What does a million Australian dollars look like? – An enormous gold coin. The Perth Mint unveiled the one tonne, gold coin on Thursday.
Kevin Mahn, Contributor
While the global commodity markets turned considerably lower during the third quarter of 2011, I do not believe that a sustained drop in commodity prices is likely.
Worldwide demographic trends will continue to place supply pressures on several commodity types, notably food and energy, while increased market volatility will likely result in continued investor appetites for precious metals.
Elevated levels of commodity prices remain as a concern to us, at Hennion & Walsh, as it puts further stress on already strained U.S. consumers. It also reaffirms our belief that inflation is not necessarily just waiting in the wings, but now is starting to rear its ugly head in places like agricultural and metal based commodities.
Despite our beliefs, commodity markets suffered severe losses during the third quarter, particularly in September, due to two primary factors based on our research and analysis:
Concerns over an increasing likelihood of a prolonged economic slowdown
Equity market volatility leading certain investors to have to sell assets that have gained in value (i.e. commodities) to cover margin calls on assets that have lost value (i.e. stocks)
For the quarter, the Thomson Reuters/Jefferies CRB commodities index fell 11.8%, falling 12.97% in September alone. The precious metal silver and copper, an industrial metal, were particularly hard hit during the final four weeks of the quarter as silver lost 27.9% and copper lost 24.9% during the month of September.
Gold was not impervious from the onslaught in the commodity pits as it fell 11.42% during the month of September after reaching an all-time high level of $1,923.70 per ounce on September 6, 2011. Despite the difficult September, gold still closed higher for the quarter by 7.8% and remains higher by 14% on a year-to-date basis. If this gain holds for the final quarter of the year, which I believe it will, it will mark the eleventh consecutive year of gains for this particular precious metal. Once viewed as an inflation hedging vehicle, gold is now viewed by many investors as a “flight to quality” trade alternative during volatile markets in a similar fashion to the manner in which U.S. Treasuries were/are viewed in these environments.
I often look to the Exchange-Traded Product (ETP) marketplace to gain a sense for how the various commodity markets are performing. The chart below shows the 2011 year-to-date (YTD), 1-year and 3-year performances, in addition to their associated volatilities as measured by standard deviation, of a few of these selected commodity ETPs:
|ETP Name||Ticker||2011 YTD Return %||1 Year Return %||3 Year Return %||3 Year
|SPDR Gold Shares||GLD||13.94%||23.57%||22.94%||22.06%|
|PowerShares DB Base Metals||DBB||-24.07%||-15.30%||-1.15%||31.17%|
|PowerShares DB Agriculture||DBA||-8.30%||7.95%||-0.08%||20.34%|
|United States Oil||USO||-21.82%||-12.49%||-28.09%||37.52%|
|U.S. Natural Gas||UNG||-24.85%||-27.00%||-48.66%||37.95%|
|iPath DJ-UBS Commodity Index||DJP||-15.02%||-1.28%||-6.79%||22.99%|
Source: Morningstar as of September 30, 2011. Past performance is not indicative of future results.
Disclosure: Hennion & Walsh Asset Management currently has allocations within its managed money program to PowerShares DB Agriculture (DBA)
Personal Finance 10/27/2011 @ 9:26AM |
It seems so easy to see other people’s blind spots while our own often elude us. My husband, for example, is “technology challenged.” Ten years ago, I was able to coax him into using the Internet when he found out he could get a plethora of sports information on his computer. His home page now has San Francisco Giants team information and he uses bookmarks galore for his various sports outlets. He has the basics down now, which sounds good, but he doesn’t really understand how far behind he is. To give you an example, he doesn’t know how to create a “new window” in Explorer and gets extremely frustrated when he accidently opens one, it takes over his screen, and he thinks he lost what he was working on (which was safely hidden behind the window he just opened). A simple solution for him is to take a few classes or spend some time in the tutorials and a whole new world will open up for him.
The problem is he doesn’t know what he doesn’t know. The constant frustration also chips away at his confidence so he doesn’t even trust what he does know when it comes to technology issues. I see a similar phenomenon in my work as a financial planner/educator since my job is to point out the financial blind spots of the employees I meet with who utilize our worksite financial planning or financial helpline services. Fortunately, once we uncover these blind spots, there are often some very simple steps to take or missing links to connect that can make the difference between being financially successful or not.
