Daily Profit : Bernanke

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

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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.

Bernanke: Fed to Bail Out European Banks

Ian Wyatt — Mon, 19 Sep 2011 20:12:00 GMT

Europe’s banks are in trouble, big trouble. And the U.S. Federal Reserve is prepared to bail them out.

European banks are some of the biggest holders of debt (bonds) from Greece and other indebted Eurozone countries. And they will be big losers if Greece defaults on its debt payments. Throw in Italy and/or Spain and the scenario facing Euro-banks becomes a catastrophe.

Due to this risk, European banks are slowly but surely being cut off from the capital markets. U.S. money market funds, once a source of ready cash, are slashing the amount of money they lend to European banks.

To fill the shortfall, the U.S. Federal Reserve will join with a few other central banks to provide unlimited dollar loans to European banks.

While in the U.S. the Fed’s emergency lending programs have proved effective at keeping “too big to fail banks” afloat, Fed policy is powerless to help lower overall debt. And without lower debt levels, the U.S. and European economies will continue to stagnate for years to come.

I’m Ian Wyatt, founder of Wyatt Investment Research. My latest special investment report can help you protect and grow your wealth as much as 44% in spite of U.S. and European debt problems.

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Wanted: Better Data, Not QE3

Ian Wyatt — Mon, 22 Aug 2011 20:35:00 GMT

Stocks were up today, which after the past few weeks is a nice reprieve from the downward grind. Speculation that the Fed will not be able to resist more quantitative easing is putting a floor under stock prices. And the news that Qaddafi is just about defeated in Libya is helping the good vibes.

But clearly, this market will need more than speculation about the Fed and the easing of some geopolitical tension far away from investors' everyday concerns. We need some economic data to show a little growth, and ease the worries about the U.S. economy slipping back into recession.

In general, recessions are caused by shocks to the economy that put fear into consumers and corporations alike. The resulting layoffs and tighter spending habits cause the economy to move in reverse. We have not been hit by such a shock recently (even though the situation in Europe could become one). The issue today is that growth is so weak, even a cyclical decline in economic activity could put us back into recession.

Still, the odds of this type of cyclical recession are small. It's the debt issues in Europe and their effect on European bank balance sheets that's the problem.

European banks hold of sovereign debt. And if that debt gets restructured, already weak banks will take losses and become weaker, perhaps to the point that they have to raise cash on the open market.

It's being reported today that U.S. banks and corporations borrowed $1.2 trillion in emergency loans from the Fed during the financial crisis. Without that capital, it should be clear the crisis would have been far worse.

Now, if a similar crisis revisits Europe, where will the cash these banks will need come from? The European Central Bank has made it clear that it will not open the vault to prevent disaster. Neither will Germany.

Regardless of the actual economic situation, this makes European banks more vulnerable than U.S. banks.

That, in a nutshell, is what investors are worried about.

Profits at retail companies rose 11% in the second quarter. That's the slowest rate of profit growth for retailers in 8 quarters.

Now, clearly, profit growth rates can't ever continue at a fixed or expanding rate. As they say, trees don't grow to the sky. Profit growth must slow.

Interestingly, the drop in profit growth rates at retailers has coincided with weaker economic numbers. These two items are related. And that's not necessarily a bad thing.

We saw economic data weaken last summer, too. And even thought the Fed stated QE2 as a response to that data, I don't think we can say that QE2 also helped economic data improve.

Quantitative easing is a monetary game. It adds liquidity which boosts asset prices. But quantitative easing does not boost demand. It doesn't flow into consumers' pockets.

What we need is real improvement to economic data.

We've got Durable Goods data coming up on Wednesday. That's a big one to watch. You may recall it was the last Durable Goods number from July 27 that started the sell-off.

The market is currently expecting growth of 1.9% for Durable Goods. That seems optimistic. But surprisingly, there are even more optimistic estimates, even as high as 2.5%. Needless to say, a beat for Durable Goods would be very helpful. And it could even mark the end of the sell-off on Wall Street.

I hate to put too much weight on one data point, but these days, we need every bit of good data we can get.

Can Government Spend Smarter?

Ian Wyatt — Thu, 04 Aug 2011 20:24:00 GMT

We got a decent reversal off the lows yesterday. But it wasn't enough to get investors bullish for today.

