Financial Review

Financial Review for Thursday, January 25, 2012

DOW +81 = 12,756SPX + 11 =1326NAS + 31 = 281810 YR YLD -.06 = 2.01OIL +.79 = 99.74GOLD  + 44.40 = 1711.80SILV + 1.22 = 33.37PLAT + 35.00 = 1585.00 The Federal Reserve will leave interest rates unchanged. That is the biggest non-news event of the day, but wait, there’s more! The Fed wrapped up their FOMC meeting with a new twist, they issued an official inflation target of 2 percent and they published individual policymakers’ forecasts for the Fed funds rate. A 2 percent target for inflation isn’t really new, and it wasn’t really on target because the rate for 2011 was 3 percent. The individual policymakers offered a wide range of views; three policymakers expect rates will need to rise this year and two others don’t think rates will need to rise until about 2016. The consensus seemed to be that rates should stay unchanged until the end of 2014. The Fed says the economy faces “significant downside risks” but it offered little to suggest it was close to launching another round of bond-buying to prop up growth. It did say, however, that it would maintain a “highly accommodative” monetary policy stance. The statement also dropped a reference saying the Fed was monitoring inflation and inflation expectations. Let’s break this down a bit further; the biggest change was that the Zero Interest Rate Policy has been unofficially extended from 2013 to 2014; this could be considered dollar negative; meanwhile, there was no announcement on QE3 – no …

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January, Tuesday 24, 2012

DOW – 33 = 12,675SPX – 1 = 1314NAS + 2 = 278610 YR YLD unch = 2.06%OIL -.37 = 99.21GOLD -9.90 =1666.40SILV -.30 = 32.15PLAT -11.00 = 1554.00 Greece‘s private creditors are negotiating how much of a discount they will take on Greek bonds. Under the agreement drawn up in October, bondholders would take a 50 percent write-down on the notional value of their Greek holdings; in other words, they would swap their bonds for new bonds worth 50 cents on the dollar. Last week the two sides were converging on an agreement that would see private creditors accepting a real loss of 65 to 70 percent and new bonds with 30-year maturity. This week the negotiations seem stuck on the interest rate the new bonds would pay – 4% or 3.5%. Private creditors say a 4% coupon is their final offer; the Greeks say they can only go 3.5%. The idea is that the bond swap would allow Greece to cut its debt from around 160% of GDP to 120% of GDP over the next 8 years. The clock is ticking on a deal because Greece has more than 14-billion Euro in bond redemptions that come due in March. Without a deal, Greece would be forced into a hard default, which would freak out the Eurozone. If they can come to a deal, then Greece is looking at a selective default, meaning they swap the bonds and nobody freaks out. A deal needs to be struck soon. Everything …

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January, Monday 23, 2012

DOW – 11 = 12,708SPX + 0.6 = 1316  NAS – 2 = 278410 YR YLD +.04 = 2.07%OIL + 1.61 = 99.94GOLD + 9.30 = 1677.30 SILV + .15 = 32.45PLAT +25.00 = 1567.00 The stock market is off to its best start in a good 15 years. Stock market sectors leading the rally include:materials, homebuilders, semiconductors, and financials. The 50 worst performing stocks in 2011 are up over 10% so far this year; the 50 best are up a mere 2%. Bonds are off to their worst start since 2003 with the 10-year note yield back up to 2%. The S&P 500 is now up 20% from the early October low and just 3.5% away from the April 2011 recovery high (in euro terms, it has rallied 30% and at its best level since 2007). Meanwhile, a new report from Bespoke Investment Group says stocks are trading at their cheapest levels since at least 1990, according to such commonly used valuations as price-to-earnings and price-to-book ratios as well as dividend yield. Also, the manufacturing sector has been a pocket of strength, while the employment picture is really beginning to show improvement. To start 2012, the S&P500 had an earnings multiple of 13, the lowest since 1990 and below the 80-year average of 15. It would take a move back to 1,484 to get the benchmark back to this long-term mean P/E. The price-to-book ratio is 2.05, below the average since the late 1970s of 2.43. To get back …

