Bonds & Interest Rates

SIGNS OF THE TIMES

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The following is part of Pivotal Events that was

published for our subscribers February 2, 2012.

SIGNS OF THE TIMES:

“Take Federal bailout money, watch your company’s stock fall 90%, become a Co-Chair of Davos”

– Bloomberg, January 20

The headline was referring to Citigroup CEO Vikram Pandit.

“Junk-bond trading volumes are rebounding to the highest levels in 11 months – optimism.”

– Bloomberg, January 27

“Societe General SA and Credit Agricole SA were among French banks to have their credit grades cut by Standard & Poors.”

– Bloomberg, January 24

“The IMF cut its forecast for the global economy as Europe slips into recession.”

– Bloomberg, January 24

*   *   *   *   *

STOCK MARKETS

The best January for the stock markets in years has restored their popularity. Bullish comments include low P/Es and attractive dividend yields as well as favourable comparisons to bond yields. Not to overlook outstanding earnings gains.

In our dispassionate approach this is considerably different to conditions in early October. Choppy action, but rising until around January was possible and couple of weeks ago we thought it could continue into February.

The February 24th ChartWorks “Complacency Abounds Oh-Oh!” outlined the probability of a top within the next four weeks.

The surge out of mid-December has been exciting enough to register some cautionary alerts and last week we were looking for some “key” technical excesses. The S&P has since reached 73.3 on the daily RSI and this compares to 70 reached with the high of 1370 at the end of April. That was on the speculative surge that out proprietary Forecaster expected to complete in that fateful April.

Stock markets are poised to roll over. If so, the latest rally is a test of the April high which we considered the cyclical best of the first bull market out of the crash.

Credit Markets

The demand for risk continues with favourable action in corporate and municipal bond markets. Yields for the Italian ten-year keep going lower and after registering scary headlines last week even the Portuguese bonds are declining in yield.

Sub-prime mortgage bonds have rallied in price from 38 in October to 51.6 – that’s up a little more than half a point from last week.

Money market stuff such as the Ted-Spread started to narrow at the end of December.

To Ross’s “Complacency Abounds” in stock market volatility we would add that it is abounding in the credit markets as well.

Fortunately, we may have an exit indicator.

The action in municipals (MUB) has been good enough to register an Upside Exhaustion. The price could roll over within a couple of weeks and the change could be part of a general reversal in risk products. This will likely show up in the reversal in the stock market VIX.

Long-dated treasuries are working on a big top. Within this the final rally has been likely to occur as the excitement in stocks and commodities fades.

This has taken the bond future from the 140 level to the 145 level. The high was 146 in December.

Currencies

Ross targeted the decline in the US dollar index to around 78.8 and so far it has bounced off this level a number of times. With this, the Canadian made it up to 103 (briefly). It is now vulnerable to a decline in commodities.

 

 

Link to  February 3, 2012 ‘Bob and Phil Show’ on TalkDigitalNetwork.com:

http://talkdigitalnetwork.com/2012/02/jobs-boom-stocks-pop/

 

 BOB HOYE,   INSTITUTIONAL ADVISORS

E-MAIL  bhoye.institutionaladvisors@telus.net“>bhoye.institutionaladvisors@telus.net

Peter Grandich: The Fear Trade for Gold

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Negative real interest rates and growing global money supply power the Fear Trade for the precious metals

After prices fell 10 percent in December, many investors wondered if the bull market in gold was running out of steam. That was before Federal Reserve Chairman Ben Bernanke swooped in with a “red cape” and fired the bulls back up. Since the Fed reassured the world that interest rates will remain at “exceptionally low levels” for another two years, gold has jumped more than three percent.

 

….read more HERE

 

Also Peter Grandich recommends: AN ABSOLUTE MUST WATCH VIDEO TO THE END!!!