It's clear that the stock market is not happy about the debt deal and the potential for spending cuts. On the other hand, without tax hikes to raise more revenue, spending cuts have to happen, as the current rate of spending is not sustainable. Spending cuts are probably a good idea even if more revenue can be raised.

One reason we are in this mess is because government stimulus intended to boost the economy has been largely ineffective. And I say "intended to boost the economy" instead of "designed to boost the economy" because much of the government stimulus was short-sighted and didn't address the true imbalances of the economy.

It may not be helpful to go back and look at some of the stimulus programs, but I'm going to do it anyway, because spending smarter should be an attractive alternative in the future.

The Obama administration passed an $830 billion stimulus package that sent money to state and local governments for infrastructure improvements, there was the cash-for-clunker program, the first home buyer credit, and tax cuts.

These items pushed the deficit higher, but none of them have had any kind of long-term effectiveness. They were all temporary measures. They were gimmicks.

Where would we be if that money had been spent on initiatives that would actually create jobs? I guess we'll never know. But as a business owner, I do know that surviving a crisis requires investment. Not reckless spending, but investment that can lead to growth.

For all the talk about natural gas as transition fuel, for instance, the government did nothing to push its adoption. A public option fro Obama's healthcare bill would have provided productive jobs and created real competition for health insurance. But the administration balked and gave us a healthcare bill that simply raises prices. Ill-conceived financial regulation is costing jobs and not providing real protection.

I'm sure we can go on and on detailing the missteps. The bottom line is that government needs to spend smarter. Yeah, good luck with that...

Gold is ramping again. Traders are pricing in the probability that Fed Chief Bernanke cracks under the pressure and launches QE3. Yes, QE3 will be inflationary, perhaps even mores so than QE2. And QE3 can't create jobs.

But let's not forget who Ben Bernanke is. Bernanke earned his stripes with his studies of the policy response in post-Depression America. And what he sees is spending cuts, protectionist trade policies and tightening monetary policy.

Bernanke believes these reactions turned a recession into a deflation based Depression. And he is determined to avoid that at all costs, literally.

I have no idea what the Fed might unleash on the market, but traders can sense his trigger finger getting itchy. And they are buying gold.

How important is tomorrow's Nonfarm Payrolls number? I'd say very. Even a little improvement in unemployment will provide some needed relief about the economic situation.

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Why Gold Prices Hit a New Record High

Ian Wyatt — Thu, 14 Jul 2011 15:22:00 GMT

Quietly and without much fanfare, gold prices broke all time record dollar denominated highs on Wednesday.

At the same time, Ben Bernanke testified in front of Congress saying that gold is not money. The end of day chart below tells a different story.

If the Chairman of the Federal Reserve is not ready to admit that gold is indeed money, and that it has been for the length of human civilization, you have to wonder what he’s afraid of.

So why is gold rising in price?

You don’t have to look far for a reason.

But two of the biggest reasons are demand and uncertainty.

We’re seeing more and more demand out of Asia, especially as new ETFs in India allow regular investors first-time access to the gold markets. India has traditionally been the world’s largest buyer of gold for jewelry (more as a store of wealth than for status, though that’s important, too) and now that market is set to buy bullion itself through ETF investments.
We’re also seeing increasing uncertainty about world sovereign debt issues, whether we’re talking about broke Italian banks or an American Congress that’s befuddled about how to cut one penny of the world’s largest debt.

As long as the world’s investors see no improvement in sovereign debt problems, and as long as the China and India growth stories continue, we’ll see gold prices rise.
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The Unemployment Quandary

Ian Wyatt — Sat, 05 Feb 2011 00:36:00 GMT

So now we’re hearing stories that the Mubarak government in Egypt is bribing citizens with promises of food to take to the streets and violently confront the protestors. Pro-Mubarak demonstrators have been linked to attacks in foreign journalists.

It would seem as though the Egyptian military will have the final say. It already appears that the military has sided with the protesters. And with the rhetoric from international leaders gaining in intensity, Mubarak’s reign will likely be numbered in days.

What’s going to be particularly interesting is how this Egyptian protest affects other Middle Eastern countries. We’ve already seen Jordan’s King Abdullah preemptively fire his Cabinet. And there may be changes coming in Yemen and Algeria.

We haven’t heard much about a “peace dividend” since the U.S. invaded Iraq. But a move toward democracy in the Middle East could put the peace dividend back on the table.

