Daily Profit

A Cash Cow Blue Chip that’s About to Clean Up

Ian Wyatt — Mon, 23 Jul 2012 13:07:00 GMT

Fears of a double-dip recession in Europe and record low interest rates are only two of the many concerns facing investors.

Let’s face it … the past year has been difficult.

The major U.S. indices have undergone enormous price swings that netted little for stock holders.

Meanwhile, commodities, which are supposedly a safe haven, declined. The safest of all commodities - gold - is down 15% from its August 2011 peak.

Though blue-chip stocks are not immune to declines, they offer the one thing most stocks and all commodities cannot – cash.

Blue-chip companies have lots of cash. These businesses hold up well in nearly every economic environment. Their financial stability allows them to remain profitable and distribute earnings out as cash dividends to shareholders.

Because waste removal is a critical component to any society, companies in this sector are safer and more reliable. My favorite high-yielding blue chip is Waste Management (NYSE: WM) because it rewards you with cash from trash.

While it seems like hyperbole, Waste Management is a way to turn trash into cash dividends. However, Morgan Stanley (NYSE: MS) analysts seem to have forgotten that fact when they downgraded the company.

The announcement immediately sent the shares 5% lower in one session to $31. Yet the stock recovered from the drop … and more … only one week later.

Investors were right to support Waste Management when Morgan Stanley analysts didn’t. This chart proves it…

U.S. municipal solid waste according to the EPA

I bring these statistics up because they bring to light a fact, albeit a gross, trashy fact at that: humans make a whole lot of garbage.

Trash generation rates have exploded. The amount of garbage sent to landfills has almost tripled over the past 50 years.

Also, consider that the U.S. is merely 5% of the world’s population. Imagine the amount of trash that comes from the other 95%.

You can’t count on the weather. You can’t count on the government. And you can’t count on the stock market. But you can count on the demand for good trash removal.

In this economy, you need things you can trust.

Waste Management is the largest waste disposal company in North America, providing collection to 21 million customers through 345 transfer stations and 266 landfills. More than 80% of those customers are on at least 3-year contracts.

This annuity-like revenue created a history of converting this cash into shareholder value.

Waste Management's dividend has steadily increased at a compounded annual growth rate of 7.8% over the past seven years. The payout grew 70% in value from $0.80 per share in 2005 to last year’s $1.36 per share.

When it comes down to it, waste removal is one of the most essential services required by modern society. Proper human waste removal is what keeps our cities livable, and prevents our suburbs from turning into third-world countries.

Waste Management keeps us from living in our own filth, while converting a portion of this filth into renewable energy. This solid stock should bounce back from the recent analyst downgrade and rally to $37.

Until then, enjoy the safety of a blue-chip company and its 4.4% dividend.

High-Probability Strategy for Consistent and Easy Income

Ian Wyatt — Tue, 12 Jun 2012 16:43:00 GMT

Editor's note: Earlier this month options analyst Andy Crowder hosted a live chat to discuss "Create Your Own Odds: The High-Probability Strategy for Consistent and Easy Income" The response was overwhelming – more than 300 of you tuned in for the hour-long chat, and many of you came equipped with some excellent questions for Andy. While Andy was able to answer quite a few of those questions during the live chat, there were simply so many that he was not able to answer all of them. In today's Daily Profit, Andy addresses some of your most pressing options questions that went unanswered during our webinar.

If you missed the recent live chat, don't worry. You can click here to watch the recorded webinar in its entirety.

Andy, you speak about “probability of expiring” and the “probability of touching” often. Can you explain the difference? – Glen

Glen,

Let me start out with some obligatory technical mumbo jumbo and then I will get to an example that should hopefully help to clear things up.

Probability of expiring: The ‘probability of expiring’ reflects whether an underlying stock’s price is above or below a strike price at expiration.

An underlying stock will either finish out-of-the-money or in-the-money so there are two possible scenarios for ‘probability of expiring’: probability of expiring in-the-money or probability of expiring out-of-the-money (Prob.OTM).

Remember, we want to keep it simple so let’s focus on what matters – probability of expiring out-of-the-money.

Probability of expiring out-of-the-money is the chance that a strike price will close at expiration below an underlying stock price for calls and above an underlying stock price for puts.

As you can see my trading software offers this helpful tool, but for those of you who do not have a platform that offers Prob.ITM you can just use delta of an option as it is roughly the same percentage.

I will explain in a moment why knowing what the Prob.OTM is so valuable.

But before I get to the nitty gritty, let me explain ‘probability of touching’ (Prob.Touch).

Probability of touching: considers the possibility of the stock hitting (touching) the strike price at any time between now and expiration.

Again, I realize that some of you do not have access to trading software that gives you the probability of touching either, but any worthy trading software will provide you with the delta of any given option. And the Prob.Touch is simply double the delta.

So, the real question is, how can we use Prob.OTM and Prob.Touch to our advantage?

Look at the chart below.

The price of SPDR S&P 500 ETF (SPY) is currently trading at $131.50 and is currently in an overbought state. My assumption based on the current overbought state of SPY is that the S&P 500 will move lower over the next 39 days (July expiration).

This is where it gets interesting.

Because I think SPY will close below its current price of $131.50 I want to choose a strike that has a Prob.OTM that is AT LEAST above 50% and in almost all cases higher. I prefer 85%.

Look at the strikes below for SPY call options in July to see what qualifies – 132 and above. The strike immediately above the current price of SPY, 132, has a Prob.OTM of 50.87%.

