. “But do you really want to dive into the US real estate market? Now?”

“In all honesty, I think we could see another ten, maybe fifteen percent drop in housing. But in places like Florida, like Nevada and Arizona, where prices have already come down so far, a drop of that magnitude isn’t going to break the bank.”

Good point. Depressed real estate in certain key parts of the US might offer a pretty attractive risk profile for property speculators. How far can a $75k house fall, after all? Provided you’re not loaded to the hilt with debt, provided you can cover up front expenses, settle in cash, a little bottom fishing might be a reasonable idea. Who knows?

But what do Burmese beachfront lots and Floridian vacation homes have to do with investing, you’re wondering? Quite a bit, actually. In many ways, it cuts right to the heart of this year’s conference theme – Fight or Flight: Your Capital at Risk. Do you stick it out at home, dig in your heals and “fight.” Or do you pack up your belongings and head for some exotic, dynamite-free zone abroad? Where’s the risk…and where’s the opportunity?

“I’m from The People’s Republic of California,” announced Rick Rule, perennial favorite at the Agora Financial Investment Symposium, from the podium yesterday. “You think there’s no political risk there? Or how about Australia, where they’ve decided that companies that invest decades of time and capital into bringing resources to market, often during periods of marginal profitability, must now pay windfall profits taxes for the privilege of doing business there. And that’s on top of all the usual taxes and bribes they must already pay there.”

Rick was making the simple but important point that risk profiles change over time. Places that were previously thought of as “safe bets,” as “market friendly,” may not be as safe and friendly as they first appear. These places would include Australia, much of the US and, as Rick put it, “Albertastan” here in Canada. Conversely, many frontier markets offer opportunities most people will never take the time to investigate.

Doug Clayton, managing partner at Leopard Capital, echoed Rick’s point. Doug looks for opportunities in markets few people bother considering. He offered four “sunrise” economies in his presentation. All have attractive demographic trends, boast robust national resource profiles and offer cheap labor. And they’re all growing at about two or three times the pace of the world’s “developed” nations.

Doug made the case for, wait for it…Bangladesh, Haiti, Cambodia, and Ethiopia. Sound crazy? Good, Doug says. Who wants to buy into a popular market anyway? Isn’t that the whole point of investing, going were most fear to tread, getting in early and then cashing out when the herd arrives? Food for thought…

“So you’d spend a few months of the year in Delray?” we asked our mate.

“That would be the idea, yeah. We’re just looking at the moment, but there really are some attractive deals. We’ll see, I guess.”

“Worst case scenario,” added his wife, “we’ve got a vacation home in Florida, right by the beach.”

“Not terrible,” your editor agreed. “But tell me, have you thought about Myanmar?”

Joel Bowman
for The Daily Reckoning

Risk Investing from Myanmar to Florida originally appeared in the Daily Reckoning. The Daily Reckoning provides 400,000+ readers economic news, market analysis, and contrarian investment ideas. Follow the Daily Reckoning on Facebook.

'Suspending Investing' Best Reaction to Debt Crisis: Bove -

Dick Bove

Until Washington resolves its debt ceiling impasse no investments are safe and investors should shed all positions in the stock market, banking analyst Dick Bove said Wednesday.

Bove, the Rochdale Securities analyst who has launched a series of stinging criticisms over the inability of Congress to get a deal done, writes in a note to clients that the increasing likelihood of no deal will have severe repercussions.

As such, he says, there is no safe-haven investment at the moment.

"It now makes sense to test the unthinkable," he writes. "Thus, for the moment I would suggest suspending investing since all stocks are likely to fall."

Bove, who was on CNBC Wednesday night, told the network earlier this week that if the debt impasse pushes up borrowing costs, the ripple effects will be severe—especially housing and banks.

Republicans and Democrats are battling over what conditions should be attached to raising the $14.29 trillion debt ceiling. The battle is between a longer-term deal that the Democrats seek against a shorter-term solution proposed by some Republicans.

Those interests have come up against those on the far left who want tax increases attached to the agreement, while Tea Party Republicans want greater spending cuts.

Bove says the tug-of-war will cause investors to lose.

Foreigners are trying to "disassociate" their holdings from the U.S., a lesson made clear to him during an interview he did on China Radio Tuesday night.

"Investors worldwide may actually be horrified that the only safe haven at the minute is short-term Treasurys and bank deposits backed by the FDIC," he says. "The contradictions here are enormous."

Bove calls for a new "safe haven" for investors as both stocks and bonds sell off.

He rejects gold because it "is too illiquid and there is not enough of it," quickly rising Swiss francs because the government will "stop the inflows to that nation to protect its economy," the euro because Europe has the same problems as the U.S. and the dollar because the U.S. "can no longer be counted on to be fiscally or financially responsible."

"Many options are likely to be experimented with until the new global financial configuration is arrived at," Bove writes. "Investors must be attuned to how this new financial era will be shaped and invest accordingly. Right now, however, they must protect themselves by remaining liquid."


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Wednesday, July 27, 2011

Property bubble spurring China's growth: James Chanos -


Ten years ago, James Chanos made the first substantial bet that energy giant Enron was on the brink of financial ruin. He proved bang on target. His latest prediction is that the Chinese real estate market is headed towards a similar fate. Mr Chanos is the founder and president of the hedge fund Kynikos, which means ‘cynic’ in Greek. His firm manages roughly $6 billion and specializes in investments against assets that it considers overvalued, which means short selling in the financial lingo.

Here is the complete transcript of Mr Chanos' exclusive interview with NDTV's Prashant Nair.

NDTV: You have been famously shorting 21st century's greatest economic story. Do you still believe that 'China is on a treadmill to hell'?
Mr Chanos: Well, the 21st century is only about one-tenth through. So far, it’s the story of the 21st century. Look, China is a very dynamic country. It’s going to be a great power. It’s been a great power. But that doesn't mean, there can't be some pretty major speed bumps along the way. And I think that we are probably looking at a very very large pot hole -to mix a metaphor in that. China in the past few years is increasingly relying on a property bubble to spur its GDP growth. And I think that's going to be problematic going forward for not only China but possibly countries in the region as well as countries that export to China, particularly industrial commodities.

NDTV: From the time you started calling China's property/construction led GDP boom a big bubble, the government & the central bank has acted. Do you still believe China is a story of 'overheating and overindulgence'?
Mr Chanos: I think that they have tried to tamp down the property growth. But in fact, the fixed asset investment as a percent of GDP is actually still increasing ironically. So as much as they try to tamp down the price increases in the property market and try to restrict mortgage availability, it appears to be popping up elsewhere. And much of this is due to the fact that there are two governments in China. There is the central government in Beijing which is desperately trying to cool off inflation and cool off the property market. But then you have the local governments, who are in bed with the developers, and who basically sell land to joint ventures increasingly backed by risky debt as we now know in order to fund these real estate ventures. And I think that's the problem. They are still going, as we say, pedal to the metal. They are going full bore at the local level while the central authorities are trying to restrict the growth out of Beijing.

NDTV: Ok, if we are talking about the debt bomb, when does China's bubble burst? You had called for the unraveling by 2011-end and we are pretty much there. Would you want to put a new timeline?

Mr Chanos: Well, look China has been despite what some of my critics say, China has not been a bad place to be a bear in the last year and a half. The Chinese market over the last year and a half is down. The property developers and banks, which we were primarily short, are down. Most western markets with the exception of Spain and a few others are up over that time frame. Certainly the S&P 500 is. So if you are a bear China has not been a bad place to be hanging out for the past 18 months. I want to clarify that. Second of all, a year and a half ago people pooh poohed the fact that there was even a property bubble. I mean, there was...I was attacked for not speaking Mandarin...for never having been to the mainland. And as I pointed out, no length of residency or number of visas can compensate for a lack of judgement. There were plenty of Miami natives who lived in Florida their whole lives, who lost everything in the Florida real estate bubble bursting. So, I think again a lot of people attacked me...but not the argument. As 2010 has moved into 2011, I think it’s becoming a little more obvious to the mainstream press that there is a bubble. And the question seems to have shifted, not is there a property bubble, but what do we do about it. And does it deflate gently or does it pop.
NDTV: Your timing on Enron, Tyco and the subprime crisis has been impeccable. So, do you think in the next ten years or so, we might get to see a big change in the world economic order? If it happens - what do you think we are looking at?