*****The U.S. stock market has been a model of resilience this week, battling back from minor sell-offs and a rallying dollar to post new post-recession highs. Even today, the indices have battled back from early weakness to trade in the green.

We got the latest non-farm payroll numbers this morning. And frankly, the numbers raise more questions than they answer.

After the ADP private payroll showed 187,000 jobs added to payrolls. The government number came in at a measly 36,000. But amazingly, the unemployment rate dropped to 9%.

It’s probably not wise to think too much about the obvious discrepancies here. But that’s not going to stop me…

So, how does the unemployment rate drop dramatically when “official” job growth is at a standstill? The easiest explanation is that a lot of unemployed have simply fallen off the unemployment roles and are now classified under one of the long-term unemployed categories that is ignored by the “official” unemployment number.

But how do we explain the difference between the ADP number and the government number? After all, the ADP number has come in far stronger than the “official” number for months.

Not being a government economist skilled in the arcane art of obfuscation, I don’t have a ready explanation. But I will say that strong job growth would put a lot of pressure on Ben Bernanke to end his QE2 stimulus. But with job growth barely ticking higher, Bernanke’s position on stimulus is safe.

*****Speaking of Mr. Bernanke, you gotta love the speech and Q & A he gave at the National Press Club yesterday. Of particular interest to me was Bernanke’s comments about rising commodity prices (inflation) in emerging markets.

The Fed Chief basically said that central banks have the same tools as the Fed to fight inflation, that is, raise interest rates. Or in China’s case, break the yuan-dollar peg.

There was some conjecture when QE2 began that Bernanke was hoping to pressure China to break the yuan peg and let that currency appreciate. And his comments yesterday make that seem even more likely.

China has kept its currency weak and managed to attract manufacturing and other foreign investment for over a decade. And clearly, that strategy has both enabled China’s growth and created some serious imbalances. For the second largest economy in the world to have a pegged currency is pretty absurd. And if Bernanke is putting the pressure on, good for him.

How to Play the Irish Bailout

Ian Wyatt — Mon, 22 Nov 2010 17:37:00 GMT

*****How to Play the Irish Bailout
*****U.S. Dollar vs. euro
*****One Ounce Silver American Eagle

Fellow Investor,

It’s one of those situations in investing that often defies logic – and leads to big opportunities. When the majority of investors become convinced that a trade can only go one way, well, it often doesn’t.

And as I’ll show you, there can be easy gains to be had when you understand this.

For this example, I’m talking about the U.S. dollar.

You’ll probably recall the vicious downtrend the dollar entered in the two months leading up to Ben Bernanke’s second round of quantitative easing.

Investors were convinced that QE2 would pump a ton of cash into the system, thereby diluting (destroying) the dollar’s value. So, stocks and commodities started running higher, pricing in the dollar’s falling value.

Bonds also rallied.

But a funny thing happened on the way to the dollar de-basement. Once QE2 was announced, the dollar started to rally, and the long bond sold off.

The dollar was clearly not following the script. And what had been one-way trades – like gold, silver, bonds – started selling off.

******I’ve heard the situation likened to what happens when too many people move to one side of a boat at sea. The boat lists and may capsize. In investment terms we can understand this is what happens when there are no more buyers left to enter a position.

Gold, which had run to a new high above $1,430 an ounce fell 6%. The long bond, as measured by the iShares Barclay’s 20+ Year Treasury ETF (TLT), fell from $106 to $94.

Now, the dollar’s case is particularly interesting. Because the dollar is not valued in a vacuum, but rather against other currencies like the euro, it often takes some news event to catalyze the market’s predisposition.

And the currency market got that catalyst in the resumption of debt problems in Ireland. The euro started falling as investors started pricing in the possibility that the European Union could collapse.

Now, as an aside, I understand it may seem far-fetched that the EU could simply collapse. But Germany threatened it before the Greek bailout was finalized. And even in the latest case with Ireland, we heard that at least one EU member nation was none too happy about having to bail out a weaker member.

It’s not surprising that traders would trim their euro holdings. After all, you sure don’t want to be the one holding euros if the EU dissolves. That would be as embarrassing (and painful) as holding banks through the financial crisis.

It’s true, Wall Street often goes into “sell first, ask questions later” mode.