That’s not high enough for me. It is essentially a coin flip. Again, I prefer something that has a higher Prob.OTM – say the Jul12 139 strike, for instance. It has a Prob.OTM of 87.26%.

That means that that if I sell a call vertical, otherwise known as a bear call spread, I might sell the 139 call strike and buy maybe the 141 strike. The trade would have a probability of success (also known as the Prob.OTM) of 87.27%. Extrapolate the 87% out 100 trades or 1000 trades and you begin to see the value of using options strategies with a high Prob.OTM.

But what about Prob.Touch? How does that factor into all of this probability madness. Prob. Touch should be viewed as the potential stress level of a particular trade.

In our case, if we sold the SPY Jul12 139/141 call spread, the underlying ETF or SPY would have a 26.28% chance of touching our short strike of 139. I like that percentage because there is still a low probability that SPY will ‘touch’ my short strike. This is invaluable information because it gives you a good idea of how stressful the trade will be.

Just think if we decided to choose to short a strike with a lower Prob.OTM, which inherently has a higher Prob.Touch, at say the 135. Again, we want to use a bear call spread so we would sell the 135/137. The 135 has a Prob.OTM or probability of success of over 70%, which is still fairly high, considering a stock trade only has a 50% chance of success.

But if you notice the Prob.Touch you will discover that the probability is over 62%. That just means that while you still have a good chance of the trade going in your favor, you should expect to experience some stress with the trade.

Most newbie traders don’t think about this important aspect. Always remember – you want to take emotions out of the equation. One way to do this is position-sizing, which should ALWAYS be considered with each and every trade. But the other way is to keep your Prob.Touch below 50% preferably below 30%.

I know this is a lot to grasp, but again these are the strategies that are revolutionizing how retail investors think about investing. The movement has already begun – so don’t be left behind. Again, I go over all of this and much more in my latest webinar. Give it a view and if you have any questions please do not hesitate to email me at optionsadvantage@wyattresearch.com.

Facebook IPO Aims for Record Deal

Ian Wyatt — Tue, 08 May 2012 13:42:00 GMT

We already knew the Facebook IPO was going to be big. Now we know how big – or at least how big Mark Zuckerberg and company want it to be.

The social network giant announced today that it is targeting a $96 billion deal in its much-anticipated initial public offering on May 18. If it succeeds, that would be the richest debut ever for a U.S. stock.

Facebook’s goal is ambitious, to say the least. For starters, a $96 billion valuation would be 96 times the $1 billion in earnings the company reported in 2011. It would also more than quadruple the $23 billion valuation Google (Nasdaq: GOOG) achieved in its 2004 IPO – the gold standard of tech IPOs.

In fact, a $96 billion valuation out of the gates would be 60% higher than the current record of $60.2 billion, established by UPS (NYSE: UPS) in 1999. And Facebook is only eight years old. The United Parcel Service had been in existence for 92 years when it went public.

To get to a $96 billion market cap, the Facebook IPO is expected to sell 337 million shares at a price between $28 and $35 a share. If the stock prices at the low end of that range, Facebook’s initial valuation would “only” be $77 billion – still a record and still 77 times earnings.

If Facebook raises the $13.6 billion analysts are expecting from its IPO, that would trail only Visa (NYSE: V) and General Motors (NYSE: GM) for the most money raised in a U.S. IPO.

Editor's note: I'm finishing up research on Facebook's IPO as well as two others coming up this year. The report details how to maximize returns from IPOs and the pitfalls to avoid. I expect to release it in the next couple of weeks before the Facebook IPO. So keep reading my column and I'll let you know when it's available.

So it’s safe to say the Facebook IPO is in a league of its own.

How The Pros Analyze Gold Stocks: Part II

Ian Wyatt — Thu, 26 Apr 2012 15:41:00 GMT

Last week we published the first of two articles on how professionals are able to analyze gold stocks. This second installment comes from Tyler Laundon, one of my top research analysts with Small Cap Investor Pro.

-- Ian

Too many investors buy mining stocks with no idea what they are really worth. We're going to change that by giving you the tools to figure out if that exploration stock is a good buy or not.

Last Thursday I discussed the reasons behind regulation in the mining sector and described, at a high level, this regulatory framework.

Today I'll get into the nitty-gritty and outline the different classifications of gold and silver ounces in the ground, what each is worth and how you can tell if a mining stock is a good buy based on how the market values those ounces.

Admittedly, this isn't the most riveting material. But if you own even one share of a mining company you need to know how valuable 'your' ounces are, so this information is critical.

Since a mining company's exploration efforts take years, the regulatory framework of the Canadian Institute of Mining, Metallurgy & Petroleum (CIM) requires companies to incrementally gather and report the data to you in the form of scoping studies, prefeasibility studies and feasibility studies - and updated versions of any of the above.

This reporting format is a good thing. It provides transparency to the market on an ongoing basis, creates milestones that help a company seek funding, and tells you if a mining project is likely to be profitable - and thus make your shares of stock go up.

Without these checkpoints you'd be flying blind.

The CIM's framework outlines three main categories and two sub-categories for exploration-stage projects. The category each potential ounce falls into depends on the quality, quantity, detail, and interpretation of geological data, and ultimately the level of confidence in this data.

Typically, a miner's goal is to move ounces that fall into a 'lower confidence' category up to a higher confidence category by gathering more data (i.e. drilling) to increase confidence that the ounces can be profitably mined.

This hierarchy of categories creates intense motivation for mining companies to firm up their resource base because higher-confidence ounces typically receive a higher valuation by the market.

While all three main categories are deemed to have some economic value and are worth considering as part of a mining operation, it's the two sub-categories that include the “high value in ground ore.”