Mr Chanos: The challenge for the Chinese government, as for a lot of developing economies, is to transform from primarily an investment led economy to a consumer led economy. And that is what everybody is counting on. The problem with that argument is that it’s been made for years now and consumption as a percent of China's GDP is declining, not increasing. And so I think they are going to get there but I think there is going to be some pain along the way. And as all great developing economies including the USA in the 19th century and early 20th century, I mean those are histories of booms and busts. It’s often led by capital investment where investors get wiped out and a whole new group of investors come in and the economy continues to progress. And that's my only caution here. China might do very well. But western investors in China might not do very well. As a famous historian quipped to me fairly recently, he said, boy, the only westerners who have got their money out of China were the 19th century opium dealers and they had the Royal Navy behind them. And there is certain truth to that.
NDTV: If the Chinese bubble bursts, how do you think commodity prices will pan out?
Mr Chanos: Well, I would tell your viewers in the iron ore market back in India to lock in whatever they can. I think, for example that industrial commodities it’s no secret that India along with China is probably on the margin the largest driver of demand. And it’s all due to the construction boom. So things like copper, iron ore, to some extent steel, these are all being buoyed by the construction boom in China. And you know what we know about these things historically is that there is no gradual end in demand. The demand just ends and falls off a cliff. And so you know, I think it behooves the commodity makers to try and lock in as much as they can. But you know, will their contract be held unviable. Who knows? As they say, with construction going full bore and the amount of commodity production that is now gearing up to meet that construction, if that ends at some point or even begins to decelerate reasonably well, price drops could be enormous in some of the commodities.

NDTV: Gold is consistently making record highs. Is it the only safe investment in current times? How much of a precious metals bull are you?

Mr Chanos: Well, I notice you said investment and not money, and that was the big controversy last week with Mr Bernanke. No, we don’t have a view on the gold market. That's a monetary phenomenon. And it’s hard to analyse the sentiment. We are doing work on the Chinese property market and deriving our investment ideas on the short side from that, which we can analyse. I can’t really analyse all the factors in gold. I'll leave it up to someone else.

NDTV: Mr Bernanke talks up QE3 and then talks down QE3 just a day later. Where are you on the QE3 fence? And how do you make money from it?

Mr Chanos: Well, you know I was one of the few democrats who signed that letter back last November criticising QE2 and I criticised for different reasons. I think the other signatories, because I think all of this talk of QE2 and QE3 continues this belief amongst investors- and its worse in China by the way- that some sort of governmental authority will always be there to make the right decisions or better your bad decisions, as we saw the property bubble in the west. I mean the Fed Reserve did not see this coming and consequently, I mean everybody counts on whatever tools have worked in the past - printing of money or QE whatever you call it - to work in the future but the problem is when you telegraph policies, people tend to get their financial house in order to offset whatever impact whatever those new policies will have and I think that you know Mr Bernanke is trying all the tools he can but if people don’t lend him money, then it’s going to be very tough.

NDTV:  Marc Faber recently quoted you saying that Jim Chanos always says China is Dubai times a thousand. In his view, US is Greece times a thousand. What do you make of the debt deficit and the threat of a US default?
Mr Chanos: Yeah, I am not the one to argue with that though Mark is a good friend and you know he is right in that one of the great accounting frauds is that of government accounting. I teach a course on history of financial frauds in Yale and my last lecture is what I call Crossing the Ethical Rubicon from the private sector to the public sector and how governments - and in particular the US government - keep their books. If corporations keep their books this way, they would all be in jail. And in the US' case, it is due almost entirely to the fact that we do not keep our medicare promises on the financial books. So when we incur medical promises to our retired people in the future and health care costs go up, a corporation has to actually calculate that and make a best guess and put it in its books as an expense and a liability. Governments don't do that. And so I give you a good example, last year the US deficit was $1.3 trillion roughly. If you take some inter-government transfers amongst them, the deficit was $1.6 trillion under the government's cash basis book keeping, but if you looked at what the accrued deficit was, the actual economic liabilities we incurred against revenues, it was actually north of $5 trillion and rather than $14 trillion of US government debt, we really have is something north of $60 or $70 trillion and that would be a debt level 5 times the US GDP. So, these are real issues and when people talk about the deficit being a long term threat this is what they are talking about the amount of IOUs piling up in Western Governments for long term promises. In the US' case, it is health care.

NDTV: So, do you see the threat of a US default?
Mr Chanos: Look, no matter what happens, the payments are going to be made come early August but I think that the issue is going to be how do we restructure US' liability and get a sneaky default. I noticed in the latest proposals yesterday that they are talking about changing the consumer price index. Millions and millions of Americans get their cheques based on the consumer price index inflation. Their benefits are indexed on that but they are now looking at a different index which of course you guessed will bring the consumer price index down and that is just a simple back door way of inflating your way out of the problem. So the history, you had mentioned the gold market earlier and again we are not macro thinkers but I am a bit if a financial historian and financial history tells us that when faced with either depression or inflation, government have almost always tried to inflate their way out of their debts.

NDTV: Your firm's name is Greek for cynic so I have to ask you are you 'Kynikos' on Greece and the PIGS? And what is your opinion about the bigger Eurozone economies like Italy and Spain coming under the radar?

Mr Chanos: By the way, the cynics in ancient Greece were held in high regard as people who pursued disciplined independence of thought in a democracy and didn’t take on face value what others told them but inquired themselves, but if you apply that to Europe- the Greece situation- I am pretty familiar with if we don’t know trade sovereign CDSs so my views are simply that of an observer and not an investor but i do think that the recent stress test results that we had was that an enormous amount of data was dumped into the market and it became very apparent that the exposures for some of these banks, if you include commercial loans and mortgages, to the so called PIGS was rather dramatic and again we are getting back to the accounting tail wagging the economic dog The EU regulators going to let the banks hold this paper at fictitious levels. Whether there will be recoveries, if somebody does default? I mean, it almost looks increasingly, like my country men in Greece are going to have to restructure something. Does Greece and Portugal…do they leave the EU...or as someone wrote in London this week, does Germany leave the EU which might even make more sense and let the others keep a Latin-EU currency block. I don’t know, I don’t think anyone knows right now. I don’t think the Europeans know.
NDTV: Is the Euro the biggest short in history?
Mr Chanos: No, no...I don’t believe that the Euro is the biggest short in history. I think there are far better shorts in history but I think again because it again depends on what you get if the Euro dissolves. You are going to get different currencies - somewhere, something -some worthless, some more so... Am not too sure that is a cut and dried thing...

NDTV: In your case, when it comes to India, I don't want to even hear if you like India. So what is your opinion?
Mr Chanos: Well, the good news is I don’t like India from my perspective. We are not short on India and things in India. We are hands full with neighbours of India to the north and east. India is a much more vibrant economy and a much more balanced economy. It does have its successes, it does have its needs, but it also has - from my perspective - a rule of law and a respect for contracts and then there is something for sure that is lacking in China that western investors keep finding out with these frauds that keep being uncovered. So, as an investor sitting in New York and London, I would much more be apt to look at it as an intriguing opportunity in India than in China.