*****So anyway, the net result of this was a surprising rally for the U.S. dollar. Now, it’s certainly a worthy endeavor to discuss how particular situations seem to find a catalyst. In this case, Ireland’s debt problem weren’t unknown. And it’s probably more than simple irony that brought these issues to the fore right when the dollar was hitting support in extreme oversold territory.

In fact, the old saw that the market’s job is to make as many investors appear foolish as possible was coined to describe exactly this situation.

But we’ll have to save that discussion for later, because I told you there was a profit opportunity here, and I’m sure you’d like me to get to the point.

And the point is that any large macro trend will correct, or reverse, at times. But that doesn’t mean the trend is done. It’s simply washed out some longs and created an opportunity for new buyers.

In my opinion, that’s exactly what’s happening with the weak dollar trades right now. And chief among them is precious metals.

*****Now let’s turn our attention to the U.S. dollar-euro chart. It’s a 2-year look at the dollar. Daily Profit readers are familiar with this chart…

What we see here is that the dollar has rallied close to a support/resistance point. In fact, it’s already moved incrementally lower. And that move has coincided with a rebound for precious metals.

And we can see that the Gold ETF (GLD) is bouncing of its 50-day moving average...

So, if you’re looking for an entry point to catch the next rally for precious metals, this looks a good one.

*****Now, one more thing. Many investors may not know it, but silver prices are outperforming gold prices this by approximately 35%. There are several reasons for this, one of them being that silver has industrial uses (like solar panels) as well as “store of value” uses.

So for my money, silver is the place to be. And I’d like to tell you about a silver stock I’ve recommended in my Small Cap Investor PRO. I first recommended it at $3.45 per share in June. It’s been as high as $7 recently, but backed off to the $6 area when the dollar rallied.

I think it’s gearing up for a run to $9. That’s a 50% gain from current levels for investors getting in now.

Even better, I’m offering a brand new, 1 oz. Silver American Eagle coin to all new Small Cap Investor PRO subscribers who sign up today using the link below. So if you’re ready to profit from silver in two ways, please, CLICK HERE.

Until tomorrow,

Ian Wyatt
Editor
Daily Profit

P.S. The American Eagle one ounce silver coin offer for new subscribers to Small Cap Investor PRO ends today.

Click here now for yours.

The Fed Fires Back

Ian Wyatt — Fri, 19 Nov 2010 18:40:00 GMT

November 19, 2010

*****The Market Feels Heavy
*****Silver Eagle
*****The Fed Fires Back

Fellow Investor,

The good vibes from the GM IPO and the bailout potential for Ireland took the S&P 500 back above support/resistance at 1,192. We'll see how long the good vibes last.

Despite yesterday's strong move, the stock market still feels "heavy" to me. That's not to say I think a big decline is imminent. But the way higher is going to be a slow grind, unless we get some data to sway the mood.

We are on the verge of the holiday season. It's hard to believe Thanksgiving is next week! People tend to get a bit more cheerful during the holidays and that can seep into the stock market. That might sound simplistic, but never forget that while fundamentals may win out in the end, emotions rule the stock market in the short- and medium-term.

As an aside, all of the brick and mortar retailers I recommended on November 8 as holiday shopping trades are higher.

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*****Fed Chief Ben Bernanke spoke in Frankfurt, Germany this morning. In addition to blasting China for currency manipulation, Bernanke also dropped these two nuggets:

“On its current economic trajectory the United States runs the risk of seeing millions of workers unemployed or underemployed for many years...As a society, we should find that outcome unacceptable.”

And...

"A fiscal program that combines near-term measures to enhance growth with strong confidence-inducing steps to reduce longer-term structural (budget) deficits would be an important complement to the policies of the Federal Reserve..."

On the topic of unemployment, Bernanke is right on target. Unemployment is not going to improve substantially. Many of the jobs created in the 2004-2006 timeframe were "bubble" jobs. They came as a result of unsustainable demand from the housing bubble.

I have to applaud Bernanke for stating that such high levels of unemployment are unacceptable.

Also, please do not overlook Bernanke's challenge to Congress. He is saying in no uncertain terms that Congress needs to get moving on creating conditions and policy consistent with job growth.

Good for him. Unemployment remains the economy's greatest challenge. Yet Congress has done little to address unemployment.

*****Banks are set to undergo another stress test to determine if they are fit enough to start paying dividends. This is a very important issue for banks, and we've already seen Bank of America (NYSE:BAC) sell assets, presumably to shore up its balance sheet ahead of these stress tests.