Here are three common blind spots people often share:
People approach cash management backwards. When establishing a cash management plan or budget, people tend to start at the wrong place—looking forward instead of backward. Last week I had two days of financial planning sessions with employees at their worksite and every single person who had cash management questions had the exact same blind spot. Their approach to budgeting was to start with a list of bills and a corresponding list of when they were due. Not that paying bills isn’t important but it’s just not the best approach to cash management. Paying a bill is a reactive action. Planning your spending each month and tracking it is taking proactive action.
Setting up a “bill due – pay it” spreadsheet doesn’t put you in control of your cash flow and ultimately your wealth building. It is as if the bill has the power over you rather than the opposite. What is missing in this scenario is “you.” A more productive way to start approaching cash management planning is to look backwards and analyze where you have been spending your money over a period of time, say three months, then take the information and set spending targets depending on your needs, your values and your financial goals. I did this for the first time a few years ago and was shocked to find out how much I was spending on socializing during lunch and happy hour with my girlfriends – hundreds of dollars each month. Friendships are high on my list of importance so I wanted to nurture them but I didn’t want to pour thousands of dollars down the drain either. I made a change and started suggesting alternatives such as meeting at a park and walking the dog, going to a museum or art gallery, and other types of activities where I could visit with my dear friends but curb the spending.
Without the simple act of analyzing where I was currently spending my money, I wouldn’t have uncovered the blind spot and it literally could have cost me tens of thousands of dollars. Money management sites such as Mint.com and old standards such as Quicken.com make it simple to get a handle on your cash flow. You can literally do everything all in one place: analyze where your money is going, proactively set spending targets and monitor your spending on an ongoing basis.
Assuming the status quo will never change. In the 1990’s the stock market went up nine out of ten years and everyone assumed the market would continue producing returns of over 15% a year even though those returns were unusually high. At the time, investors chose their mutual funds by looking at the previous year’s performance, which in certain years could have been upwards of 50% (unfortunately many investors still make this mistake). What they didn’t understand, of course, is that the investments had just outperformed average returns by about four hundred percent and there was little chance it would happen again, especially as new cash poured into the fund. Did investors really think the investment performance would be repeated? They did. They were looking at the status quo and assumed it would never change – it would be rosy again the following year. It wasn’t.
Today investors are looking at the other side of the same coin. In what has often been referred to as the lost decade of the 2000’s, the S&P 500 underperformed the historical market averages. The fact that there was such a great deal of volatility only seemed to make things more complicated. The financial crisis, the housing crisis, and high unemployment certainly contributed to a lack of confidence. However, the question remains: do we really think the market will significantly underperform in the long-term? In a recent study conducted by MFS Investments , twenty five percent of investors indicated they liquidated a portion of their portfolio in 2010 or 2011 due to market concerns. Respondents cited rising health care costs (78%), the growing federal deficit (72%), and increases in taxes and legislative gridlock (both 66%) as their top concerns over the next 12 months. More than one-half (53%) of the people surveyed feared a major drop in the stock market over the next year as well, an increase from 47%.
I wrote about this phenomenon in a previous blog about Gen Y investors and suggested they “embrace the bear” but this affects every investor with a long-term time frame. Just as it didn’t make sense to throw money at the stock market at the peak of the bubble in the late 90s, today it doesn’t make sense to stay in cash investments for long-term investors. We may be looking at an opportunity to accumulate shares of solid companies at reduced prices during this bear market. Will next year be gloomy? It might but gloom won’t always be the status quo.
Investing solely within retirement plans. There is something missing in many people’s financial plans – investments! The good news is more employees are investing in their 401(k) plans. According to Financial Finesse’s most recent research on financial trends, as of the third quarter of this year 91% of employees reported they are contributing to retirement plans at work. Don’t get me wrong – I love my 401(k) as much as the next person. I just notice that what is not so common today are systematic investment plans into mutual funds or brokerage accounts outside of retirement plans. There are some distinct advantages – assets held a year or longer receive the favorable capital gains tax treatment, there is no IRS penalty for early withdrawal, and losses can be harvested against gains to minimize future taxes. Dividends and capital gains can be taken as income to enhance current lifestyle or may also be reinvested for future income. These used to be extremely common investment strategies ten or fifteen years ago. What happened?