3 Charts That Confirm Greece’s Death Even After Restructuring

Perhaps after today’s budget miss in the Hellenic Republic it is time that the focus shift from the reality of a pending #fail for the voluntary PSI (for all the reasons we have at length discussed no matter how many headlines the markets tries to rally on) to a post-restructuring real economy reality in Greece. Whether self-imposed by devaluation or Teutonia-imposed by Troika, austerity is in the cards but there is a much more deep-seated problem at the heart of Greece – a total and utter lack of innovation and entrepreneurship. As Goldman’s Hugo Scott-Gall focuses on in his fortnightly report this week “the competitive advantage of innovation is one that developed markets need to keep” and in the case of European nations that desperately need to find a way to grow somehow, it is critical. Unfortunately, Greece, center of the universe for a post-restructuring phoenix-like recovery expectation, scores 0 for 3 on the innovation front. Lowest overall patent grant rate, lowest corporate birth rate, and highest cost of starting a new business hardly endear them to direct investment or an entrepreneurial dynamism that could ‘slow’ capital flight. Perhaps it is this reality, one of a Greek people perpetually circling the drain of dis-innovation and un-growth, that Merkel is starting to feel comfortable ‘letting go of’. Maybe some navel-gazing after seeing these three doom-ridden charts will force a political class to open the economy a little more, cut the red tape (after a drastic restructuring of course) and shift focus from Ouzo, Olive Oil, and The Olympics. We also suggest the rest of the PIIGS not be too quick to comment ‘we are not Greece’ when they see where they rank for innovation.

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As if these were not bad enough, via Wikipedia, we also note the following three fun facts about the glorious Mediterranean nation:

Greece has the EU’s second worst Corruption Perceptions Indexafter Bulgaria, ranking 80th in the world, and lowest Index of Economic Freedom and Global Competitiveness Index, ranking 88th and 90th respectively.

Quite impressive…and no wonder 5Y CDS held their high cost of protection even when immediate credit event triggers were doubted…sooner rather than later they will default again unless something drastic changes and our admittedly premature discussion of more violence is becoming more and more likely every day as social unrest seems the only catalyst for change in a surreal world of central bankers, banks, and politicians.



I think by most conventional measures, used by most professional investors, European Central Bank Chief Mario Draghi has been a success. He has bolstered the returns for equity funds considerably since his decision to utilize a three-year term, instead of one year, in the ECB recent liquidity injection to European banks.
 
The fact is I missed the trees for the forest on this, and it has hurt. Failing to understand this lending-which reduced stigma associated with 1-year terms and better matched the funding needs of banks, led to more participation than expected. This in turn created a classic self-reinforcing positive feedback loop for asset prices:

 

Peter Schiff: The Main Driver Behind the Gold Bull

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A Wall Street pro named James Rickards recently released his first book,Currency Wars: The Making of the Next Global Crisis, and it’s creating a buzz. Euro Pacific Precious Metals’ CEO Peter Schiff often talks about competitive devaluation of currencies as the main driver behind our gold and silver investments. Recently, Peter sat down with James to get his perspective on what’s behind these currency wars, and find out what he recommends investors do to preserve their wealth through this tumultuous time.

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Peter Schiff: You portray recent monetary history as a series of currency wars – the first being 1921-1936, the second being 1967-1987, and the third going on right now. This seems accurate to me. In fact, my father got involved in economics because he saw the fallout of what you would call Currency War II, back in the ’60s. What differentiates each of these wars, and what is most significant about the current one?

 

James Rickards: Currency wars are characterized by successive competitive devaluations by major economies of their currencies against the currencies of their trading partners in an effort to steal growth from those trading partners.

While all currency wars have this much in common, they can occur in dissimilar economic climates and can take different paths. Currency War I (1921-1936) was dominated by a deflationary dynamic, while Currency War II (1967-1987) was dominated by inflation. Also, CWI ended in the disaster of World War II, while CWII was brought in for a soft landing, after a very bumpy ride, with the Plaza Accords of 1985 and the Louvre Accords of 1987.

 

What the first two currency wars had in common, apart from the devaluations, was the destruction of wealth resulting from an absence of price stability or an economic anchor.