If there is one thing you take away from this article it should be this - the CIM's three main categories and two sub-categories, and their definitions, are as follows:

1) Measured Mineral Resource - These are the highest-confidence ounces based on reliable drilling and sampling data.

a. Proven Reserve - The economically mineable part of a Measured Resource that has a determined value as outlined in at least a Preliminary Feasibility Study.

2) Indicated Mineral Resource - There is enough data on grade and quality to conservatively estimate the value of these potential ounces, but there is still some uncertainty.

a. Probable Reserve - The economically mineable part of an Indicated Resource (and sometimes a Measured Resource) that has a determined value as outlined in at least a Preliminary Feasibility Study.

3) Inferred Mineral Resource - Data shows these ounces exist but you can't put an economic value on them without more drilling and sampling.

This couldn't be easier to understand, right? Well, not exactly. But as you evaluate mining stocks it'll make more sense. I adopted this figure from the CIM and I keep it on my desk for quick reference.

One of the things that make this framework confusing in practice is that companies are constantly updating their reports as they try to showcase the economic value. And some ounces can fall into two categories, such as Measured Resource and Proven Reserve, for instance.

This has led the industry to group categories together in a modified way to show a climb up the value chain from Inferred to Measured and Indicated (M&I), and ultimately to Proven and Probable (P&P).

The bottom line is as a company moves ounces up the value chain, they become worth more. And they should - because drilling is very expensive.

So how much are these ounces worth?

Generally speaking, the industry rule of thumb is that inferred ounces are worth $20 per ounce, Measured and Indicated are worth $30 per ounce, and Proven and Probable are worth $160 per ounce.

Now this is a huge generalization, and the law of averages suggests that in reality the values that a company gets for its in-ground ounces are all over the map.

This is where the modifying factors come in, and are often what differentiate an attractive miner from an unattractive one. These include things such as grade of the ore body, method (and associated cost) of the proposed mine, timeline to development, political risk and availability of capital, to name a few.

The easiest way to compare one mining stock to another is to look at a ratio called Enterprise Value per Ounce, or EVO. To calculate EVO, divide a company's ounces into its Enterprise Value (which is simply its market cap plus debt, minus cash and is available on most financial websites). Because market cap is determined by the share price (and thus the market) and the ratio includes cash and debt, the EVO ratio does a fairly good job of stating how valuable the market believes the company's ounces are.

You can do this for all ounces, or break them up into the various categories and industry averages I listed above; $20/oz. for Indicated, $30/oz. for M&I and $160/oz for P&P.

By comparing the values, you can get some sense of whether the stock is trading at a premium or a discount to its peers.

Now if you've read this far, I suspect you have the patience to go out and try this. I also suspect you'll be among the minority - and that's why you'll have an edge.

Take pride in the fact that you're figuring this out on your own. I guarantee that after you do it three times, it'll make a heck of a lot more sense. And you'll get a lot faster at evaluating new stocks as well as understanding new reports from the mining stocks you currently own.

You'll also have the confidence to know if that mining stock you want to buy is a good deal or a rip-off. As time goes on you'll be able to bring some of the modifying factors into the fold, and you'll likely be a much more successful mining investor.

Good Investing,

Tyler Laundon, MBA

Editors Note:

You can download the CIM's NI 43-101 Standards document here and print it out for future reference. You can also access a PDF of "CIM Definition Standards for Mineral Resources and Mineral Reserves" on the same webpage.

P.S. My colleague Ian Wyatt has recently added an interesting gold stock to his Top Stock Insights portfolio that has a sole focus of paying out dividends to shareholders and has been raising its dividend by 20% a year. Click here to find out the details on this stock he calls "Forever Gold".

Reduce Risk by 65% and Beat Buy and Hold

Ian Wyatt — Wed, 25 Apr 2012 19:34:00 GMT

With earnings season upon us and coming up on the "Sell in May" phenomenon I was recently chatting with one of our traders on how to protect our gains and even make a little money this summer. I'm largely a buy and hold investor so the summer seasonality really doesn't even factor into my strategy, however I get a lot of email from Daily Profit readers who are concerned about this. My head trader, Andy Crowder, recently addressed this very subject with readers of his service, Options Advantage. He was generous enough to allow me to share with you his strategy for protecting your portfolio with something he calls, "Stock Insurance". Read on for details...

Earnings season officially kicked off earlier this week and many self-directed investors are getting nervous about their holdings. Combine worries about earnings season with continued European debt woes and the upcoming “sell in May” phenomenon, and you can see why investors are concerned about the intermediate-term future of their investments.

So what’s the best strategy for a declining market?

For most self-directed investors, buying put options is the answer. Unfortunately, this strategy is one of the worst ways to protect the stocks in your portfolio right before an earnings announcement.

These misinformed self-directed investors yield to the assumption that when a stock or index is falling, volatility increases thus benefiting the long put position. This is certainly an added benefit to the long put strategy under normal market conditions.

However, post-earnings moves can actually be met with a decrease in volatility regardless of the direction of the stock following the earnings report. With that being said, always use caution when trading just ahead and through the earnings report of your stock of choice. This type of result is the reason why many newbie options traders are disappointed when they pick the direction correctly after an earnings report but still suffer a losing trade.

Implied volatility is pumped up before an earnings announcement, thereby inflating the price of an option. It makes perfect sense because the demand for puts are typically greater before earnings. And we all know that higher demand translates into higher prices, regardless of what is being sold.