NDTV: So, at some stage could you cover your China shorts with India longs?
Mr Chanos: I don't know that they are going to be correlated but it’s certainly a thought, we will leave it at that.

NDTV: What about the emerging markets basket. Are you seeing shorting opportunities there?
Mr Chanos: We are seeing lots of one off ideas in the emerging markets. A lot of companies get floated with very questionable governance issue. There are some companies in Central Asia that we are short and where the western shareholder is going to be in after. Though when it comes to activities and delusion and pay outs and where the accounting looks sketchy at best. I don’t want to give names but there is plenty to do in the emerging market.

NDTV: One final question. Do you believe the 2008 financial crisis was the worst we will ever see in our lifetime? Or is another just around the corner?
Mr Chanos: I don’t know if another one is just around the corner and I think your lifetime will be longer than mine I am guessing given this severity of this crisis keep getting bigger and bigger and we don’t seem to do much about the underlying causes and government guarantees which give rise to moral hazard - both in the East and the West. And, we don’t seem to want to have an honest accounting of our affairs as I have indicated, the private sector to the public sector my guess is that the critics will over time keep getting worse until we finally get a major one that makes us revalue our systems and stops benefitting financial sector to the detriment of the rest of the economy and that hasn't happened yet.

View the original article here

Probably gold is today very inexpensive...

I just calculated if we take an average gold price of say around $350 in the 1980’s and then we compare that to the average monetary base in the 1980’s, and to the average US government debt in the 1980’s...but if I compare this to the price of gold to these government debts and monetary base, then gold hasn’t gone up at all. It’s gone actually against these monetary aggregates and against debt it has actually gone down. So I could make the case that probably gold is today very inexpensive... -in Business Insider

Tuesday, July 19, 2011

James Turk: just “several more days of silver in the 30s” - Beacon Equity Research

With silver and gold rallying strongly against the tide of the risk-off trade, bullion expert James Turk forecasts that silver is about to launch into the 40s, as more nervous investors come to terms with the inevitability of further devaluations and/or sovereign defaults, forced upon the world’s central banks by investors and weak politicians.

“One never knows exactly how the markets will unfold, but my sense is that we only have several more days of silver in the 30s,” Turk told King World News. “Once silver clears $38 on a closing basis, you are going to get back into the mid 40s in a heartbeat.”

Turk, the founder and president of overseas precious metals storage firm has warned long ago of the events playing out in Europe today, so his words carry significant weight among the bullion community.  The timing of his call back in January for silver to reach $50 by June 30 was considered reckless and daring at the time.  But history has proved him correct.  Silver reached an intraday high of $49.70 on May 2, just pennies shy of $50 and a month sooner than he expected.

Recently, Turk (along with another PM giant, Jim Sinclair) has differed with another hard-money advocate, Marc Faber, on the direction of precious metals prices during the months of July and August.  Faber expects the precious metals to meander in the hot summer months, which is a bet that the long-standing historical record of weakness during that time is most likely.  On the other hand, Turk anticipates a repeat of 1982, the year of the Mexican peso devaluations.

“The action in gold and silver so far this summer indicates to me that this is in fact poised to be explosive on the upside,” Turk explaind.  “Nobody is talking about this, but it could be a reality in short order.  Here it is nearly 30 years after the breathtaking summer of 1982, and history is about to repeat all over again.”

Turk’s battle with Marc Faber in the fight to be right on the outcome of precious metals during the summer months favors Turk, at the moment.

Gold and silver took center stage during the flurry of bullion-friendly news coming from both sides of the Atlantic, yesterday.  The timing of the news releases from both sides of the Atlantic seemed contrived, timed and salvo-like, as the dollar and euro battle it out in the race to cut sovereign debt loads through currency devaluations.  Gold reached new highs in the euro and new closing high in dollars.  Overall, gold was the winner in the scramble out of euros.

Tuesday’s news of widening spreads between the German and Italian 10-year notes, as well as soaring CDS pricing of Italian debt; an IMF warning launched by the new French (but Ameri-centric) chief, Christine Lagarde, at Italy, chiding the Italians for dragging its feet on implementing its own austerity plan; Moody’s downgrading Ireland to junk; FOMC minutes release, which strongly hints at the possibility of further stimulus from the Fed is coming; the posturing war that’s broken out between Democrats and Republicans over the U.S. federal budget; and the timely strengthening of the Japanese yen to save the day from a dollar breakout of 76 on the USDX have demonstrated the desperation among the officialdom and the equally fearful investor who searches for a truly safe haven.

“Eric this is the start of the next big leg higher in the precious metals,” suggested Turk.  “We’re at a new record closing high in gold today, that is extraordinary considering it is happening against the headwind of a stronger dollar.  There is an important message here, Eric, money fleeing the Euro is not just going to the dollar, it’s flowing into the metal of kings.”

As the public enjoys summertime vacations and respite from the daily slew of bad economic and political news, Turk sees the investor public mostly unaware of the theft of purchasing power currently in progress.  But for the precious metals stalwarts and recent converts, this summer could be a very profitable one.

“People are recognizing that the only true safe haven is the precious metals,” said Turk.  “There are still so few people talking about gold and silver having an explosive summer.  The only place I’ve heard it is on KWN.  The fact that there is still so little bullish sentiment just reconfirms my view that gold and silver are ready to rocket higher.”

It will be mighty interesting to see if silver does indeed exceed $38, and if an assault on the May 2 high is in store for the silver faithfuls.

3 Gold Stocks to Watch: AngloGold Ashanti (NYSE: AU), Goldcorp Inc. (NYSE: GG), Kinross Gold Corp. (NYSE: KGC)

3 Silver Stocks to Watch: Silver Wheaton (NYSE: SLW), Coeur d’Alene (NYSE: CDE), Helca Mining (NYSE: HL)

Tagged as: AU, CDE, falling gold prices, falling silver prices, GG, gold prices, gold stocks, HL, investing in gold, investing in silver, James Turk, KGC, mark faber, rising gold prices, rising silver prices, silver stocks, SLW

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While all information is believed to be reliable, it is not guaranteed by us to be accurate. Individuals should assume that all information contained in our newsletter is not trustworthy unless verified by their own independent research. Also, because events and circumstances frequently do not occur as expected, there will likely be differences between the any predictions and actual results. Always consult a real licensed investment professional before making any investment decision. Be extremely careful, investing in securities carries a high degree of risk; you may likely lose some or all of the investment.

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Monday, July 18, 2011

Investing in America's Growing Assets: Minorities - Huffington Post (blog)

How will America's economic portfolio change in the next few decades as we race toward 2050 when racial minorities are expected to emerge as the majority of the U.S. population?

Investing today to uplift America's minority students and innovators seems prudent.

Unfortunately, the excitement and energy of a nation that elected its first Black president a few years ago has dissipated. Did we expend all of our energy just to elect him to the office with none left over to do the necessary work?

I was hopeful such an election would translate into changes in the education system that routinely relegates poor black and brown students to lives upon a conveyor belt of chaos and confusion, where the American Dream is an elusive nightmare.

I was hopeful the infrastructure of private risk capital (angels and venture capitalists) would be expanded to include minorities. Unfortunately, both Whites and non-Whites seem to have relegated the president to the single-handed task of removing significant economic obstacles that block productive progress for millions of minorities.

I don't know where the notion was conceived that the election of a Black leader would, in an instant, mitigate the economic imprisonment and wealth gap established by institutions of oppressive policies and practices that have remained from post-slavery to this presumed "post-racial" era.

We should recognize the fact the election of President Barack Obama is a precedent-setting anomaly lacking the infrastructure of support necessary to make Obama's historic leadership much more than a first step in the right direction.

I've heard the premise that we live in a "post-racial" America where the presumed dying embers of red-hot racism that fueled the production of an economic foundation and built this nation's institutions upon the backs of slave and low-cost labor for centuries is only kept alive today by those with a victim mentality who continue to rant and rave about racism.

