Gold & Precious Metals
It’s unlikely that gold has bottomed.
The steady drip lower in gold and silver prices continued over the past week, and the inevitable test of the July cycle lows drew closer.
There is now nothing standing in the way of gold making a push to $1,180 and silver similarly moving to $18.
This year’s downtrend in gold has essentially been on pause since gold bottomed in July. But that could soon change if gold breaks below the key $1,180 level.
Weighing on the market is a resumption of selling by exchange-traded funds. After plunging earlier this year, ETF holdings stabilized during the summer.
Now ETF investors are back in selling mode, having liquidated 1 million ounces over the past month, with 600,000 ounces of that coming over the past week.
Gold ETF Holdings
The renewed decline in ETF holdings suggests that investor liquidation is not over. Contrary to what some had believed, the “weak hands” in the market haven’t all exited.
Were the Fed to taper its bond-buying program in December or early next year as many expect, that could spook jittery investors, prompting more selling by ETFs.
In this context, our confidence is growing that gold will break below the current $1,180 cycle low and make a push to the psychologically significant $1,000 mark in 2014.
GOLD (YTD)
SILVER (YTD)
PLATINUM (YTD)
PALLADIUM (YTD)
….read page 2 HERE
Goldman Sachs is slowly releasing their best ideas for 2014. The first two are attached below. If you have some ideas for 2014 feel free to share with the group. Here’s Goldman’s first two (via WSJ MoneyBeat):
“Long 5-Year Eonia/Short 5-Year U.S. Treasurys.”
“The market reaction to the strengthening of ‘forward guidance’ could, contrary to our expectations, be associated with a flattening of the two-to-five year U.S. curve, at least initially.
…
“Currently, a very accommodative monetary policy stance is largely priced in in the U.S., while the market is underestimating the possibility that the European Central Bank can provide further easing, even by cutting the deposit rate below zero,”
“Long S&P 500/Short AUD”
“This reflects what is perhaps the largest overarching theme of our market outlook – a belief that developed-market equities are well placed as long as US yields do not rise too quickly. The specific implementation of this trade recommendation that we will track is a long position in Dec 2014 S&P 500 futures, and a corresponding short position in Dec 2014 AUDUSD futures. Given our forecasts for both assets, with an S&P year-end target of 1900, and a year-end AUD target vs. the USD of 0.85, we see scope for both legs of the trade to generate potential returns.”
This post originally appeared at Pragmatic Capitalism. Copyright 2013.
Read more: http://pragcap.com/goldman-sachs-2-big-ideas-for-2014#ixzz2lqeTvH2s
Chaotic markets have left investors scrambling for ways to boost returns without taking on excessive risk. But there’s a simple strategy that can make a virtue out of market volatility: Build a portfolio around high-quality stocks with generous dividend yields to offer a cushion against market swings, and juice even more income from those stocks through the strategic use of options.
Options contracts give an investor the right to buy or sell a stock at a future date and specific price. The demand for options, along with their prices, typically rises when market volatility flares up, as has been the case of late. The Chicago Board Options Exchange Volatility index (VIX), the most common measure of investor fear, spiked above 40 during August and September — double its long-term average. As a result, buyers have been flocking to options.
And therein lies your opportunity. To reap more income from dividend-paying stocks you already own, you can sell “covered calls,” granting another investor the right to buy a stock you own at a higher price in the future (known as the strike price). You pocket money from the option sale, which you get to keep no matter what happens with the stock down the road. “It’s a strategy that can improve your odds of success and provide superior returns over time,” says Michael Khouw, director of equity derivatives trading at Cantor Fitzgerald.
Here’s how. Let’s say that you bought the stock of drug maker Abbott Laboratories (ABT, Fortune 500), which was trading at $51 a share in mid-September and had a dividend yield of 3.8%. You could then have sold a call option, which at the time was trading for $1.03 a share, granting another investor the right to buy your Abbott shares for $55 at any point until mid-January. If the stock price stayed below $55, you would continue to own the stock, but you’d still keep the $1.03 per share you got for selling the call option. When it expired, you could sell another round of options against the stock, boosting your income yet again.