It could be a combination of things. First of all, a higher balance in an emergency fund is required in today’s tight job market so more investors are funneling extra cash to savings instead of investing for goals. Second, as I mentioned above, when investment statements aren’t showing positive returns (even though it may be very timely to buy), investors tend to hold off and wait. Another reason might be the rise of the do-it-yourself investor who is managing their own money rather than working with an advisor. It might never occur to them to set up an automatic investment plan and since no one is prompting them to do so, it never gets done and the opportunity is lost.
It seems like there are a lot of blind spots in our lives. Sometimes, thankfully, what is missing is something simple and easy to fix. For example, recently a plumber came to look at my dishwasher since it was completely dry – a little hard to wash dishes with no water. He kindly showed me that I had an obstruction in my water line and gave me the good news that I didn’t have to replace the dishwasher. I hate to admit that all he did was pop the cap off the outlet in the sink to find it. This was obviously something that I could easily have done if, of course, I knew what to look for. But I know now and can report there have been no obstructions since his visit. If only it was as easy to assess our own financial blind spots as it is to assess the blind spots of others. The biggest problem with these financial blind spots is what you don’t know can hurt you down the road.
In an interview on CNBC Marc Faber of the Gloom, Boom & Doom report stated the obvious, If the Chinese bubble bursts one day, which inevitably will happen — maybe not tomorrow, maybe in three months, maybe in three years — when it happens it will have devastating consequences for the global economy. This was in response to the effect of the free printing of currency by most central banks.
China is moving quickly to the number one global economy & a faltering of their economy could be the third economic disaster in a decade. The US collapse in 2008 along with the current EU meltdown are setting thing up for China to follow suit in the next 3 to 5 years. The end crisis will be postponed until the sovereigns go bankrupt, Faber told CNBC. They can postpone the end-game endlessly…say another five to 10 years. Each money-printing exercise brings about unintended consequences. These unintended consequences are higher inflation rates than had no money been printed.
With all of the money being printed one thing that remains the same is the finite amount of gold. Gold will continue to benefit from inflation, quantitative easing & any economic melt-downs by keeping its real value. As part of a diversified portfolio those holding precious metals & rare coins in a Tangible Asset Portfolio will thrive during any economic downturn.
Published: Tuesday, 25 Oct 2011 | 12:46 PM ET
By: Maneet Ahuja
Hedge Fund Specialist
The European Union is doomed to fail because the divide between the northern and southern countries is just too great, former Fed Chairman Alan Greenspan told CNBC in a recent interview.
“At the outset of the creation of the euro in 1999, it was expected that the southern eurozone economies would behave like those in the north; the Italians would behave like Germans. They didn’t,” Greenspan said. “Instead, northern Europe fell into subsidizing southern Europe’s excess consumption, that is, its current account deficits.”
Greenspan predicts that as the south’s fiscal crisis deepens, the flow of goods from the north will stop altogether and southern Europe’s standard of living will go down.
“The effect of the divergent cultures in the eurozone has been grossly underestimated,” he added. “The only way to have several currencies from divergent nations lumped together is if they are culturally close, such as Germany, the Netherlands and Austria. If they aren’t, it simply can’t continue to work.”
Greenspan feels that, to a very large extent, what’s driving the United States at the moment is Europe. “Today, there is one single integrated global stock market,” he said.
He also expects the European crisis, coupled with a failure to address the U.S. budget deficit, may be severe enough to cause a bond market crisis if the market suddenly decides the U.S. is more like Greece than not.
“It is very difficult to predict when a bond crisis could happen,” he said. But getting an agreement on the U.S. budget will be difficult, he added, because Washington is the most polarized he’s seen it in his career.
Greenspan would like to see Congress address the revenue side of the budget problem by eliminating government subsidies through tax breaks, like the deduction for mortgage interest payments.
“Much fiscal policy is implemented, not through spending increases, but through tax credits and other so-called ‘tax expenditures,'” he said. “The markets should respond to them as they do spending cuts, with little contraction in economic activity. We thus could get a very large positive impact on the deficit from such reductions, with minimum negative impact on the economy.”