My response? Follow the economic data.

The main economic categories that offer insight into a significantly divided Black and White America are simply: education and jobs.


There's no need to belabor criticism of the failed system of public education, which services 50 million American students and dispenses disparate results along racial lines readily seen when relevant data are reviewed.

Consider that 87 percent of eighth-graders in high-poverty schools are not proficient in math. 88 percent are not proficient in reading.

The data indicate another economic crisis is set to hit the nation in 2015. Millions of unqualified students will flood the job market unable to obtain livable wages and engage in productive work.

What will become of these masses of minorities in whom the nation has failed to adequately invest?


On July 13, a coalition of more than 4,000 Black pastors released an open letter they signed and submitted to President Barack Obama petitioning to halt budget cuts that would negatively impact programs serving the poor.

As Christian leaders, we are committed to fiscal responsibility and shared sacrifice. We are also committed to resist budget cuts that undermine the lives, dignity, and rights of poor and vulnerable people.

The group, which calls itself Sojourners, made this specific point pertaining to the allocation of government resources:

A fundamental task is to create jobs and spur economic growth. Decent jobs at decent wages are the best path out of poverty, and restoring growth is a powerful way to reduce deficits.

The compassion on display by the pastors is honorable. Unfortunately, no data suggests that government has ever been the answer to the employment problem for Black Americans in any substantive way. In fact, the data suggest just the opposite:

Since the days of Dr. Martin Luther King's call for jobs from the steps of the Lincoln Memorial in 1963 to this very day, unemployment among Black Americans has remained nearly double the overall jobless rate every year in a pattern so consistent that it is the focus of discussions and debates among those who have knowledge of the data.

"Job growth is going to be driven by the private sector but we can make some smart decision to encourage businesses to feel like this is the right time to invest and that America's the right place to invest," President Obama told the 26-member job council he formed in January 2011 with a goal of creating one million jobs.

Historically, no such institutional investment focus has targeted regions predominantly dominated by African Americans. Historically, White American business owners have been reluctant to employ Blacks; and diversity, which receives some lip service, isn't high on the priority list for leaders in White corporations and White-owned small businesses that dominate America's job market.

Need for Private Risk Capital

The Census Bureau's most recent stats on 1.9 million Black-owned businesses reveal the vast majority are sole proprietorships; and of those with employees, very few have more than 100. Add to that fact the total gross revenue of all those businesses was $137.5B in 2007 ... before the economic recession.

The revenue generated by all Black-owned business is less than 1 percent of GDP.

The National Venture Capital Association boasts venture-backed companies produced $2.9T. That revenue amounted to 21% of the nation's $14T GDP in 2008. Compare that to Asian-owned businesses that produced $2.5T and employed half of all employed minorities in the nation.

Black Americans have no such risk capital infrastructure.

Angels and venture capitalists across the nation focus their investments on targeted regions. The private risk capital infrastructure, currently 65 years old, has largely ignored Black America, relegating innovative minority entrepreneurs to bootstrapping enterprises that lack the capital to move beyond the bootstrapping phase.

Even Startup America, a national collaborative venture endorsed by President Obama to support innovation and spur job growth, has yet to provide a plan by which it will assist Black America's innovators who lack the infrastructure of business incubators, accelerators and connections to private risk capital. The options provided by Startup America make assumptions that do not address the challenges facing Black entrepreneurs, thus indicating a strong need for minority representation amongst the decision-makers presiding over partnerships and investments.

For Black Americans, Hispanic Americans, Native Americans and other racial demographic societies that have been oppressed or ignored by the main power structure, the answer is we must invest in ourselves.

As minorities continue to grow in number, but lack authority and economic power, it is vital that investments in the education of our children are sufficient to adequately prepare them to become both qualified job seekers as well as innovative job creators. We need strong minority leadership in the 21st century that will emerge from those cohorts in whom we invest today.

Investing In America's Future

We need more organizations such as these that invest in minority youth and the future of America:

Usher's New Look Foundation:

Usher Raymond IV is teaching youth entrepreneurial skills and global leadership with impressive results. His foundation, UNL, has developed a formula that shows every dollar spent generates 43 times return on investment. UNL hosts it Annual World Leadership Conference on July 20th in Atlanta and will honor Ted Turner among other leaders.

"We're teaching youth about the world," says Shawn Wilson, UNL's president. "That's how we make them stronger -- by taking them outside the classroom, even overseas, to introduce them to new paradigms. We broaden their vision by exposing them to global issues. We help them think outside of the box to seek global solutions."

Level Playing Field Institute:

Promising high school students from poor backgrounds are often prevented from realizing their potential solely due to lack of economic resources. The Level Playing Field Institute's Summer Math and Science Honors (SMASH Academy removes the financial problem and changes the equation. Currently, servicing 80 students on each of the campuses of UC Berkeley and Stanford University, SMASH is gearing up to expand across the nation and service students nationwide.

Students spend three consecutive summers in 5-week immersive environments with top instructors. SMASH boasts 100 percent of its students are accepted to four-year universities, the vast majority majoring in a STEM field.

"We shouldn't be thanked for doing what we do," says Level Playing Field Institute founder Freada Kapor Klein, "It should be a non-issue. These are incredibly talented, ambitious, wonderful kids. There shouldn't have to be anything special for them. They should be in institutions that recognize and reward their talents. And they're not. Our educational institutions aren't set up that way. Our workplaces aren't set up that way.

"Being a real meritocracy is hard work. Let's get on it!"

We're racing toward the year 2050. It's time to invest in those promising minority students and talented innovators who have failed to receive our focus and investment. After all, at the rate minority populations are growing, they represent the next generation of America's leaders building the American Dream of the 21st century.

Follow Mike Green on Twitter:

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Marc Faber Sees Substantially Higher Gold Prices Over the Next 5-10 years ... - Lew Rockwell

Marc Faber the Swiss fund manager and Gloom Boom & Doom editor doesn't see a large downside risk for gold. He believes US politicians will come to an agreement over debt and the US will not default.

Speaking in a phone interview from Thailand with CNBC's Worldwide Exchange on Thursday, Faber said: "The risk for investors is not to own any gold".

While predicting that there will be fluctuations, he stressed: "I don't see a huge downside risk for gold, let's say maybe 10% or so".

"I rather see that over the next 5-10 years we will have substantially higher gold prices, or expressed differently, lower purchasing power of paper money," Faber added.

Reiterating his position on holding cash, he said that under a rigid monetary system, with gold as an anchor, cash would be a riskless asset. However in today's environment of printing money, cash is "actually very risky except when asset markets correct on the downside".

Asked by Christine Tan, the CNBC Worldwide Exchange anchor, how real was the possibility of a default in the US, Faber said the US will not default "in terms of not paying the interest on the government debt".

"They will default in terms of paying the debt and the interest with depreciated or worthless dollars," he clarified.

Ratings agency Standard & Poor's warned Thursday there is a one-in-two chance it could cut the United States' prized AAA credit rating if a deal on raising the government's debt ceiling is not agreed soon.

John Chambers, the chairman of S&P's sovereign ratings committee, said "this is the time" for the two sides to tackle the country's long-term debt problems.

"If you get a small agreement, that will lead to a downgrade," he told Reuters in an interview.

A downgrade could raise borrowing costs not only for the United States but also for loans that use the Treasury rate as a benchmark.

So, can US politicians come to an agreement?

"Yes, I think they will somewhere, somehow come to an agreement or they will fiddle around with the debt ceiling or invoke the Constitution whereby the President, in a special situation, can actually increase the debt of the US," Faber told CNBC's Christine Tan.