If, on the other hand, Abbott shares traded above the call option’s $55 strike price before mid-January, you might be forced to sell your shares and miss out on some of the upside in price appreciation. In that case, you’d realize a 7.8% profit on the stock, pocket the $1.03 per share from the option sale, and collect the quarterly dividend payment. Not exactly a horrific outcome.
To reduce the likelihood of being forced to sell a stock you want to hold onto, Khouw recommends selling call options with a strike price comfortably above the current market price — say, 10% higher — even if that means settling for a smaller cash payment upfront. “This is not a trading strategy — it’s an investing strategy,” he notes.
And it’s a strategy that makes sense for the foreseeable future. “Heightened volatility isn’t going away anytime soon,” says Sam Stovall, chief investment strategist for Standard & Poor’s Equity Research. You may not enjoy the rocky ride, but at least you can capitalize on it.
–A former compensation consultant, Janice Revell has been writing about personal finance since 2000.
Merkel secures coalition deal but agreement faces SPD vote. After two months of negotiations following Germany’s general election, the right-of-center grouping of Chancellor Angela Merkel has finally forged a deal with the left-leaning Social Democrats (SPD) to form a government. Germany will largely maintain its fiscal conservatism, although the country will introduce a minimum wage and strengthen labor-market rules. The deal now needs the approval of SPD’s 474,000 members, with the results of a vote due on December 14.
U.S. defies China with flight of unarmed B-52 bombers. The U.S. has got involved in the islands dispute between Japan and China in the East China Sea by flying two unarmed B-52 bombers in the area without informing Beijing. China had created an Air Defense Identification Zone around the islands and warned of military action against planes flying in the region if notification wasn’t given. Japanese airlines also flew through the area without first telling China. When the dispute first arose a year ago, trade between China and Japan was badly hit.
H-P’s stock jumps following earnings beat. H-P’s (HPQ) shares spiked 7% premarket after the IT giant swung to a net profit of $1.41B from a loss of $6.85B a year earlier, with adjusted EPS coming in at $1.01 and topping expectations, as did revenue despite falling 3% to $29.1B. However, sales fell in five of H-P’s six business segments, with demand for personal computers collapsing. CEO Meg Whitman said she was moving H-P to “a new style of IT” based on cloud computing and in which consumers can produce mobile phones in kiosks with 3D printers.
Top Stock News
Top U.S. banks’ mortgage payouts could hit $104B. JPMorgan (JPM) and Bank of America (BAC) are among eight leading U.S. banks that could have to pay a further $56.5-104B to settle mortgage-related claims, S&P calculates. However, the country’s largest banks have estimated capital buffers of $155B combined, which would be enough to absorb the losses. S&P doesn’t expect the legal liabilities to hurt the banks’ ratings.
SEC looking at Morgan Stanley and Citigroup over foreign hiring. Morgan Stanley (MS) and Citigroup (C) have reportedly received requests for information about their overseas hiring practices from the SEC, which is looking at whether the banks breached laws relating to foreign bribery by recruiting the family members of the well-connected in order to win business. The firms join JPMorgan (JPM) in being scrutinized over the issue, with the latter under criminal and civil invesigations.
RBS faces possible criminal probe over small-business claims. The U.K.’s Serious Fraud Office (SFO) is reportedly thinking of starting a criminal investigation into accusations that the bank looked to profit by forcing “vibrant” small companies out of business and then seizing their assets. The SFO has been interviewing former executives of affected firms. The agency is deciding whether RBS acted unlawfully or just engaged in bad business practices.
Aramark looks to raise $1B in IPO. Stadium food and clothing vendor Aramark reportedly intends to raise up to $1B in its IPO, which could take place in December. Aramark would use the money to repay some of its debt of $5.7B – a legacy of the $6.3B deal that took the company private in 2007. Aramark’s IPO comes at the same time as that of Hilton, both of which could ensure that a banner year for public listings ends with a bang.