Banks may also start to sell some of their "toxic" assets.

Bond fund giant PIMCO is betting they will. It's currently raised $1 billion to but toxic bank assets. And with banks now looking to be dividend-worthy, they may have added incentive to sell.

You may recall the Treasury's TARP (Troubled Asset Relief Program) program, designed to remove these toxic assets from balance sheets was mostly a failure, because banks didn't want to sell at a loss. Banks believed then, and may still, that these assets would eventually regain much of their value as the economy improved.

And the fact that PIMCO may want to buy them will only encourage the banks to hold.

*****China is once again raising bank reserve requirements to get money out of circulation and combat inflation. Oil prices are always very sensitive to China's policy.

Too bad Chinese officials don't ask Ben Bernanke how they might slow inflation. I bet he'd have some ideas...

*****Cisco (Nasdaq:CISCO) is adding $10 billion to its share buyback program. That's the only source of growth the company has right now. How the mighty have fallen...

The weakness in Cisco's business has investors asking if tech stocks are broken. I can answer that question: No, tech stocks are far from broken. In fact, business is booming for many technology companies. And valuations are still attractive.

*****Please feel free to write me with your questions and comments. I'll probably print them in Daily Profit: ianwyatt@wyattresearch.com

Until Monday,

Ian Wyatt
Editor
Daily Profit

T. Rowe Price Analyst: “Silver usually lags…”

Ian Wyatt — Wed, 10 Nov 2010 14:32:00 GMT

Gold continued to make news yesterday and today, but most investors still don’t realize that it’s silver that has posted much better gains this year.

In fact, silver has more than doubled gold’s gains, year-to-date:

Rick de los Reyes, a metals and mining analyst at T. Rowe Price recently noted that when investors flock to gold, there’s a tendency for silver to fall behind, “silver usually lags [gold]...”

The fact that silver is outpacing gold to such a large degree is great news for many silver companies. These companies typically return 2-3 times more profit to their investors than silver alone. For the year to date period, silver has surged 56 percent while gold is up a respectable 26 percent. Stock prices for top tier silver miners are up as much as 130% for the year.

Ian Wyatt, the Chief Investment Strategist at Wyatt Research, is recommending one small silver company to his clients. In just the past four days this stock has marched 20% higher, but with silver making equally broad moves, there’s no telling how high it will go.

Click here to see the full details of this small silver company.

Gold and Silver Surge on Fed News: Gold Stocks Paying Dividends

Ian Wyatt — Fri, 05 Nov 2010 17:06:00 GMT

Gold prices rose $45 an ounce today as investors flocked to the ultimate store of value after Fed Chief Ben Bernanke renewed his attack on the U.S. dollar with another round of quantitative easing.

Called QE2, the Fed will spend as much as $900 billion to buy U.S. Treasury bonds as a way to keep the dollar weak and boost corporate profits.

Of course, savvy investors understand the threat to the U.S. dollar. And they also understand that the Fed is inviting inflation, which will further impair the value of the dollar.

In order to protect and grow the value of their wealth, investors are piling back into gold.

Investor demand for high quality, authenticated gold has sent this stock's price up 103% this year. But with a trailing P/E of 7, another double is likely in the near term. What's more, this stock pays a 7.8% annual dividend.

For more on how you can earn 7.8% and potentially double your money as gold prices continue to run, please CLICK HERE.

What QE2 Means for Stocks

Ian Wyatt — Thu, 04 Nov 2010 19:50:00 GMT

Well, you got to give Ben Bernanke credit. He delivered exactly what the market expected. And stocks neither ramped nor sold off.

Interestingly, no other country responded with any stimulus/currency debasing of its own. Instead, England kept its policy the same as inflation there continues to run around 3%.

The U.S. doesn’t have that problem. Yet...

But what will happen when the U.S. economy finally turns and starts showing some real growth and inflation? Will the Fed be able to hit the brakes when the time comes?

History would suggest that no, the Fed will not be able to move when the time is right. Former Fed Chief Alan Greenspan certainly left rates too low for too long. There's no reason to think Bernanke won't do the same thing...

And this is exactly why, a couple months ago, when economic growth took a nosedive in July and August, I was advocating bullish talk on the economy from the Fed instead of more quantitative easing.

But Mr. Bernanke still won't take my calls...