However, coupling a long put with a covered call provides the ultimate protective strategy, especially when you’re concerned about your stock heading into earnings. This strategy is called a collar:

The Collar = (long stock + short call + long put [with different strikes])

A collar is the most popular method for protecting portfolio value against a market decline.

To build a collar, the owner of 100 stock shares buys one put option, which grants the right to sell those shares at the put’s strike price. At the same time, the stock holder sells a call option, which grants the buyer the right to buy those same shares at the call’s strike price.

Because the investor is paying and receiving premium, the collar can often be established for zero out-of-pocket cash, depending on the call and put strike prices. That means the investor is accepting a limit on potential profits in exchange for a floor on the value of their holdings. This is an ideal tradeoff for a truly conservative investor.

Moreover, the results of a new study examining the use of options in a collar strategy on the PowerShares QQQ (NASDAQ: QQQ) demonstrate that a collar strategy provides superior returns to the traditional buy-and-hold strategy while reducing risk by almost 65%.

The Options Industry Council (OIC) is pleased to note the study reaffirms the risk management potential of equity options, finding that during the entire 10-year study period, including the sub-periods around the tech bubble and credit crisis, collars significantly outperformed the QQQ, providing much needed capital protection.

“Loosening Your Collar: Alternative Implementations of QQQ Collars,” by Edward Szado and Thomas Schneeweis, looked at data from March 1999 to May 2009. The study concluded that over the entire 122-month period, the collar strategy returned almost 150%, while QQQ lost one-third of its value.

Additionally, the study simulated a collar strategy on a small-cap mutual fund. The return of the mutual fund collar was four times the return of the fund, while the standard deviation was about one-third lower. The study was conducted by the Isenberg School of Management’s Center for International Securities and Derivatives Markets (CISDM) at the University of Massachusetts.

Options have become a necessity for the self-directed investor and the aforementioned studies prove the importance of integrating them into your portfolio. Don’t allow yourself to miss out on what IS the future of investing for the self-directed investor.

Next week I will be going over several examples of how to use collars for stocks with upcoming earnings reports.

Stay tuned!

Editor’s note: If you’re interested in learning more about how to protect yourself from a declining market and the “Sell in May” phenomenon then you might want to check out my live presentation on “Stock Insurance” next Thursday, May 3^rd.

During this one hour live discussion I’ll show you how you can use a simple options strategy that can protect and grow your portfolio during the summer doldrums. Plus, I’ll be taking your questions live and giving you concrete, actionable investment ideas. The event is free, but we’re limited to only 1,000 spots. Last time we did this spaces filled quickly. So if you’re interested, click here to get the details and to reserve your spot before they’re all gone.

How the Pros Analyze Gold Stocks: Part 1

Ian Wyatt — Thu, 19 Apr 2012 19:20:00 GMT

Today I'm sharing with you an update from my resident gold stock expert, Tyler Laundon.

I spend a huge amount of time trying to value gold and silver stocks for the simple reason that they have the ability – unlike many other asset classes – to generate massive returns in a very short time frame. But in order to see those gains materialize you have to understand a little about the intricate processes of mining and the regulatory framework that miners must follow when reporting their gold and silver reserves.

Now that I understand the process I can say that it is interesting work, but the first few times I was completely lost in a sea of technical reports and mining lingo that might as well have been written in Mandarin.

So I'm extremely sympathetic to those of you who aren't versed in this foreign language of mining economics, but want to invest in the space. When Kevin forwarded me an email from a reader that asked all the right questions I decided to tackle the subject in as close to plain English as I'm capable of.

Here's my best effort to translate...

Subscriber comment: I have some questions regarding mining companies as I am a little bit lost and confused when it comes to the technical reports and the resource reserves. Hopefully you can provide answers and explain to me these issues in more detail.

Tyler Response: First off, this reader is not alone. He's lost because mining is complicated business, and honestly the technical reports don't really simplify it. But if you focus on the big picture, and understand the analysis framework you'll be able to dissect and interpret the reports pretty quickly. There really is a pretty sharp learning curve - if you can focus.

As an aside, the regulatory body responsible for the framework and definitions is the Canadian Institute of Mining, Metallurgy & Petroleum (CIM). Its regulatory standards are outlined in its National Instrument 43-101 - Standards of Disclosure for Mineral Projects (or NI 43-101 for short), which is why you'll see companies list their gold and silver ounces as 'NI 43-101 compliant'.

The trick to understanding this whole mess is to remember that we need the regulations to govern how companies report their 'in ground' gold and silver ounces because, well, they are underground and we can't see them.

The regulations also create a framework that helps companies access the capital markets and raise funds to build mines. Since investors like to know they'll get their money's worth (and there is ample room for fudging numbers) mining companies are required to complete very detailed economic studies which show how many ounces they have in the ground, how much a mine will cost to build, how long the mine will be in operation for, and all the associated costs, cash flows, and so on.

These studies can take three forms: a Scoping Study (very early stage), a Prefeasibility Study or a Feasibility Study, depending on how advanced the project is.

Since the basis for these studies (and the company's future for that matter) depend on how many ounces are on the property and how many makes sense to mine, the regulations state that ounces must be classified into different categories depending on how much confidence a 'qualified person' has that they actually exist. The qualified person functions a bit like an auditor, and needs to be a licensed engineer or geoscientist who demonstrates that he knows what he is talking about.

So that's the big picture. In my next issue I'll explain what the different classifications of ounces are, what they are each worth, and how you can tell if a mining stock is a good buy based on how the market is valuing its ounces in the ground.