View the original article here

Investing | What to do as the debt debate burns - Louisville Courier-Journal

You're walking across the street, minding your own business, when you look up and see a truck bearing down on you. Suddenly, you realize there's a good chance it won't stop. What do you do?

Investors are getting a similar feeling of impending doom as the deadline for Congress to raise the debt limit approaches.

The overwhelming likelihood is that Congress will eventually act and the U.S. government won't default. Until it does, you can expect increasing volatility in the markets. If you're tired of the roller coaster, consider moving some ? not all ? of your portfolio into short-term money-market securities or bank accounts. You should have enough cash available for your short-term living expenses, anyway.

Can you hedge against default?

?Probably not,? says Harold Evensky, a financial planner in Coral Gables, Fla. ?There are so many potential consequences. Even if you buried it in the back yard, you'd have problems if inflation went through the roof.?

So what's an investor to do?

The traditional cure for the roller-coaster ride in the stock market is diversification: bonds, both corporate and international, as well as money market securities, or cash. And some investments might even do well as the markets get jumpy:

Invest in volatility. Several exchange traded funds base their prices on movements on the Chicago Board Options Exchange Volatility Index, known as the VIX.

Invest in the bears. You can also buy ETFs that rise when the stock market or bond market falls.

Invest in gold. Gold isn't cheap and has been on a 10-year bull market run. But as fears of a slide in the U.S. dollar increase, it becomes increasingly attractive.

Of all the options for nervous investors, cash is probably the most palatable ? and safest ? for investors in the run-up to a default. But even cash can be problematic.

For most people, cash means a money market mutual fund.

In a default, however, money funds might not be the best bet. They aren't insured by the federal government. And they have about 15 percent of their assets in Treasury bills. Others use T-bills as collateral for repurchase agreements ? complex short-term loans.

You also could miss an enormous relief rally if the debt crisis ends well.

View the original article here

Investing in Gold: Inflation — A two sided coin for gold and silver - Nevada Appeal

With the feds locked in battle over what to do with our surmounting budget crisis, one word that seems to be creeping into vogue again is inflation. For gold and silver, it appears that new and greater prices will most likely soon be achieved. So what does that mean for the precious metals arena?

On the top side of the coin, if a person has gold and silver and a wish to sell, they will be obtaining record prices for their material. With gold prices higher than $1,500 it has already nearly doubled the old high of around $800 in 1980. Whether one has gold coins or just old gold jewelry, if they want to sell now it is bringing more than ever in our history.

Silver is pretty much following the same path, except that in 1980 it was pushed artificially high because of the Hunt brothers. Even with silver in the $35 range, the public is generally receiving more now than it did even when silver hit $50 back then. The main reason is that in 1980 everything was changing so fast no one believed it could last, and it did not. Fast forward to today and the picture is very different. We recently experienced a parabolic rise where silver nearly hit $50, but other than that silver has been on a steady climb. Now with a stable base at $30, silver has shown that its potential is at least as great as gold's.

On the bottom side of the coin, if you are looking to purchase gold or silver, the price tag looks like it will just keep getting bigger. For investors and speculators, higher prices can seem foreboding, but for those still buying, the future could prove rosier. As inflation kicks in, the dollars we use will have less buying power. By having gold or silver a person has the opportunity to retain the value of what they posses. Sure one can look back and say, “if I would have only..,” but if one looks forward they may see that buying now may also be wise.

Many of these words are the same that have been said for the last couple of years. The main difference is that the ring of them seems to just be getting louder as inflation becomes an openly used word again. In the last decade, we have been experiencing inflation without anyone really talking about it. The prices at the pump and at the stores have been quietly creeping higher all without the talk of inflation. With inflation beginning to be embraced by our leaders again, we may soon see an explosion in prices.

Gold and silver have always been considered a hedge against paper currency. Precious metals never earn interest or pay a dividend, but they always have value around the world in any currency known to man. They are the ultimate vehicle against an inflating currency and are an important part of every economy.

View the original article here

Sunday, July 17, 2011

How to be smart with shares -

Shares Playing the stock market can be a lucrative pastime

WITH a small amount of cash and some good advice, playing the stock market can give your bank balance a nice boost.

>> 1 Become a student of stock
The jargon may be daunting, but learning the lingo will help you understand where your money is going. “There are fantastic financial dictionaries online, such as,” says author and wealth adviser Analaura Luna, “and the financial sections of the news and newspapers are a great way to immerse yourself in the language.”

>> 2 Practice makes perfect
Rebecca Fesq, vice president at Citi Cross Asset Group, suggests making a theoretical investment before committing your own cash. Write down the shares you’re thinking about and track their progress. “Choose a realistic amount to invest, a time frame to watch your investment and the level of risk you’d be comfortable with if it were real money.”

>> 3 Start small
You need a minimum of $500 to start investing in shares, but Fesq says to aim for $2000, so brokerage fees don’t eat away most of the profits. Still, only invest an amount you’re prepared to lose.

>> 4 Embrace diversity
“Putting all you have into one investment is like betting on one horse in a race,” says Luna. “Diversifying your portfolio reduces your overall risk and can increase your overall return – think of it as spreading your bets across the field.”

>> 5 Think long-term
“The market goes up and down, but it’s important that you don’t panic the first time it dips,” says Fesq. Luna agrees, emphasising that investing is a medium- to long-term strategy. “Short-term investing, or day trading, is highly volatile and can burn you badly,” she explains. “Safe investing is about knowing how long you’re in the market for, and playing accordingly.”

>> 6 Know when to quit
Managing risk involves knowing how far you’re prepared to let your shares drop in value before calling it a day. Brokers call this the stop loss, which is an order you place with them to sell stock when it falls to a certain price. If you don’t have a broker, decide in advance what your stop-loss price is, then stick to it. “Set it at a percentage below your buy price,” says Janine Cox, analyst at Wealth Within. “If it falls below this level, sell.”

>> 7 The head rules
Don’t let emotions override common sense. “Loving a particular company’s product doesn’t mean it’s a good investment,” warns Fesq. Investigate how companies are performing in the market by tracking their share prices.

>> 8 Save online
You can open an account to start buying and selling shares on sites such as “Online trading tends to be a bit cheaper than using a broker,” says Fesq, “and most online brokers also provide a lot of good information.”

>> 9 Share alike
Consider starting an investment club with like-minded friends, says Fesq. “Pick a time to meet regularly to discuss different investment options. This can be a good way to start and stay motivated.”

>> 10 Choose advisers carefully
“Backing a tip from a friend, colleague or acquaintance without researching it isn’t investing,” says Luna, “it’s gambling.” Take advice only from reputable sources.

This article contains general information only. It does not take into account personal needs and financial circumstances and you should consider whether it is appropriate for you.

View the original article here

Friday, July 15, 2011

Investment driven by guilt, and that's - MarketWatch

By Thomas Kostigen

SANTA MONICA, Calif. (MarketWatch) — Are we increasingly investing out of guilt? I’d say so.

Look at the amount of money that has flowed into socially responsible funds: $3 trillion, up 34% since 2005, according to the Social Investment Forum.

Got a social conscience? Feel guilty? Invest your conscience away. It’s the 21st century version of the selling of indulgences.

/conga/story/misc/investing.html 156835

More money is flowing into “good” investments than ever.

Take the low-hanging fruit — mutual funds and exchange-traded funds. There are about 500 socially conscious funds, according to the SIF. There are hedge funds, debt instruments and now even private-equity vehicles that are aimed at investing in companies with a social conscience.

You can find out how to invest in socially conscious mutual funds by visiting . Or in social ventures themselves by visiting . For the super wealthy, check out .

To be sure, there are sinful investments to be made, too. The Vice Fund /quotes/zigman/311163 VICEX -0.37%  specializes in this.