It is no surprise, then, that Greenspan supports the Simpson-Bowles deficit-reduction proposal, which came out last year. Though the plan was met with strong resistance in Washington, Greenspan believes “the presumption we can rein in our budget deficits without inflicting some fiscal pain is utterly unrealistic.”
If Simpson-Bowles isn’t enacted, Greenspan favors letting the Bush tax cuts expire and restructuring the tax code, moves he says could fairly easily put over a trillion dollars back into Uncle Sam’s pocket each year.
© 2011 CNBC.com
10/21/11 Paris, France
In 2005, few people on the planet could afford Americans’ standard of living. Not even Americans.
But now the wheel has turned. The US is facing financial reality. And yesterday, we gave you our most audacious forecast ever: the popolo minuto are headed for the barricades. Yes, dear reader, prepare for revolution, repression, and ruin. Buy stocks in companies that make police batons and pepper gas…prisons and window glass…drones and bandages.
The Christian Science Monitor:
A Long, Steep Drop for Americans’ Standard of Living
Think life is not as good as it used to be, at least in terms of your wallet? You’d be right about that. The standard of living for Americans has fallen longer and more steeply over the past three years than at any time since the US government began recording it five decades ago.
Bottom line: The average individual now has $1,315 less in disposable income than he or she did three years ago at the onset of the Great Recession — even though the recession ended, technically speaking, in mid-2009. That means less money to spend at the spa or the movies, less for vacations, new carpeting for the house, or dinner at a restaurant.
In short, it means a less vibrant economy, with more Americans spending primarily on necessities. The diminished standard of living, moreover, is squeezing the middle class, whose restlessness and discontent are evident in grass-roots movements such as the tea party and “Occupy Wall Street” and who may take out their frustrations on incumbent politicians in next year’s election.
Per capita disposal personal income — a key indicator of the standard of living — peaked in the spring of 2008, at $33,794 (measured as after-tax income). As of the second quarter of 2011, it was $32,479 — almost a 4 percent drop. If per capita disposable income had continued to grow at its normal pace, it would have been more than $34,000 a year by now.
The misery index — which combines inflation and unemployment — is almost back to where it was 30 years ago — after inflation had reached 13% and stocks had been going down for 16 years.
But wait. Things didn’t turn out so bad after that, did they? In the early ’80s came “Morning in America” and a 20-year boom.
Don’t count on it this time, dear reader. 1981 was everything 2011 is not. Back then, interest rates and inflation were sky high. Stocks were low. And Paul Volcker had just taken over at the Fed. When he said he was going to turn things around, he meant it.
Today, interest rates are at a half-century low…stocks are still expensive…and Ben Bernanke is as confused as Volcker was clear-headed. Turn things around now and you get rising interest rates, falling stock prices…and more misery. Look out the window. You can see the sun on the horizon twice a day. But only once is it rising.
The world has turned. Against us. Mitt Romney may have God in his pocket. But from our perch here at The Daily Reckoning headquarters in Paris, it looks more likely that the gods have gone over to the other side.
Here’s more…from Atlantic Monthly. There are six million more ‘workers’ in the US than there were 10 years ago. Well, they would be workers…if they could get jobs. Trouble is, there are fewer jobs today than there were then. In other works, over the decade, the US economy backed up. Here’s more:
50% of All Workers Made Less than $26,000 in 2010
Today we get our first look at American wages in 2010 based on payroll taxes reported to the Social Security Administration. David Cay Johnston picks out the most important takeaways, including:
1) Half of all workers made less than $26,364, the median wage in 2010. That means the typical wage is at its lowest level since 1999, after adjusting for inflation.
2) The number of millionaires increased by about 20 percent.
3) The size of the missing workforce is 10 million. The number of working people fell by 5.2 million since 2007. But that’s not the entire job deficit, because, based on population growth estimates, 4.5 million more would have joined the workforce between 2007 and 2011. Add it up, and you get a 10-million-worker gap.
What you see in the graph above is that median pay took a nosedive after 2007, effectively wiping out all gains made in the previous eight years.
Americans are getting poor faster than they got rich.