In the meantime, Ian's found a great dividend paying gold stock that's raised it's dividend 20% a year. It's the kind of stock you'll never want to sell and as such we call it "Forever Gold". Click here for the full story.

Google (GOOG) Beats Earnings Forecasts

Ian Wyatt — Fri, 13 Apr 2012 16:37:00 GMT

Search engine giant Google (Nasdaq: GOOG) beat first-quarter earnings estimates, sending the tech stock up 1% in after-hours trading.

Operating income was $10.08 per share, outpacing analysts’ estimates of $9.64 a share. Revenue jumped 24% from the same quarter a year ago, while paid clicks rose 39%. Also, 170 million people have now upgraded to the company’s new Google + platform.

The company also announced a 2-for-1 stock split, meaning it will slash its extremely expensive share prices –currently higher than Apple (Nasdaq: AAPL) shares at $660 a pop – in half. The company did not, however, follow in Apple’s footsteps by announcing a cash dividend, as some had speculated.

“We had a very strong quarter,” CEO Larry Page said during today’s after-hours earnings announcement.

Products such as the Android smartphone, Google Chrome and the popular website YouTube were big contributors to Google’s better-than-expected quarter. Costs per click fell 12% for the quarter, but that was offset by a 39% increase in click volume.

“The most important thing to understand today is that our business is healthy,” Vice President and CFO Patrick Pichette insisted.

The numbers seem to support Pichette’s claim. With 900 million unique monthly visitors in March, Google attracts five times more users than both Yahoo (Nasdaq: YHOO) and Microsoft’s (Nasdaq: MSFT) “Bing” search engine.

Google's certainly one of the high flyers in tech, just like Apple. I've recently added a stock tied into the Apple success story to my $100k Portfolio service that will help us grow our portfolio from $100, 000 to $1,000,000 in just 10 years. We're already well on our way by following the 10 Year Millionaire Plan. If you'd like to find out how you could become a millionaire in 10 year (or less!) just click here for details.

A Gold Company that Raises Its Dividend 20% Every Year

Ian Wyatt — Mon, 26 Mar 2012 16:11:00 GMT

If you've never heard of today's best gold investment, you're not alone.

That's because it's not your typical "high-flying" gold mining stock.

But while most gold investors are waiting for the next big boom in gold mining stocks, a small number of savvy individuals are buying this OTHER gold investment.

I'm talking about a unique gold investment that's made some savvy investors quite wealthy, independent of recessions, zero interest rate policy from Ben Bernanke, and even dips in gold prices.

It's basically the only way to make money in gold no matter what's going on in the markets.

That's why I call this investment "Forever Gold." It's a way to CONSTANTLY profit from gold, even if it drops in price.

I've recently put together the details on "Forever Gold" for the paid-up subscribers to my Top Stock Insights service, but I've recently been thinking that this information needs to get out to all investors. So if you're interested in how you can get solid, reliable dividend payments from a gold company--no matter which way gold prices go--then check out my most recent update on "Forever Gold".

Their next payout is April 15th, so you'll want to hurry.

Click here for details.

The 18% Return Investment that Could Put Your Banker Out of Business

Ian Wyatt — Tue, 28 Feb 2012 14:46:00 GMT

Lydia H. had a problem. So did Liz R., Rene C. and Nansee K. Their problem was not all that unusual. In fact, their problem was one facing many people today: Banks refused to extend them credit.

And why should banks extend credit? Did you know that the Federal Reserve is actually paying banks to sit on loanable reserves? It's true - the Emergency Economic Stabilization Act of 2008 allows the Fed to pay interest on "excess reserves" that U.S. banks park at the Fed.

Forget about lending to the rest of us so we can start a business, buy a home, or consolidate debt. No, today banks can just send their cash to the Fed and watch the money accumulate risk-free. If you think I'm exaggerating, take a look at the graph below. In 2008, excess reserves parked at the Fed spiked to $1.6 trillion from zero, where it had been for the past 48 years.

The Fed's bank-subsidizing policies have not only harmed borrowers, they have harmed investors and savers as well. Banks offer a paltry 25 basis points on passbook savings accounts and a mere 70 basis points on a six-month certificate of deposit (CD). If you're willing to tie up your money for half a decade, banks will "generously" offer you 1.75% annually on a five-year CD.

Thankfully, we can count on markets and entrepreneurs to bypass the banks parsimonious ways and solve problems government officials and banks can't or won't solve . or deliberately exacerbate.

Lydia, Liz, Rene, and Nansee needed money; investors needed income and yield. Why not put the two groups together while rendering the banks and the Federal Reserve irrelevant? The borrowers get the money they need (often at better terms than the banks offer) and the investors - acting as lenders - generate superior income and return on their money.

That's what's occurring today, thanks to the burgeoning peer-to-peer lending market - where individual investors (lenders) are earning 6%, 10%, 15%, and even 18% on their money annually.

Becoming a peer-to-peer lender is easy and readily accessible to most investors, regardless of their level of financial sophistication. You don't have to be an expert in credit analysis to lend.

The peer-to-peer market makers do all the heavy lifting. They vet the borrowers and monitor them to ensure they pay principle and interest in monthly installments. Missed payments lead to penalties, because the peer-to-peer market makers report non-payers to credit agencies and send accounts to collection agencies just as any bank would.

Prosper.com and LendingClub.com are the premier peer-to-peer market makers in the United States. Both have an established business history and both have funded hundreds of millions of dollars in loans. Prosper.com claims more than $306 million in funded loans, while LendingClub.com claims more than $528 million.