But I have to wonder why good and evil are suddenly playing out with such vigor in the capital markets. Is it because more money has been made than throughout the course of history? Is it because there is now the largest dichotomy between rich and poor in the world? Are good and evil infusing themselves in finance to create some type of equality? Or has the root of all evil finally figured it’s time for a makeover — a new branding campaign?

Some people actually claim that good investments are bad for the world. Felix Oldenburg, the European director of Ashoka, a global association of social entrepreneurs, said recently that impact investments — investments designed to seek out a financial return while at the same time providing social reward — crimp the amount of good that can be unleashed in the world because they impose financial standards on social enterprises, and therefore create limits.

In a question and answer with, Oldenburg reportedly said, “Many impact investors come from traditional finance, so perhaps they assume that social entrepreneurs, like business entrepreneurs, want to capture as much value as possible within their organization. The opposite is true: Great social entrepreneurs want to create as much value as possible in the whole system, even if that means leaving revenue opportunities on the table. Impact investing, in the worst case, will limit the very potential of an idea, by preventing strategies that could unleash social impact across the word. By forcing a socially impactful organization to focus on earned income, you will cage them.” Read the interview.

I don’t agree with that. And I think the people who benefit from the good bias that exists in the financial world now would disagree too. They are getting opportunities that they would never have had if people weren’t inclined to put their money into risky, yet potentially world-changing ventures.

Besides why take away the restitution dollars — -to label such money —-from people who want to give back? I mean it’s sort of charity, right? So what if these people get a return, or reward on their investments. It does more good than harm.

Guilty consciences may just save the world and make it a better place.

View the original article here

Thursday, July 14, 2011

Investing carries risks — even for gold - MarketWatch

By Myra P. Saefong, MarketWatch

SAN FRANCISCO (MarketWatch) — Gold prices hit record highs this week and they’re looking increasingly more bullish, but there are a few things that can put a damper on the metal’s party.

After all, there are risks in every investment, including gold — even though few seem to think so.

“In any investment analysis, particularly one in which you’ve come to a bullish conclusion, an investor needs to constantly check their premises,” said Brien Lundin, editor of Gold Newsletter. “You need to ask, ‘what can go wrong?’ in your argument.”

So I queried several analysts, asking them for a list of some of the factors that could potentially weigh on gold or cause a drop in prices. Some refused to participate, some provided only the bullish case for gold and others offered scenarios that would pressure prices, but said they’re not likely to happen any time soon.

That’s no surprise. Gold prices have experienced a steep climb over the past decade. On Thursday, gold logged a record settlement price of $1,589.30 an ounce in New York. Read about Thursday’s gold action.

“This year, investors have been engulfed by the perfect storm for gold, resulting from the Japanese earthquake and tsunami, Middle East and North African turmoil, credit downgrade warnings in the U.S. and the exacerbation of euro-zone debt fears, amongst others,” said Jeb Handwerger, editor of

Gold is bouncing to new levels, and skittish investors are flocking to the precious metal following uncertainty over news in Europe as well as at home, Tatyana Shumsky reports.

“This chaos has had a positive effect on gold bullion and now investors are finally jumping on board,” he said. “This may be a significant move for several weeks.”

So why should anyone even suggest the possibility for any sizable declines in gold prices?

If the market develops a “parabolic rise” it may encounter “severe downturns,” said Handwerger, who’s also a natural-resource analyst. “Investors in any asset must grow cautious as a trade becomes crowded.”

Finding out just how much caution to take is a challenge in a market where, apparently, a bullish stance is most common and supportive news for gold prices is plentiful.

But silver is a good example of just how quickly a tide can turn.

For the month of April, silver prices were up 28%, then posted a drop of 21% for the month of May following a series of margin requirement increases that squeezed some investors out of the market. Read the May 31 story on gold and silver.

“The recent spike in silver, followed by a waterfall decline due to the raising of margin requirements, reminds long-term precious metals investors that one must be prepared to accumulate products when there is a panic and sell them when there is euphoria,” said Handwerger.

The story is, of course, different for gold, though it wasn’t completely immune to silver’s plunge. Gold was up 8.1% in April then fell 1.2% for May.

View the original article here

Monday, July 11, 2011

How to find your investing sweetspot - Reuters (blog)

Dan Greenshields, CFA, is President of ING DIRECT Investing, a subsidiary of ING Bank, fsb. The opinions expressed here are his own.

In baseball, good hitters don’t chase pitches in the dirt. They wait to swing on a ball in their sweetspot — that small space over the plate at which they can maximize the power and accuracy of their bat. Good hitters are patient and make a point to play to their strengths.

The same is true for good investors. Chasing speculative, non-liquid or unusual investments can lead to heavy losses. But waiting and putting dollars into a financial sweetspot could bring maximum returns.

Here are three tips for how to find the sweetspot for your investments.

First, don’t drive your financial strategy with a tax strategy.

Some investments do indeed afford unique and substantial tax advantages. But if that’s the sole selling point for a particular investment, wait before handing over your money. The time to try to minimize taxes is only after you have fully reviewed your risk and liquidity needs.

However, when the time comes, the tax angle can be worked in a number of different ways.

If an investment has yielded a large gain, you may want to hold it for at least a year. For most investors the maximum long-term capital gains rate is 15 percent — and that rate was extended by President Obama into 2012. And that level is substantially lower than the 25-35 percent tax most Americans have to pay on regular income.

The money generated by cashing out a short-term investment immediately would likely qualify as income and be subjected to the higher tax rate. But by being patient and waiting, you allow that gain to grow into a larger, tax-reduced harvest.

Also, when it comes to employing tax benefits for investments, maximize the amount of money you put into tax-privileged retirement vehicles.

Individual Retirement Accounts (IRA), for instance, are a great way to shield your money. Total annual contributions to an IRA are capped, however, at $5,000 for people under 50 and $6,000 those over 50.

There is a 10 percent tax penalty for withdrawing IRA funds before you hit 59.5 years old. So be sure to save up separately for shorter-term expenses like a mortgage and a child’s college education.

The second key to finding your financial sweet spot is to remember that circumstances often change. Avoid putting yourself into an investment position which locks you out of your money when you need it.

While some investment vehicles can have attractive returns, always look at the flipside in case you need get out tomorrow. Long-term CDs, annuities and insurance contracts typically have high surrender charges and limited exit or rollover provisions.

Many who invest in real estate, hedge funds or venture capital do so through partnerships that entail claims on future commitments of capital under certain circumstance.  During the financial crisis many hedge funds froze or severely limited withdrawals. Make sure you understand the length of the commitment and the total funds committed before you invest.

The third key to finding your financial sweetspot is keeping three to six months of liquid living expenses.

A paper published just this May by the National Bureau of Economic Research found that nearly half of Americans couldn’t come up with $2,000 in 30 days. A huge number of families are economically fragile and could be thrown into ruin by even a small financial emergency.

The way to avoid that fate is to maintain three to six months in living expenses in cash or liquid investments. Think of liquidity as how long it takes to convert an asset to cash. A house, for instance, it highly illiquid — it takes months or even years to turn a home into dollars.

A rule of thumb to live by is that you’re in a good liquidity position if 50 percent of your assets take less than 100 days to convert to cash. And until you have at least a three- to six-month cushion, shy away from investments with long horizons, high risk or tough restrictions on cashing out.

Sweetspots aren’t just for athletes. Average investors have them, too. By following these three rules, you can maximize the return on your investments while helping maintain short-term financial security for you and your loved ones.

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Investing: Five tips for making your 401(k) works a bit harder - The News-Press

Every so often, you get an ominous-looking package from your employer. It has numbers. And percentages. And words such as "large-company growth" and "mutual."

You ignore it, because it looks complicated, threatening and boring, all at the same time. But it's your 401(k) statement, so don't ignore it. Here are five tips from the pros - and USA TODAY readers - for making your 401(k) work harder.