I received this letter form George A:

I disagree with your desire for weakened dollar in order to increase stock prices. While increasing stock prices may make you look like a hero to your subscribers, the reality is that lots of money printing that reduces the value of every dollar in your pocket does not make you richer, it makes you poorer (look at the value of each dollar you own over the last 2 months for proof of that). As for inflation, it is real and it is happening now – fedex and ups just announced 5% increases in rates starting in january, if you have bought a box of cereal in the last 6 months you will notice 1) it is more expensive by 10-25 cents and the boxes are thinner (they think they are tricking us by not making the box shorter, but a thinner box really does hold less cereal than a thicker one).

Bernanke’s tactics will only make us poorer in the end, regardless of what spin he, Washington, and the media want to put on it.

I have never once advocated dollar debasement as a way to improve the U.S. economy. I am a realist, not a hero. It's my job, as I see it, to advise individual investors on how they can make money in the stock market.

When I see stocks that I like, such as Brigham Exploration (Nasdaq:BEXP) or Citigroup (NYSE:C), I tell you.

When I see market conditions that can help investors make money, like I have been seeing since August 31, I tell you.

Again, I may not agree with Fed policy, but I'm damned sure not going to sit around and cry in my beer about it. Instead, I'm going to make money off it. It is our responsibility to have our profits outpace inflation.

As for the thinner cereal box, yeah, they sure don't make like they used to. But seriously, that seems like good business to me. Less packaging material means decrease costs.

And I think I noted yesterday that we are seeing price inflation for goods (like food) that must be shipped as companies pass on higher oil costs to consumers. That goes for UPS and FedEx as well.

My man Jason Cimpl provided his TradeMaster Daily Stock Alerts subscribers with a great explanation of the Fed's actions and intentions in his pre-market piece today titled It's a Bird, It's a Plane, No It's Helicopter Ben...

"Curiously, the bond purchases are mostly weighted to the front and middle of the yield curve. With 3-6 years being the "gravy" rate range. Quantitative easing is a way for the central bank to boost the economy by driving down long-term interest rates when short-term rates are already at zero. The Fed showed no interest in supporting long term rates in its second round of quantitative easing.

The steep yield curve created by this methodology may not help its intended target, which are those looking to acquire or adjust a mortgage. Instead, the approach supports risk taking behavior and encourages funds to be plowed into other assets besides bonds. Doing so pumps up asset prices and builds a wealth effect for the public in order to increase employment and consumer spending.

Far be it for me to "play" the economist, but this program could be more meaningful if combined with another stimulus strategy created to boost capital demand."

Pay particular attention to Jason's observation that the Fed is not targeting mortgage rates, but rather, asset and equity prices.

Also notice that the long-bond, as measured by the iShares Barclays 20+ Year Treasury Bond ETF (TLT) was absolutely hammered yesterday after the Fed's announcement.

Finally, gold is roaring higher this morning, up around 3% or $40 an ounce.

I also mentioned bank stocks as my "canaries in the coalmine." By attacking short term interest rates, the Fed is clearly helping the banks. They should rally nicely.

It is appropriate to start asking "where do we go from here." Clearly the Fed is trying to make the investment pool as inviting as possible. And that should lead to more gains in the medium-term.

But we also need to be aware that the stakes are higher now. The potential for inflation, policy failure or some other shock to the financial system is now magnified.

It's tempting to throw some price targets for the indices out there. And it would be prudent to keep an eye on 1,220 on the S&P 500. But the Nasdaq is already at a post-recession high and the Dow Industrials is within 100 points of one.

So instead of targeting a specific index level as a turning point, let's be aware of the potential threats. A surprise jump in inflation would be a big one. I'll start digging into others for tomorrow...

As always, I want to hear your thoughts. I'll even print them. Write me here: ianwyatt@wyattresearch.com

Underestimating the American Consumer

Ian Wyatt — Fri, 13 Nov 2009 17:39:00 GMT

Your Daily Profit

November 13, 2009

*****P/E Ratios

*****Underestimating the American Consumer

*****TradeMaster’s Jason Cimpl

Fellow Investor,

As we came into earnings season, it seemed clear that analysts were far too pessimistic with their estimates for earnings.

Yesterday, Bloomberg reported that 81% of corporations have beaten earnings estimates. That’s the highest percentage since 1993. Bloomberg also reported that the S&P 500 is now trading at 22 times reported earnings. That’s the highest P/E for the S&P 500 since 2002. We might assume from this P/E that stocks are overvalued and due for a correction. But that might be a mistake.