These market makers also set loan rates, which sounds similar to how banks operate. There is a big difference, though. When you deposit your money at the bank, as a lender you have no say in how your money is lent. The banks don't permit you to dictate terms. So if you're willing to accept more risk in exchange for more reward, you're out of luck. The bank won't offer you a higher rate for your willingness to accept more risk.

In the peer-to-peer lending market, you're in charge. You choose the amount you want to invest (as little as $25), you choose the length of time you want to tie up your money (with a year minimum being the norm), and you choose the risk level you are willing to accept. The more risk you are willing to accept, the more income you can generate.

Opening a peer-to-peer account is as simple as opening any on-line brokerage account. Once your account is open and funded, you simply select a loan fund with the terms and risk characteristics you desire.

Conservative options - loan portfolios with very high credit scores and almost no chance of default - provide average annual returns between 6% and 8%. More aggressive options - where borrowers have lower credit scores and higher defaults - range between 9% and 12%. The riskiest portfolios offer the opportunity to capture up to 18% annually.

Once you've selected your loan portfolio, you'll start receiving monthly payments just like your banker. Just as important, you'll be earning money like your banker, and not like his depositor.

Not ready to make the jump to peer-to-peer lending but still want income from banking? Take a look at my latest article on two regional banks showing massive growth and paying out high yields to share holders. They make their money the old fashioned way--accepting deposits and making prudent loans--and avoiding the subprime mortgage mess plaguing so many of the big banks. Click here for more about these two banks.

Central Banks Seizing Gold

Ian Wyatt — Fri, 24 Feb 2012 17:44:00 GMT

This disconcerting story was brought to my attention by our resident commodities expert at Wyatt Investment Research, Kevin McElroy. It's been mostly buried by the main stream media but has substantial implications for exposing the hypocrasy of central bankers tellling us that gold isn't money and worse, that they will go to any means to get it. On a positive note, it means that gold will continue to be a safe asset for gold investors like us.

Kevin's politely allowed me to share with you his recent article on how central banks in Europe are eyeing up gold seizure to shore up sovereign debt problems.

Ian Wyatt

It's bad enough that Greeks are losing their sovereignty. When officials from Germany, Belgium and other north-European states can come in and tell Greeks how to run their government it's simply wrong.

And listen, I'm the last person who will defend the Greek state and its terribly indebted government. But that shouldn't make it okay for Greeks to lose their sovereignty to a group of unelected bankers.

But these Euro-states CAN'T let Greece default now. They've made a suicide pact to keep the Euro solvent and all member states as members forever.

And to seal the deal, lenders are now eyeing up the collateral they're willing to grab in the event that Greece gets any bright ideas about defaulting.

Top of my list of interesting "assets" is Greece's gold.

Yes - though many Greek citizens have no interest in accepting these loan terms, that's the deal now in place.

According to The New York Times, "Greece's lenders will have the right to seize the gold reserves in the Bank of Greece under the terms of the new deal."'

Remember though, Central Bankers have come out and vehemently denied that gold is money.

Moreover, this "new deal" does NOT reduce Greece's debt burden.

It increases it by 30% - only offering a longer loan repayment.

It's like the over-the-top used car salesman who tells you that he can put you in a car for $199 a month while obscuring the fact that you'll be paying $199 a month for the next 8 years.

And in the mix-up, lenders get access to Greek gold in the event that there is a default.

Amazing.

So, the next time you hear Ben Bernanke or a European Central Banker say that gold isn't money, ignore their words - and focus on their actions. These bankers are trying to transfer gold from sovereign entities into the coffers of central and private banks for the very simple reason that gold is money - and they know it.

At the same time, we also know that China is now the world's largest gold importer.

The Chinese are no dummies. They'll gladly continue to trade excess foreign reserves for gold.

And that's why you - as an individual - should do the same thing. Be like the Chinese, and ask yourself: do we want to hold dollars over the coming years, or do we want to hold gold?

Don't end up like Greek citizens - who are now at the beck and call of bankers who want to strip the company bare before letting it default from the Euro. Take action.

Good Investing,

Kevin McElroy
Editor
Resource Prospector Pro

Note: Kevin runs an amazing service called Resource Prospector Pro where he brings you the very best commodity investment ideas from the entire research team at Wyatt Investment Research. The best part is that for a limited time you can test drive a subscription for only $5 a month--that's less than what we'll soon be paying for a gallon of gas and a whole lot more profitable.

Click here to find out more about this unique service for just $5 a month.

Gold Approaches $1,800: A Very Easy Gold Investing Strategy

Ian Wyatt — Thu, 23 Feb 2012 21:26:00 GMT

With gold ramping over the past few days I've had a lot of reader questions about the best way to play this or even if now is the right time. One of my favorite ways to play gold is through the miners, particularly the junior miners demonstrating an ability to consitently grow production.

At the end of the day, there's one thing I look for in a mining company - production growth.

This is the key ingredient to a successful precious metals investing recipe. Grow production steadily and a lot of the other things - high profit margins, revenue growth and funding for exploration - fall into place.

But don't grow production and, well, I'm not too interested.

Take Endeavour Silver (NYSE:EXK) for example. In 2009 the company produced 2.6 million ounces of silver. With two mine expansions, production grew to 3.3 million ounces in 2010 and will likely hit 4.3 million in 2012. The share price has risen 210% since mid-2010. But those who bought when production just began in 2004 have seen their position grow 10-fold.

Because production growth is so important - and is likely to dictate which way a company's share price goes - you've got to understand where a mining company is along its life cycle before you jump in.