Contribute, already

"Three words - maximize, maximize, maximize your contributions. OK, five words," writes Chuck Yanus, 57, of Crossville, Tenn.

The single most important factor in size of your retirement fund is how much you contribute.

The impact on your paycheck won't be as much as you think, because your contributions are tax-deferred. Say your annual gross salary is $50,000, and you get paid weekly. If you're in the 25 percent tax bracket, and contribute 5 percent of your salary, you'll put $48 into your 401(k) each week. But your salary will decrease $36, according to Fidelity Investment's take-home pay calculator. Kick up your contribution rate to 6 percent, and your salary will decrease just $8 more.

Figure out your asset allocation

Before you start pondering the difference between Pimco Total Return and Fidelity Contrafund, take a step back and try to figure out how much you want in stocks, bonds and money funds. That's more important than your choice of funds. Your returns from three asset classes the past 20 years, assuming you invested $100 a month, or $24,000 total:

- Stocks (as measured by the Standard & Poor's 500-stock index): $49,000.

- Bonds (measured by Barclay's intermediate-term Treasury index): $42,000.

- Cash (measured by three-month Treasury bills): $31,749.

Sell your company stock

"Never overload in your employer's stock," says Timothy Zuraff, 45, of Concord, N.C., adding, "Ten percent is the max to hold with your employer."

The main reason for mutual funds - and asset allocation, for that matter - is to reduce risk through diversification. If you have 50 percent of your portfolio in one stock, you run the risk of 50 percent of your portfolio going to zero.

Rebalance occasionally

When you set your asset allocation, you'll soon realize that it goes out of alignment quickly. From time to time, you'll have to sell some of your winning investments, and pour the proceeds into your losers - a process called rebalancing.

Rebalancing too often cuts short your winning investments. So only rebalance your investments whenever your asset allocation is 5 percentage points or more out of whack.

Read your statement ... but not too often

It's always good to know how you're doing.

However, if you're online every day checking your account, you might be tempted to do something rash.

Check your statement every quarter or so to make sure everything is going as planned, all your deposits have been made, and that all the matching has occurred, says Ray Ferrara, a financial planner in Clearwater.

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Sunday, July 10, 2011

4 Investing Strategies For Uncertain Times -


Investors, brace yourselves: A recent spate of negative economic news signals the market is surely falling. Or -- wait! -- the clearing clouds over Europe point to brighter days ahead. And look at all those tech IPOs. Surely that's a sign of expansion -- or another bubble.

All these mixed signals are enough to make even the savviest investors dizzy. After a three-year bull run, the stock market lately seems stuck at a crossroads, not clearly headed up, nor clearly headed for the double-dip some have predicted. The bond market hasn't crashed -- but neither has the housing market come back. As a result, investors have embraced a wide range of strategies. The percentage of fund managers who were overweight in cash tripled to nearly 20% in June from May, according to Bank of America Merrill Lynch Global Research. Other investors have opted for bond funds, which attracted almost five dollars for every dollar that went into equity funds during the second quarter, according to EPFR Global, a fund-data provider. At the same time, the IPO market is hotter than its been in years, and emerging markets funds are starting to gather significant investor cash for the first time since the end of 2010.

What's going on? Most markets have their bulls and their bears, but typically a consensus is built. Not so this time around. Market bears certainly have plenty of ammo: The unemployment rate rose to 9.2% in June and shows no signs of improving soon. Debt worries are clouding Europe's outlook, Japan is still reeling from its earthquake disaster and the U.S. has yet to agree on how to handle its mounting pile of I.O.U.s. "The concern is that things are going to get slower this year and decelerate next year," says Jon Fisher, portfolio manager of the large cap growth strategies team for Fifth Third Asset Management.

At the same time, there are reasons to be optimistic. Manufacturing in the U.S. has picked up. Commodity prices have fallen from their peaks, meaning lower costs for companies. And perhaps most importantly, U.S. companies are expected to report strong second-quarter earnings starting this week, which some investing pros say could provide a positive catalyst for stocks. "The tide has turned and is starting to go up," says Oliver Pursche, president of Gary Goldberg Financial Services in Suffern, N.Y.

But for bulls and bears alike, there are smart strategies for shaky times. Some will pay off quickly if the market continues to rise; others offer downside protection if it goes the other way. And none of them are market-timing bets all can offer strong returns, over the long haul, for investors willing to hold on.

Pass the Buck

Unwilling to bet big on any one asset for the foreseeable future? Go with a fund manager with the freedom to move nimbly in and out of almost any asset class, anywhere in the world. These "world allocation" funds, portfolios that typically mix stocks, bonds currencies and other assets, have been growing in numbers and popularity, attracting $13.2 billion in new money so far this year, compared to the $9.8 billion over the same period last year, according to fund tracker Morningstar. "Things move very quickly and it just gives them a lot of flexibility to move where the growth is," says Marilyn Plum, director of portfolio management at Ballou Plum Wealth Advisors. World allocation funds have gained an average 3.7% a year over the past three years, compared to an average 4.9% gain by moderate allocation balanced funds, according to Morningstar.

But that nimbleness can also backfire, advisers warn. "The more things you can do in your portfolio the more chance you might get it wrong," says Christopher Wolfe, chief investment officer for the private banking and investment group of Merrill Lynch Wealth Management. For this reason, investors should cap allocation to these funds to roughly 20% of their overall stock portfolio, says Pursche. One option, says Michael Herbst, associate director of fund analysis for Morningstar: Pimco All Asset All Authority fund, which as returned an average 7% a year for the past three years, compared to a 4% gain by other world allocation funds. It charges .85%, or $85 for every $10,000 invested.

Bet on Quality

In uncertain times, cautious investors should up their standards, investing experts say. "You want to stick to the higher quality names regardless of what investment choices you make," says Pursche. For stocks, that means large-cap, dividend-paying stocks from companies with healthy balance sheets, such as drugmaker Eli Lilly (LLY) or wireless provider AT&T (T), says Pursche. Large-caps also tend to be very liquid and easy to sell. For fund investors, Todd Rosenbluth, a mutual fund analyst for Standard & Poor's Equity Research, recommends the Invesco Diversified Dividend fund, which has returned an average 8.1% a year for the past three years compared to an average 4% gain by the S&P 500 Index. The fund charges .92%, or $92 for every $10,000 invested.

Fixed-income investors, on the other hand, should look for bonds rated AA or higher, which means they're issued by stronger companies with less debt that are more capable of paying back bonds even in tough times, says Pursche. Bonds issued by riskier companies may pay higher yields, but have a greater chance of defaulting. The catch: High quality bonds typically pay lower yields than high yield bonds. Rosenbluth likes the Janus Flexible Bond fund, which invests 80% in investment grade corporate bonds, along with Treasurys. The fund has returned an average 9.1% a year for the past three years, compared to an average 6.8% gain for other intermediate investment grade corporate bond funds. It charges .7%, or $70 for every $10,000 invested.

Go Big

Even though investors bailed from emerging markets following the unrest in the Middle East earlier this year, the growth potential in developing regions like Southeast Asia, South America and Eastern Europe remain strong as ever, experts say. And since the selloff, valuations are now more attractive. "This global recovery is not being led by the U.S. and Europe, it's being led by other countries around the world," says Ron Florance, managing director of investment strategy for Well Fargo Private Bank. "If you're not including emerging markets in your portfolio you're missing half the economic opportunity." Some emerging market countries have also been more proactive about fighting inflation, a good sign for bond investors who worry rising prices will eat into their fixed payments, says Zervos.