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January, Friday 20, 2012

DOW +96 = 12,720SPX +1 = 1315NAS -1 = 278610 YR YLD +.06 = 2.03%OIL -2.19 = 98.19GOLD + 10.30 = 1668.00SILV +1.56 = 32.30PLAT +11.00 = 1541.00 Today, Wall Street was just muddling along. GE and Google posted weak earnings. The Dow advanced and the broader market were flat. Still, stocks have posted three weeks of gains to start the New Year on weak volume. Nobody wants to believe the rally; maybe they’ve decided it’s safer to sit it out. Stocks may muddle higher but it is difficult to sustain gains on light volume and it leaves the market vulnerable to selling pressure. Nihil sub sole novum. That’s Latin for nothing new under the sun. It seems to prove the point when you say it in a dead language. And so, we go from archaic to the contemporary medium for information sharing, the internet. If you think the internet is only about sharing new, original, unique, and innovative information the you really need to move into the 20th century (for starters). There are many things that are inequitable about current copyright and patent laws, but even if we gloss over that discussion, the idea that legislators wanted to make it illegal to share information over the internet was remarkably stupid. It seems several legislators just lined up to do the bidding of their corporate paymasters, without regard to the consequences. The SOPA and PIPA legislation was bipartisan stupidity. The bills were championed by former democratic Senator Chris Dodd, who …

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January, Thursday 19, 2012

  DOW + 46 = 12,625SPX + 6 = 1314NAS + 18 = 278810 YR YLD +.07 = 1.97%OIL -.28 = 100.30GOLD – 2.20 = 1657.70SILV + .12 = 30.74PLAT – 3.00 = 1525.00 The robo-signing scandal, in which mortgage servicers, that is – the big banks, were accused of initiating foreclosures based on inaccurate and sometimes fraudulent documents, “exposed a whole slew of problems in servicing these mortgages that need to be fixed.” Now, the Department of Housing says it’s close to a $25 billion dollar settlement with servicers. Such a deal could result in principal reductions for up to one million homeowners and the settlement would provide cash payments to a smaller number of families who were directly harmed by the servicers’ conduct. One of the big hold-ups to a settlement is that many of the state’s that started out in the settlement talks have since bailed out on a settlement, because the settlement was turning into a sweetheart deal for the big banks. More earnings reports today: Morgan Stanley reported a loss of $227 million, compared with a profit of $871 million a year earlier.  Bank of America posted a profit of $1.99 billion, or 15 cents on a per-share basis, compared to the prior-year loss of $1.24 billion, or 16 cents. The results were in line with estimates, however the results were full of asset sales and one-time charges and gains, and accounting prestidigitation so prodigious as to transmogrify transparency into something beyond the pale of obfuscation. …

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January, Wednesday 18, 2012

DOW + 96 = 12,578SPX + 14 = 1308NAS + 41 = 276910 YR YLD +.05 = 1.90%OIL +.39 = 101.09GOLD +7.30 = 1659.90SILV + .46 = 30.62PLAT +4.00 = 1527.00 “The global economy is entering into a new phase of uncertainty and danger,” so says the World Bank’s chief economist, Justin Yifu Lin. “The risks of a global freezing up of capital markets as well as a global crisis similar to what happened in September 2008 are real.” The bank cut its growth forecast for developing countries this year to 5.4% from 6.2% and for developed countries to 1.4% from 2.7%. For the 17 countries that use the euro currency, it forecast a contraction, cutting their growth outlook to -0.3% from 1.8%. For the United States, the bank cut this year’s growth forecast to 2.2% from 2.9% and for 2013 to 2.4% from 2.7%. In the event of a major crisis, “no country will be spared.” “The downturn is likely to be longer and deeper than the last one.” Many governments are in a weaker position than they were to respond to the 2008 global crisis because their debts and budget deficits are bigger. The World Bank said slower growth is already visible in weakening trade and commodity prices. Global exports of goods and services expanded an estimated 6.6% in 2011, barely half the previous year’s 12.4% rate, and the growth rate is expected to fall to 4.7% this year. Commodity exporters should brace for a fall in oil …

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The Update Case of Silver

Sinclair Noe is the host of “Financial Review” heard on moneyRadio.com and KFNN 1510 AM in Phoenix, Monday-Friday at 4PM MST. Sinclair has temporarily picked up the hosting duties for Pat Gorman’s “Hard Money Watch” radio program on moneyRadio.com and 1510 AM, Sunday mornings at 10AM MST. Mr. Noe has written six books; the most recent include: “Eat the Bankers” and the “Veterans’ Benefits Reference Manual”. Sinclair is the editor of Bank-o-Meter.com. He has also been a featured speaker at our Wealth Protection Conferences in Tempe for the past few years. The Updated Case for Silver I want to go back to my presentation at the 2011 Wealth Protection Conference; I spoke about several long-term trends. I think I presented several compelling and accurate predictions for long-term trends. I spent a lot of time talking about my investment pick for the next decade –silver! A friend recently chided me for what he considered an egregious mistake. Last April, silver hit $48.55. As I write, silver is around $29 an ounce. In my defense, I said at the Wealth Protection Conference that silver would most likely fall from the April highs and essentially every other speaker and several attendees at the conference confirmed this prediction. I remind you that my pick was for silver as the investment of the decade. Still, the past 9 months have been challenging for silver bugs. I hope you’ve been buying the dips. I think it will pay handsomely. Here is my updated case for silver.Precious …