This is pretty easy to do because mining companies tend to follow a fairly distinct growth curve. In the early stages of life these companies are primarily explorers - they're out in the field looking to acquire and explore properties that may have valuable ore deposits. Canadian explorer ATAC Resources (ATC.V) falls into this category.

Explorers have no revenues and rely on the debt and equity markets for necessary capital. Some of these companies are attractive investments, and offer huge upside potential if they can get a property to development stage. They also can carry higher risks since they don't yet have cash flow, permits, and proven reserves.

On the opposite end of the life-cycle spectrum are established producing and silver streaming firms.

Companies in this category include Hecla Mining (NYSE: HL) and Silver Wheaton (NYSE: SLW).

These are relatively stable companies, but they don't have the same upside potential as the explorers. That's because it takes exponentially greater production and estimated reserve base to justify a big increase in share price.

In between the explorers and the producers are the developers. This is the sweet spot for investors.

These companies are developing productive assets and just starting to generate stable revenues from selling silver, gold, and other metals.

These are the best companies to buy because their risk-reward profile is so attractive. They are currently (or just about to) producing gold and silver so they have immediate leverage to precious metal prices now, not at some ambiguous point two or three years down the road.

They are generating revenues (or are about to) and are becoming profitable - two things the market loves.

These revenues also help emerging producers fund exploration of undeveloped properties. So the exploration upside is huge, but there is less risk than with a non-producing explorer.

The emerging producers have immediate, mid-term and long-term upside. But they also have some downside protection.

For me, this is about as good as it gets.

Fortuna Silver Mines (TSX: FVI) is one of my favorite emerging silver producers and a best pick for 2012. Silver production from the company's second mine - this one in Mexico - should be a major positive catalyst for the stock.

I've also recently recommended an emerging gold producer in Africa. I expect this stock to do as well as both Endeavour and Fortuna over the coming years because of its new production. I can't release the name because that wouldn't be fair to paying subscribers. But if you're interested in a great gold growth story and more about EXK then please click here for the full story.

My advice - keep it simple and focus on gold and silver miners that are growing production. These are the ones that can lead to life-changing gains.

Best Stocks to Own Forever: Free Special Report Now Available

Ian Wyatt — Wed, 15 Feb 2012 16:24:00 GMT

Everyone knows that 2011 was a year marked by volatility, though the markets had little to show for their ups and downs throughout the year. The Dow added a little, small caps fell back a bit, and the S&P 500 closed the year unchanged.

Everyone also knows that 2012 has started out on a very strong note. The Dow is low man with a gain of just 5% for the year, while the S&P 500 has added more than 7%. The big winners so far have been the small caps (up 11%) and the Nasdaq - up 13% thanks in large part to Apple's (Nasdaq:AAPL) meteoric rise.

So will the run continue? After all, recent economic data is pointing toward a stronger U.S economy. And the employment picture brightened considerably in January.

But there are clouds as well - mostly coming from Europe, where encouraging news is laced with fears of waiting for the other shoe to drop. And on our shores, the continued depression in housing, concerns about the increasing deficit, and political wrangling that produces little progress are keeping investors cautious.

It's an uneasy feeling.

That's why I created my latest special report - Top 10 Forever Stocks for Creating Wealth. My goal with this report it to take away some of that uncertainty by giving you stocks that I feel will be market leaders for many years to come.

I'm not looking to give you the hottest stock for the coming month or even the coming year. Those are great for investors who want to closely manage their portfolios.

Instead, I researched stocks that I expect will be leaders in strong sectors over the long haul. And, to keep you well diversified, I chose companies across unrelated industries, including healthcare, technology, financials, and energy.

As an added bonus, several of these stocks pay healthy dividends. That's important amid today's low-interest environment that the Fed tells us will last for at least a couple more years.

And best of all, I want all WyattResearch.com readers to have access to this new report - absolutely free. Just click here now to download the report.

I want you to see the quality of the analysis we conduct here at Wyatt Investment Research. And I want you to have the peace of mind knowing that these are stocks "built to last" regardless of market conditions.

Let me tell you a little about what you'll see in this free special report. You'll get 10 specific stock ideas that I expect will outperform the market in years to come. When you download the report, you'll read about:

A pharmaceutical company that is cashing in on generic drugs.
A consumer goods company that has smoked the competition over the past three years and shows no signs of slowing down.
A miner that's cornering the world's uranium supply.
A well-diversified agriculture and food company that many have never heard of.
A tech company that supplies many of the processors for all varieties of mobile devices.

Although all of the stocks in this report are intended to be long-term holdings, most are participating in the market's early-year strength. Because I don't want you to miss out on these ongoing gains, I urge you to download your copy of this report now. All you need to do is click here now to get the report so you can rest easier about your portfolio ... starting today.

I trust you'll benefit from these great investment ideas. I wish you all the best for a prosperous 2012 and beyond.

Ian Wyatt
Editor, Daily Profit
Richmond, Vermont

Why the Relentless Rally Could Be Ending Soon

Ian Wyatt — Fri, 10 Feb 2012 15:25:00 GMT

The relentless, ongoing rally that has been ongoing since mid-December has now pushed the Rydex family mutual funds up to historic levels.

The chart from acclaimed analyst Jason Goepfert displays the Bull Ratio for all of the Rydex funds.

As you can see the Rydex All Index Bull/Bear Ratio has moved above 4.0 which indicate that for every $4 invested in a bullish fund there is $1 invested in inverse or short-biased funds. The only other time this has happened was May 2, 2011.

Conveniently enough SPY is back at the highs of May 2. Will the market's fate be the same and turn sharply lower or will it continue to surge higher? Probabilities say, the former.