In 2002, stocks made their final bottom following the Internet bubble and 9/11. The S&P broke below 800 twice in 2002 (July and October) and traded down to 806 on February 13, 2003. By the end of 2003, the S&P 500 had rallied to 1,112, a 37.9% gain.

*****Price to earnings ratios are often inflated when stocks are bottoming. In 2002, according to the very nifty P/E indicator at BigCharts.com, the P/E for the S&P 500 ranged between 27 and 42. And even in 2003, the P/E ranged between 26 and 35. It wasn’t until the end of 2004 that we started to see the P/E for the S&P 500 drop below 20.

What does this mean?

It means we shouldn’t read too much into P/E ratios. P/E ratios are lagging indicators. They tell is what earnings were, not necessarily what earnings will be. Right now, investors are saying they see more improvement in earnings ahead.

*****It’s happened to all of us. We accidentally overdraw our checking account while using our bank card, and then we get nailed with a series of overdraft fees. Well, no more.

Bernanke says that banks can no longer allow their customers to overdraw their accounts with debit cards -- and be charged overdraft fees – unless customers opt-in to the program. It may not sound like a big deal, but banks took in nearly $37 billion in overdraft fees in 2008. And even this year, when unemployment has devastated some family budgets, banks may take in $38.5 billion in overdraft fees.

In light of the fact that the Fed and the Treasury have done as much as they can to make it as easy as possible for banks to earn money, this is a surprising move. But it’s a good move. At $35 a pop, overdraft policies look almost predatory.

*****J.C. Penney (NYSE: JCP) reported earnings this morning. Revenues and earnings were lower than last year’s third quarter, but then we expected that. The surprise was that Penney’s raised full year revenue and earnings expectations. An even better earnings report came out at Abercrombie & Fitch (NYSE: ANF). Abercrombie beat estimates by a wide margin, even though same-store sales dropped by what must be one of the biggest margins in retail – 22%.

Again, we must remember that earnings estimates were very low for the third quarter. Companies should beat. And if they don’t, it’s a very bad sign. Still it’s good to see improvement in retail. I still think there could be upside surprises for holiday spending.

*****Now, here’s TradeMaster’s Jason Cimpl with our weekly video analysis of the markets. It’s free. Click here to view it.

Until Monday,

Ian Wyatt Editor
Daily Profit

Small Caps Up Despite Dow and S&P 500 Down

Ian Wyatt — Fri, 26 Jun 2009 20:31:00 GMT

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Your Daily Profit

June 26, 2009

*****Small-cap Update

*****Bernanke’s Resolve

*****Opportunity Cost

*****TradeMaster’s Jason Cimpl

Fellow Investor,

Stocks were poised to open lower today and but for a brief few minutes in early trade they generally lived up to the prediction. The Dow shaved 34 points to close at 8,439. The S&P 500 sank 1.5 points to 919, while the Nasdaq closed up 9 points to end the day at 1,838.

Stocks in the Russell 2000 Index, a composite of the 2,000 largest small-cap stocks, bucked the downward trend for the index to close at 513, up 0.78%.

While there was good news about a very modest increase in spending rates, investors seemed most concerned about the boost to the U.S. savings rate to 6.9 percent, up from 5.6 percent in April and significantly up from rates below 1 percent for the period 2005 through 2007. While this could bode well for the longer term economic health of the U.S. economy many analysts see it merely as a side effect to consumer concerns about layoffs, cutbacks, and furloughs.

The increase in the savings rate has come at the expense of consumer spending, which accounts for roughly 70 percent of the U.S. economy. Indeed, many retailers have been battered over the past several quarters as Americans concerned they may receive a pink slip any day shut their wallets to defer spending and switch to lower cost brands for necessities.

Among the stand-outs in retailing are Wal-Mart (NYSE:WMT), Target (NYSE:TGT), and Costco (NYSE:COST). Despite more consumers turning to discount retailers, both WMT and COST have seen year to date share price declines. TGT shares are up nearly 20% for the year.

Despite the modest increase in household spending, retailers are girding for continued earnings pressures as American families prepare for unemployment to reach 10% later this year, up from the current 9.4%.