Read more: The New American Standard of Living http://dailyreckoning.com/the-new-american-standard-of-living/#ixzz1biNQhSeT
Tom Aspray, Contributor
10/20/2011 @ 11:43AM |
New signs of weakness in gold futures and popular ETFs like GLD and GDX suggest that a new decline could unfold, ultimately setting the stage for a stronger rebound later on.
The sharp decline in gold futures and the SPDR Gold Trust (GLD) from the September 2 highs has dampened some of the high bullish sentiment, but it still seems too high. From a technical standpoint, the rally from the September 23 lows has been pretty anemic, which increases the odds of another sharp decline.
Typically, after such a sharp drop, I would expect to see a rebound that recouped 38.2% to 50% of the previous decline. After GLD dropped from a high of $185.84 to a low of $154.16, just a 38.2% retracement would have taken the fund back to $166.31, while the 50% retracement resistance level stands at $169.90. GLD, however, has only been able to rally as high as $164.19.
This is a sign of weakness, and from a time standpoint, I would not be surprised to see the correction in gold last another month, possibly even two.
This correction may be similar to what occurred in 2009 and early 2010, when gold peaked at the start of December 2009 and the correction lasted through March 2010. As I have pointed out before, it was deep enough and lasted long enough to turn many bearish on gold. Let’s look at the current technical outlook.
Click to See Charts
Chart Analysis: The daily chart of the December 2011 Comex gold contract shows that it has just completed a bear flag formation (lines a and b). There is initial support now at $1628 and a daily close below $1596 will signal acceleration on the downside.
There is converging chart support, lines c and d, in the $1500-$1520 area
The bear flag has targets at $1492 with the equality target (using the initial drop from point 1 to point 2) at $1484
The longer-term uptrend, line e, which goes back to 2010, is now in the $1430 area
The daily on-balance volume (OBV) deteriorated in early September before prices plunged. The OBV is leading prices lower, as it has already dropped to new correction lows
The weekly OBV (not shown) formed a negative divergence at the highs
For December gold, there is first resistance at $1656-$1665 with much stronger resistance in the $1700 area
GLD had traded above the weekly Starc+ bands for five weeks in August, and this was one of the red flags that warned of gold’s drop
The weekly Starc- band is now at $151.20 with the weekly uptrend, line f, in the $148-$149 area
The weekly OBV formed a negative divergence at the recent highs before dropping below its weighted moving average (WMA).Volume has turned up recently, but it still below its WMA
Click to See Charts
The daily chart of the SPDR Gold Trust (GLD) shows that last week’s narrow range was followed by selling early this week. The daily chart shows next support in the $152.50-$155 area.
A break of the uptrend, line b, would not be surprising on a further decline, but it would not change the major trend
The daily OBV formed a negative divergence at the highs, line c, and then gave a short-term sell signal before prices plunged
The OBV is back below its weighted moving average and volume on the recent rebound was weak
It would take a move above line c to turn the OBV positive
There is first resistance now at $162.50-$164 with the 38.2% Fibonacci retracement resistance level at $166.31
The Market Vectors Gold Miners ETF (GDX) peaked at $66.98 on September 9 and hit a low of $50.42 less than one month later. This was a drop of 24.7%. GDX was hit with heavy selling on Wednesday and looks ready to test these lows.
The daily chart does show that GDX has a trend line support in the $50 area, line e
There is additional support from 2010 in the $46-$47.50 area
Volume picked up on Wednesday, but the daily OBV is still barely above its weighted moving average
The weekly volume (not shown) is below its WMA but did confirm the most recent highs
There is initial resistance now at $56.60 and a daily close above the $58 level (line d) is needed to stabilize the chart
What It Means: The lackluster rally in gold and weakness in the gold miners (some were down 3%-5% on Wednesday) suggests that the rebound is over. Further concerns about the Eurozone debt problems have not supported gold prices, and the stronger US dollar is also hurting the metals.
A decline in Comex gold to the $1500 level and GLD to the $149-$151 level could complete the majority of gold’s correction and set the stage for a stronger rebound.
How to Profit: The monthly OBV analysis indicates that the major trend in gold is still positive…as it has been for many years. For those who hedged their long positions in GLD, as recommended in August, look to take off the hedges if GLD reaches $150.50.
The gold miners look quite vulnerable, and if you are long any of the individual mining stocks, be sure your protective stops are in place.