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January, Tuesday 17, 2012

DOW + 60 = 12,482SPX + 4 = 1293NAS +17 = 272810YR YLD un=1.85%OIL + 2.30 = 101.00GOLD + 8.80 = 1652.60SILV + .09 = 30.06PLAT + 26.00 = 1527.00 On Friday, after the close of business in the stock market, S&P downgraded 9 European countries. Spain and Italy were both taken down 2 notches, leaving Italy with a BBB+ rating and Spain with an A.  But the headline damage was done to France, whose triple-A rating got downgraded to AA+. France had been rated AAA for 36 years.  The French bid adieu to their triple-A status…said they didn’t care about it, expected it, and didn’t need it anyway. But it was a blow. France, with Germany, was one of the strong, big economies at the center of Europe. It was one of the economies the others were depending on to bail them out. Over the weekend, The Wall Street Journal warned that markets needed to “brace for European fallout,” this morning.  And then to put an exclamation point on the matter, this morning Standard & Poor’s downgraded the creditworthiness of the eurozone’s rescue fund, putting the fund’s ability to raise cheap bailout money at risk. The EFSF, the European Fubar Slush Fund was cut by one notch to AA+. Quite the Tempest in Europe: “Some kinds of baseness Are nobly undergone, and most poor matters Point to rich ends.” Spain had a Treasury bill auction today and it went quite well. They sold twice the amount targeted and yields fell, …

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January, Friday 13, 2012

DOW – 48 = 12422SPX – 6 = 1289NAS – 14 = 271010 YR YLD -.08 = 1.85%OIL -.35 = 98.75GOLD – 8.90 = 1640.70SILV – .48 = 29.87PLAT – 7.00 = 1497.00 For all our triskaidekaphobic friends, Friday the 13th actually has a mild upward bias in stock market history. It’s up 55% to 60% of the time. That said, we were down today, and there was a massacre, of sorts, after the close of trade. We start with some shocking news – this is utterly remarkable – Standard & Poor’s has cut France’s credit rating by one notch to AA, down one notch from AAA. Shocking. And expected for about a month now.  More shocking news – S&P cut Italy’s credit rating to BBB+. The cut their ratings on 24 Italian banks and affirmed their ratings on 19 banks.  Now, here’s the fun part. S&P has to provide 24-hour notice to the countries if they are going to change their ratings.  S&P had Italy as A1 on negative watch, and just cut them to BBB+. Earlier today, Italy held a bond auction. Italy sold bonds while in possession of information that they were going to be downgraded. Are those bond sales valid? They sold $ 6 billion–dollars worth of bonds without disclosing insider information of an impending downgrade that would certainly be harmful to the value of the bonds. It doesn’t get more insider than that. But wait – there’s more! Then they cut Russia to BBB. Austria …

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January, Thursday 12, 2012

DOW + 21 = 12471SPX + 3 = 1295NAS + 13 = 272410 YR YLD +.03 = 1.93%OIL –1.65 = 99.22GOLD + 5.60 = 1649.60SILV + .28 = 30.35PLAT + 2.00 = 1504.00 In 2011, the market value of U.S. stocks went nowhere from the first trading day, January 3, to the last trading day, December 30. And I mean absolutely nowhere. The S&P 500 started the year at 1,257.64 and ended the year at 1,257.60. While the market value of the S&P 500 was going absolutely nowhere, its valuation was plummeting. S&P 500 trailing 12-month earnings (through September 30, 2010) started last year at $79 a share and ended the year at $94.64 per share. That means earnings grew at nearly 20%, but prices went nowhere. In fact, prices have gone nowhere for the past 12 years. That’s not exactly true – we are pretty much where we were 12 years ago, but prices moved quite a bit in between. We get into overbought and oversold positions. The question is: where can we find opportunity? Standard & Poor’s classifies every individual stock into one of ten primary sectors. They then publish specific indexes for each sector (as well as dozens of sub-sectors within the ten primaries). The worst performing S&P sectors for 2011 Financials (-18.4%), Materials (–11.6%), and Industrials (-2.19%). The top performers included Utilities, consumer staples, and health care. Only 3 of the ten sectors were down but the S&P 500 is capitalization weighted; that means each stock …

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