Leading small-cap gainers today was Zion Oil & Gas (AMEX:ZN) up 76%. Zion runs as a development stage oil and gas exploration firm. Based in Dallas, Texas, the firm holds exploration licenses for onshore development in Israel.

Other small-cap leaders included Cardium Therapeutics (AMEX:CXM) up 48%; Schmitt Industries (Nasdaq:SMIT) up 45%; and Caraco Pharmaceutical Laboratories (AMEX:CPD) up 35%.

Decliners were lead by Design Within Reach (Nasdaq: DWRI), a San Francisco-based furniture store, down 41% after announcing that it expects to delist from the Nasdaq on July 16 with trading ceasing July 6. DWRI has had trouble keeping its share price above $1.00 (a key Nasdaq requirement) for most of 2009 and has indicated that it does not have the working capital to meet the Nasdaq’s requirements for staying listed.

Besides DWRI, small-cap price decliners were lead by NewBridge Bancorp (Nasdaq:NBBC) down 37%; Cano Petroleum (AMEX:CFW) down 25%; and Cumulus Media (Nasdaq:CMLS), also down 25%.

*****Yesterday, the Fed scaled back two of its liquidity-providing programs and announced it would let a third one expire on July 1, 2009.

Each program was designed to provide liquidity to securities dealers and money-market funds that couldn’t raise funds in the capital markets. The Fed noted that none of the programs were used anywhere close to capacity. And the improving economy and loosening of credit markets has made the programs less necessary.

Investors took this as good news because it suggests the economy and financial system is starting to stand on its own. It’s also good news because it shows the Fed is willing to be somewhat proactive in shutting off liquidity.

To me, this is more important.

*****In one form or another, the U.S. government has made (read:created) something like $11 trillion available to fight this recession. (I’m not sure anyone knows the exact number.) The government has been widely praised for its response to the financial crisis. Its moves are credited with averting a more serious problem.

But that’s only half the job, and it’s the easy half, at that. I expect many of you have seen how a toddler reacts when it’s time to give up the pacifier. Kicking and screaming is an understatement. And that’s exactly how it will happen when the Fed really starts taking away the liquidity pacifier for good.

Alan Greenspan never had the stones to give the U.S. economy the tough love it needed. And Wall Street became a spoiled bunch of delinquents.

Will Bernanke have what it takes to guide the U.S. economy from dependent child to responsible adult? We’ll see. And we better hope so, because I suspect the stakes are even higher this time around…

*****While the U.S. is creating debt to support its economy, China is using its currency surplus to secure raw materials. I mentioned yesterday that China’s state-run oil company Sinopec (NYSE:SNP) is trying to acquire an oil exploration company for $7.2 billion. And it wasn’t that long ago that China tried to take a $19 billion stake in mining giant Rio Tinto (NYSE:RTP).

When you’re an investor, you have to be worried about opportunity cost. That’s the cost of profits that you could have made, if your investment capital wasn’t tied up in under-performing or illiquid assets.

Right now, and probably into the future, the U.S. will be suffering opportunity cost as so much of our resources are tied up in simply supporting our economy.

*****Case in point: Iraq. Iraq is one the verge of opening the deal-making process for international oil companies to upgrade Iraq’s oil fields. This promises to be a very convoluted process – the Kurds and Parliament want input and the current oil minister appears ready to bypass them both.

All Iraqis realize how important oil, and oil revenue, is to their future, and they’re all fighting to get a piece of the action and avoid the exploitive situation that occurred before Saddam Hussein kicked Big Oil out of Iraq.

For this reason, the proposed development contracts are not guaranteed. There is the risk that a subsequent Iraq government could nullify them and there would be no recourse.

The risks are high enough that Exxon-Mobil (NYSE:XOM) isn’t even sure yet if it will enter the bidding process. But I’ll bet you dollars to doughnuts that Sinopec’s parent company, China National Petroleum & Chemical Corp. will be bidding.

Now, obviously, the recession has nothing to do with Exxon’s uncertainty. But for China’s state-run oil companies, national interests are sometimes more important than profits. And that can be a good thing.

*****Now, here’s Jason Cimpl’s video analysis of this week’s action and look ahead to next week. So far he’s batting a thousand. You can view the video HERE or go directly to trademasterstocks.com/videoreport.

*****As always, please write and share your thoughts and comments: editorial@247investor.com. I’ll talk to you on Monday.

Ian Wyatt

Editor

Daily Profit