Emerging markets are riskier than developed ones, thanks to the increase potential for political upheaval, less rigorous regulation of markets and currencies that fluctuate more often than the dollar, says Florance. He recommends allocating no more than 15% of your stock portfolio to emerging markets. One option: the Oppenheimer Developing Markets fund, which has returned an average 11.9% a year for the past three years compared to an average 4% gain by other emerging markets equity funds. The fund charges 1.35%, or $135 for every $10,000 invested.

Ride a Winner

Mid-sized companies have been on a tear so far this year, outperforming both their smaller and larger brethren. The S&P MidCap 400 Index is up 11.5% year-to-date, compared to the the S&P SmallCap 600's gain of 10.9% and the S&P 500's 7.6% increase. And many stock analysts and fund managers believe midcaps, defined as having a market value between $750 million and $3 billion, still have plenty of room to run. They point out that merger and acquisition activity in the group is up 26% this year and expected to continue -- a trend that tends to lift stocks, says Sam Stovall, chief investment strategist for S&P Equity Research.

Mid-sized firms also have higher potential for growth than larger caps. Earnings are expected to grow by 21% for mid-cap companies this year, compared to 17% for large-caps, according to S&P. And while smaller-caps can offer even higher growth, mid-sized firms' returns are more stable. "They're kind of in an opportunistic sweet spot where they're big enough to attract capital and they're small enough to be entrepreneurial," says Florance, who increased his clients' exposure to mid-cap stocks by 2 percentage points last month and recommends investing up to 10% of a portfolio in midcaps. For fund investors, Rosenbluth recommends the Vanguard Selected Value fund, which has returned an average 11.1% annually for the past three years compared to an average 8% gain for other mid-cap value stock funds. The fund charges .47%, or $47 for every $10,000 invested.

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Thursday, July 7, 2011

Investing in your 20s: Rich in time but short on cash - USA Today

Q: What unique challenges do investors in their 20s face?

Twentysomethings can have a difficult time finding the money to invest as many rack up a large amount of debt to obtain an education. By Gregory Bull, AP

Twentysomethings can have a difficult time finding the money to invest as many rack up a large amount of debt to obtain an education.

By Gregory Bull, AP

Twentysomethings can have a difficult time finding the money to invest as many rack up a large amount of debt to obtain an education.

A: When it comes to investing, time is literally money. And if you're in your 20s, you're often relatively rich, when it comes to time.

But if you're living on an entry-level salary, you might not feel so rich if you're short on cash. It's ironic. Being young gives you the freedom to take a very long-term perspective on your investments. But that long time frame isn't going to help you much if you don't have anything to invest.

It's this paradox of young investors, being rich in time but poor on cash, which challenges many investors just starting out.

It's a harsh reality. Consider the power of time. A person who can save $12,000 a year for 40 years will have $1.5 million in today's dollars, assuming just a 5% annual return. However, a person who can only save half that long, just 20 years, will only have just $397,000. In other words, a person who saves half as long will have 75% less at the end of the period.

But to take advantage of your youth, you need to recognize the challenges and understand how to deal with them:

Entry-level salary. Perhaps the biggest challenge you face is the fact that you're probably pretty new on the job. You may have a junior level role at a company where the pay isn't all that great. After paying your rent and car payments, there may not be a whole lot left to invest.

The answer: Control your overhead. Just as successful entrepreneurs say keeping their costs down is a crucial to success, those just entering the workforce must do the same. Get your rent down. If you're rent is more than a third of your take home pay, that's too much. Find a way to reduce that monthly nut, or you'll have a tough time saving money to invest.

Your goal is to be able to at least save enough in your company's 401(k) plan to get the company match. If you can manage to save another 10% of your take home pay to invest, that's even better.

Debt load. An increasing percentage of students are leaving college with a huge pile of debt. This debt needs to be paid off using the already tapped resources from the entry-level salary.

The answer: If you can refinance the debt to a lower interest rate, do so. That's probably not an option, though. Instead, the same rule of limiting your overhead expenses applies.

Inexperience. Young investors often get sucked into all sorts of investment strategies. Some chase after penny stocks, which is almost always a bad idea long term. Others try to make lots of money chasing stocks that are going up, only to ride them way down when the correction comes.

The answer: Start with a basic diversified portfolio. An excellent way for beginning investors to get started is by investing in an exchange-traded fund that invests in the Standard & Poor's 500 index, such as ETFs that trade by the symbol SPY or VOO. By owning an investment like this, you'll see how to trade, monitor the value of a stock and collect dividends. Also, many brokers allow free trades in broad ETFs like this, so you can start investing without getting your money siphoned off by fees.

Being young is a huge edge when it comes to investing. Not only can you afford to keep your money invested for a long time, but you can take on more risk, and shoot for higher returns, because you can sit through a correction or two without panic selling.

The key to success, though, is dealing with the challenges and finding a way to save money and invest it. If you're able to find a way to squirrel away some cash, you'll be far ahead as a result.

Matt Krantz is a financial markets reporter at USA TODAY and author of Investing Online for Dummies and Fundamental Analysis for Dummies. He answers a different reader question every weekday in his Ask Matt column at To submit a question, e-mail Matt at Follow Matt on Twitter at:

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How to find 'safe' stocks in China - CNN

China stocks

To capture China's robust growth and buffer against accounting shams, experts recommend investing in Chinese companies that pay regular dividends.

NEW YORK (CNNMoney) -- Investing in China is fraught with risk but there are strategies that can help investors avoid getting burned.

The bulk of Chinese companies that have been embroiled in recent scandals have been firms that list their shares on exchanges in the United States or Canada though so-called reverse mergers.

Take Hong Kong-based tree plantation operator Sino-Forest (SNOFF), for example.

Even John Paulson, who made billions betting against the housing market during the bubble, fell victim to Sino Forest's alleged fraud after short-selling firm Muddy Waters published a report claiming that the company has been misrepresenting its finances to investors.

"I overwhelmingly prefer H-shares, which trade in Hong Kong, or A-Shares, which trade on China's stock exchanges," said Anthony Cragg, portfolio manager of the Wells Fargo Advantage Asia Pacific Fund (SASPX). "The selection of companies that are listed outside of China and Hong Kong is pretty poor, with the exception of a few names like Baidu (BIDU) and Sina Corp. (SINA)"

Cragg is a fan of Chinese banks like Industrial and Commercial Bank of China (IDCBY), insurance companies including China Life (LFC), power plant operator Huaneng Power International (HNP), and energy companies China Petroleum (SNP) and PetroChina (PTR).

"These companies are the blue chips of China," said Cragg. "They have been around for a while, have been stress tested and are followed by many analysts. If you look at some of the companies that have blown up recently, the analyst coverage around them was thin."

And while there's no foolproof strategy, Cragg also said that companies with a track record of paying dividends are good bets.

Portfolio managers Bruce Brewington and Jesper Madsen only invest in Chinese companies that pay dividends. They say the strategy allows investors to capture China's robust growth, while providing a buffer against accounting shams.

"If companies can pay out dividends, that means they are generating earnings," said Madsen, who manages the Matthews China Dividend Fund (MCDFX). The fund's top holding is China Mobile (CHL), which pays a 4.2% annual dividend.

On average, Chinese companies offer a dividend yield of 3% while the average dividend payout of S&P 500 companies stands at about 2%.

"A lot of public companies in emerging markets like China are owned by a single individual or family, so the one way they get paid is through dividends," said Brewington, who manages the Forward International Dividend Fund (FFINX).

Brewington says the Chinese banking sector, which incidentally pays healthy dividends, is due for a bounce after staging a bit of a retreat as China raised its reserve requirements in an effort to rein in inflation.

He noted that the Agricultural Bank of China (ACGBY) is in a particularly unique position to grow as China starts to focus on shifting economic activity from the coast to the central and western regions of China, where ABC already boasts a strong presence.

The bank already pays a dividend of 3%, and that's likely to grow.  To top of page

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