Fed to Fixed-Income Investors: 'Look Elsewhere for Yield'

Ian Wyatt — Wed, 08 Feb 2012 19:32:00 GMT

Given the news coming from the Fed and our continued low interest rate environment that's punishing savers and those on fixed incomes I've asked our resident Fed expert and ETF trader Rick Pendergraft to chime in on what investors can do where rates will be low for at least the next two years.

-- Ian Wyatt

On January 25, the Federal Reserve sent a clear message to investors. By announcing their intention to keep interest rates low for the next three years, they effectively said, "If you are looking for a decent yield, you have to invest somewhere other than U.S. Treasuries."

While the Fed only directly controls the short-term Fed funds rate, their policies and open-market activities influence all the treasury products. And if they intend to keep rates low, they can do it.

With a 10-year note that is yielding less than two percent, what is a fixed-income investor to do?

As the editor of the ETF Master Portfolio, I am constantly looking at income yielding ETFs. And there are several out there that have yields greater than 4%. My recommendation would be to build a portfolio of these dividend yielding ETFs and, by using a blend of conservative and moderately aggressive funds, build a portfolio with a yield of more than 5%. Let me show you how.

One example portfolio that I like uses three different ETFs. One is very conservative, one is pretty conservative and the third one is pretty aggressive. The iShares TIPS Bond (TIP) invests in inflation protected treasury bonds and is very conservative. The PowerShares Build America Fund (BAB) invests the bulk of its assets (80%) in Build America Bonds. Build America Bonds were introduced as part of the American Recovery and Reinvestment Act of 2009. These bonds are taxable bonds issued by state and local governments; the interest from the bonds is subsidized by the U.S. Treasury. The SPDR Barclays Capital High Yield Bond Fund (JNK) invests in corporate junk bonds.

At the present time, TIP yields 4.11%, BAB yields 5.22% and JNK yields 7.73%. An equally balanced portfolio with these three funds would thus have an average yield of 5.68%. When you consider that the 10-year note is yielding a whopping 1.93%, the risk to reward for a portfolio of these three ETFs makes a lot of sense.

While I would not typically recommend that individual investors invest in individual junk bonds, JNK has 222 different holdings in the fund, insulating investors from defaults. BAB had 313 different holdings as of February 2. With certain states and municipalities at risk of default, I find comfort in the BAB having so many different holdings.

To give you an idea of how this portfolio would have performed over the past year, I put together the chart below. As you can see, JNK moved in synch with the S&P 500 and, as a result, it struggled in the summer and fall. However, while the S&P and JNK were struggling, BAB and TIP were still moving higher, balancing out the loss on the JNK.

Granted, last year was a rough one for the stock market, but the domestic fixed-income markets held up well. The portfolio as a whole would have produced a gain of 15.52% while the S&P gained 1.65%. The table below shows how a portfolio of the three funds would have performed against a portfolio invested in just the S&P 500. This is only one year, but it was one volatile year.

The diversification between the three funds and the added diversification within the funds gives investors an extremely well diversified portfolio with very little risk of defaults impacting the portfolio significantly. The portfolio can experience capital gains as well as the income returns it produces, and it has an inflation hedge built in with TIP.

The ETF Master Portfolio is a well rounded portfolio of ETFs and fixed income is part of that total picture. JNK is currently part of the portfolio with the attractive yield and the ability to move higher with the stock market. Trying to protect and grow a portfolio includes fixed-income investments.

Bonds May Collapse Before Bernanke's 2014 Target

Ian Wyatt — Mon, 06 Feb 2012 18:56:00 GMT

The yield on U.S. bonds is abysmal. While I realize that I don't need to tell retirees something they already know, such a low interest rate is a crisis that faces many American citizens. With bond yields this low how are the elderly supposed to supplement social security, pay rising healthcare costs or protect their financial nest egg?

Last month, the Fed decided to keep interest rates near zero again. The zero-interest rate policy, also known as ZIRP, was no surprise, but the expected length of the program was updated. And the new Fed schedule revealed that Ben Bernanke and the FOMC expects to keep interest rates near zero until 2014.

Yields on bonds have been pathetic for over four years and the Fed wants yields to stay low for another two years too. Ben Bernanke and the Fed manipulated the yield of bonds to spur U.S. GDP growth. But the side effect of that policy was that safe investments now yield nearly zero return for investors. Ben Bernanke has once again managed to penalize responsible savers.

After Ben Bernanke announced he would likely target zero-interest rates until 2014 bond yields collapsed. And it created two opportunities for a trade.

First, is that yields will continue to compress as the Fed eats up bonds from the banks and fakes demand for Treasuries. The correct way to trade this trend is buy iShares Barclays 20 Year (NYSE: TLT).

Second, is that failed Fed and government stimulus policy has put America in a rough mode of recovery. Compounded with the sluggish growth prospect for the economy is a ballooning U.S. deficit. At some point not even the Fed will be able to keep rates low and investors will demand a premium. Once that inevitable day occurs you must purchase the ProShares Ultra Short Lehman 20 (NYSE: TBT).

But how long before that day of reckoning unfolds? And when will TLT stop rising? This video analyzes the move of U.S. bonds over the past few years and also shows where I think prices are headed in the long and the short term.

Click here to check out the video analysis.

Jason Cimpl
Editor, TradeMaster Daily Stock Alerts
Washington, DC

Editor's Note: Jason's trading service, TradeMaster Daily Stock Alerts, just had another banner year, but recent optimism has him leaning bearish. Click here to learn more about TradeMaster Daily Stock Alerts.