Bankruptcy judge to issue ruling on AMR-US DOJ deal. AMR (OTCQB:AAMRQ) and US Airways (LCC) are due to find out today whether Bankruptcy Judge Sean Lane approves of their settlement with the Justice Department over their proposed merger. The DOJ had opposed the transaction until the airlines agreed to concessions. The deal also needs the authorization of a federal district judge, who is accepting public comments until February 7.
Amec eyes $2.8B Foster Wheeler. U.K. energy services group Amec (GM:AMCBF) is looking to take over Foster Wheeler (FWLT), which has a market cap of $2.83B, the London Times reports. The companies have been in discussions in the past but aren’t currently in talks. Reuters adds that Amec is looking at a number of targets but also that it isn’t in discussions with any of them. Foster Wheeler’s shares rose 7.55% in post-market trading.
Compuware receives buyout approaches. Compuware (CPWR) has reportedly been exploring selling itself for months and has received approaches from private-equity funds, with potential suitors including Thoma Bravo and Vista Equity Partners. The Detroit-based software group, which has a market cap of $2.34B, could agree to a deal by January. The news comes almost a year after Compuware rejected a $2.3B offer from Elliott Management. The activist investor holds 8.6% in Compuware.
Top Economic & Other News
Berlusconi faces expulsion from Italian Senate. Silvio Berlusconi is expected to be expelled from Italy’s Senate today following his conviction for tax fraud in August. Because of the recent break-up of the former prime minister’s right-wing grouping, in which one faction stayed in the government, his removal from the Senate is unlikely to affect the coalition. The episode has every so often caused turmoil in the markets, although the FTSE Mib was+1.1% at the time of writing.
Alpha-Rich Stock Movers and Great Calls
1) On Monday, buysider Logical Thought said Pain Therapeutics (PTIE) had 120%+ risk-adjusted upside based on approval of its flagship drug, Remoxy. Shares are +16.3% in the two sessions following publication. Read article »
2) On August 23, MBAvalueinvestor called Nuverra Environmental (NES) an over-levered “destroyer of capital,” with 80% downside toward its fair value. The stock is now -43.6% to date. Read article »
Alpha-Rich Stocks To Watch
1) Veterinary supplier Heska (HSKA) could double in 2014, as a recent acquisition has created a leading competitive position, says BuyTheDipsSellTheRips. Read article »
2) Autobytel’s (ABTL) powerful lead generation platform will continue to drive growth and upside in the near and long term, according to buysider Ravee Mehta. Read article »
Alpha-Rich articles are the best long and short ideas on Seeking Alpha. SA Pro subscribers receive early access to these Alpha-Rich articles, which often move markets. For more information about SA Pro and becoming a subscriber, click here.
Today’s Markets:
In Asia, Japan -0.4% to 15450. Hong Kong +0.5% to 23806. China +0.8% to 2201. India flat at 20420.
In Europe, at midday, London +0.1%. Paris +0.2%. Frankfurt +0.2%.
Futures at 6:20: Dow +0.1%. S&P +0.1%. Nasdaq +0.1%. Crude -0.4% to $93.29. Gold +0.8% to $1251.40.
Ten-year Treasury Yield +1 bps at 2.73%.
Today’s economic calendar:
7:00 MBA Mortgage Applications
8:30 Durable Goods
8:30 Initial Jobless Claims
8:30 Chicago Fed National Activity Index
9:45 Chicago PMI
9:45 Bloomberg Consumer Comfort Index
9:55 Reuters/UofM Consumer Sentiment
10:00 Leading Indicators
10:30 EIA Petroleum Inventories
12:00 PM EIA Natural Gas Inventory
1:00 PM Results of $29B, 7-Year Note Auction
3:00 PM USDA Ag. Prices
Notable earnings before today’s open: FRO
Notable earnings after today’s close: RENN
See full real-time earnings coverage »
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