Energy & Commodities

The pros and cons of commodity investing

Posted by Maggie Overfelt via Financial Juice

on Wednesday, 6 November 2013 15:23

101140654-145566328r.240x160Commodities can be a portfolio hedge

The most unsettling thing about commodities investments—their inherent risk—is also their best feature as an alternative investment strategy, financial advisors say.

Because the performance of commodities does not correlate with that of equities or fixed income, allocating a small percentage of a portfolio to natural resources can actually lower the overall risk in the long term, said Patrick Robert, co-founder and CEO of PKR Investments, a financial consulting firm.

“For people who want [their portfolios] to be diversified, if they’re not hitting a home run right out of the gate [with equities], commodities can act as a hedge,” said Robert, who is also a certified financial planner.

….read more HERE

Bubble That Everyone Admits is a Bubble

Posted by Econ Matters

on Wednesday, 6 November 2013 14:00

UnknownThis is one of the few times where the benefactors or professionals who benefit from the bubbles, in this case created by the Federal Reserve, fully and openly acknowledge that stock prices and certain other asset classes are completely divorced from fundamental valuations.

Bubble Comparisons

In the Dot Com Bubble there were portions of investors, mainly the traditional value investors, who voiced concerns regarding actual revenue streams of many of the technology startups, but there was at least a story that could be told that the world was entering a new paradigm with the rise of the internet, and previous valuation models were failing to grasp this new paradigm in technological advancement.

Unanimity & Asset Prices

However, even the most optimistic market participants realize that current asset prices are unsustainable without the continual had of the Federal Reserve. They just will not sell until the Fed stops sending 75, 85, 65 Billion a month in QE stimulus, whatever the light taper number becomes from the Fed at some point. It still is 65 Billion dollars of market injections artificially pushing up asset classes each month regardless of a slight tapering event by the Fed, and given that the market is naturally oriented long anyway, throw in the monthly 401k contributions, and there is no reason to fight the market – thus the bubble continues to build. 

Market Acquisitions

I have discussed valuations with executive management of sectors which have substantially underperformed the broader market, and they are acquisitive companies, and from a valuation standpoint their competitors are too expensive to buy. These are sectors which are up year to date 5 and 10%, well below the broader market, and substantially below the momentum stocks, but these executives will not even consider an acquisition after a thoughtful analysis. 

These are companies with large cash reserves that will not consider an acquisition strategy, so what do they do with this extra cash, just give it back to shareholders in the form of stock buybacks, which is ironic because they are buying their own stock at these same overly exaggerated valuation levels.

This further adds to bubbly stock prices as more stock shares are taken out of the market. Furthermore, this strategy almost guarantees future losses on these shares once the Fed stops supporting asset prices with 85 Billion each month. 

Google vs. Facebook Vying for Global Internet Dominance

Share Buybacks

Sort of like the homebuilders buying their shares back at the top of the housing market, the exact opposite strategy from an underlying valuation standpoint. The correct method is to buy back shares when one thinks that the market is undervaluing the business prospects through a substandard stock price, and not the other way around like currently exists.

If business was so great why aren`t these executives reinvesting this extra cash in the business itself through organic growth? The reason is that there isn`t the actual real demand for goods and services in the economy, and these same companies need to buy back shares to make their earning`s numbers look better than they are due to a sluggish 2% growth economy.

The Federal Reserve

The interesting part is private equity cannot find anything of value to buy, the professionals all openly speak about the inflated prices due to the current bubble, but yet the Federal Reserve is absolutely clueless to the environment. The Federal Reserve might want to take notice when all the major money managers are openly telling the world for all who will listen that the market is a bubble, that maybe they ought to change policy and address the bubble so that the damage from the bubble when it pops is not so crushing that it sends the global economy into a full blown 10-year recession. 

 

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Follow the Money… To Economic Surprise

Posted by Richard Russell - Dow Theory Letters

on Wednesday, 6 November 2013 13:50

“The stock market is the story of cycles and of the human behavior that is responsible for overreactions in both directions.” — Seth Klarman

I thought we would take a look at sector performance for 2013 to get an idea of where money has been flowing. The chart below shows the performance of the S&P Sector ETFs in relation to the performance of the S&P 500. Sectors above the 0% line have outperformed the S&P 500 by the percent shown and sectors below the 0% line have underperformed the index by the percent shown.

As of yesterday, Cyclicals (dark purple line) have been the strongest performing sector year-to-date. This is a good sign if you buy into the general sector rotation thesis which underscores buying cyclicals when the economy is growing and moving money back to defensive names (like consumer staples, utilities) during economic downturns.

For those who need more logic behind this, the idea is that some companies like Ford will perform much better in a booming economy when consumers are spending heavily. These are considered cyclical companies because they tend to outperform when the business cycle is booming. Other companies, such as Proctor & Gamble, produce products (like toothpaste) which have relatively static demand regardless of where we are in the business cycle. These types of companies generally perform better in down economies.

perfchart-sp-sector-etfs

….read more HERE

 

Gold at a crossroads

Posted by Toby Connor - GoldScents

on Wednesday, 6 November 2013 12:52

At the moment gold is at a critical crossroads. If it can move above $1,375, it will confirm that an intermediate degree bottom occurred last month at $1,251, and start a pattern of higher highs. If however gold continues lower and breaks below the $1,251 level it will confirm that an intermediate degree decline is still in progress and the recent bounce was nothing more than another bull trap to work off the short-term oversold levels.

C1

Actually, based on my cycles analysis, I think we can even narrow the band a little tighter. If gold can move above the Oct. 28 high at $1,361 over the next several days, it would confirm that this daily cycle has become right translated and complete a new pattern of higher highs and higher lows.

If, however, gold moves below Friday’s half cycle low of $1,305 it would confirm that the daily cycle has topped in a left translated manner and the odds would then be very high that the October low at $1,251 is going to be broken over the next 2-3 weeks.

C2

Until one of these lines in the sand get broken, there is just no compelling reason to place a directional trade in the precious metals market.

 

About the Author

Toby Connor’s website GoldScents is a financial blog focused on the analysis of the stock market and the secular gold bull market. If you would like to be added to the email list that receives notice of new posts to GoldScents, or have questions, email Toby.Toby Connor

We’re About to Lose the Internet as We Know it

Posted by Marvin Ammori - Wired

on Wednesday, 6 November 2013 12:45

77740325-660x415We’re About to Lose Net Neutrality.

Net neutrality is a dead man walking. The execution date isn’t set, but it could be days, or months (at best). And since net neutrality is the principle forbidding huge telecommunications companies from treating users, websites, or apps differently — say, by letting some work better than others over their pipes — the dead man walking isn’t some abstract or far-removed principle just for wonks: It affects the internet as we all know it.

Once upon a time, companies like AT&T, Comcast, Verizon, and others declared a war on the internet’s foundational principle: that its networks should be “neutral” and users don’t need anyone’s permission to invent, create, communicate, broadcast, or share online. The neutral and level playing field provided by permissionless innovation has empowered all of us with the freedom to express ourselves and innovate online without having to seek the permission of a remote telecom executive.

But today, that freedom won’t survive much longer if a federal court — the second most powerful court in the nation behind the Supreme Court, the DC Circuit — is set to strike down the nation’s net neutrality law, a rule adopted by the Federal Communications Commission in 2010. Some will claim the new solution “splits the baby” in a way that somehow doesn’t kill net neutrality and so we should be grateful. But make no mistake: Despite eight years of public and political activism by multitudes fighting for freedom on the internet, a court decision may soon take it away.

Game of Loopholes and Rules

How did we get here?

….read it all HERE