 

Interestingly, Currency War III, which began in 2010, is really a tug-of-war between the natural deflation coming from the depression that began in 2007 and policy-induced inflation coming from Fed easing. The deflationary and inflationary vectors are fighting each other to a standstill for the time being, but the situation is highly unstable and will “tip” into one or the other sooner rather than later. Inflation bordering on hyperinflation seems like the more likely outcome at the moment because of the Fed’s attitude of “whatever it takes” in terms of money-printing; however, deflation cannot be ruled out if the Fed throws in the towel in the face of political opposition.

 

Peter: You and I agree that the dollar is on the road to ruin, and we both have made some drastic forecasts about what the government might do in the face of the dollar collapse. How might this scenario play out in your view?

 

James: The dollar is not necessarily on the road to ruin, but that outcome does seem highly likely at the moment. There is still time to pull back from the brink, but it requires a specific set of policies: breaking up big banks, banning derivatives, raising interest rates to make the US a magnet for capital, cutting government spending, eliminating capital gains and corporate income taxes, going to a personal flat tax, and reducing regulation on job-creating businesses. However, the likelihood of these policies being put in place seems remote – so the dollar collapse scenario must be considered.

Few Americans are aware of the International Economic Emergency Powers Act (IEEPA)… it gives any US president dictatorial powers to freeze accounts, seize assets, nationalize banks, and take other radical steps to fight economic collapse in the name of national security. Given these powers, one could see a set of actions including seizure of the 6,000 tons of foreign gold stored at the Federal Reserve Bank of New York which, when combined with Washington’s existing hoard of 8,000 tons, would leave the US as a gold superpower in a position to dictate the shape of the international monetary system going forward, as it did at Bretton Woods in 1944.

 

Peter: You write in your book that it’s possible that President Obama may call for a return to a pseudo-gold standard. That seems far-fetched to me. Why would a bunch of pro-inflation Keynesians in Washington voluntarily restrict their ability to print new money? Wouldn’t such a program require the government to default on its bonds?

 

James: My forecast does not pertain specifically to President Obama, but to any president faced with economic catastrophe. I agree that a typically Keynesian administration will not go to the gold standard easily or willingly. I only suggest that they may have no choice but to go to a gold standard in the face of a complete collapse of confidence in the dollar. It would be a gold standard of last resort, at a much higher price – perhaps $7,000 per ounce or higher.

 

This is similar to what President Roosevelt did in 1933 when he outlawed private gold ownership but then proceeded to increase the price 75% in the middle of the worst sustained period of deflation in U.S. history.

 

Peter: You also write that you were asked by the Department of Defense to teach them to attack other countries using monetary policy. Do you believe there has a been an deliberate attempt to rack up as much public debt as possible – from the Chinese, in particular – and then strategically default through inflation?

 

James: I do not believe there has been a deliberate plot to rack up debt for the strategic purpose of default; however, something like that has resulted anyway.

 

Conventional wisdom is that China has the US over a barrel because it holds more than $2 trillion of US dollar-denominated debt, which it could dump at any time. In fact, the US has China over a barrel because it can freeze Chinese accounts in the face of any attempted dumping and substantially devalue the worth of the money we owe the Chinese. The Chinese themselves have been slow to realize this. In hindsight, their greatest blunder will turn out to be trusting the US to maintain the value of its currency.

 

Peter: In your book, you lay out four possible results from the present currency war. Please briefly describe these and which one do you feel is most likely and why.

 

James: Yes, I lay out four scenarios, which I call “The Four Horsemen of the Dollar Apocalypse.”

 

The first case is a world of multiple reserve currencies with the dollar being just one among several. This is the preferred solution of academics. I call it the “Kumbaya Solution” because it assumes all of the currencies will get along fine with each other. In fact, however, instead of one central bank behaving badly, we will have many.

 

The second case is world money in the form of Special Drawing Rights (SDRs). This is the preferred solution of global elites. The foundation for this has already been laid and the plumbing is already in place. The International Monetary Fund (IMF) would have its own printing press under the unaccountable control of the G20. This would reduce the dollar to the role of a local currency, as all important international transfers would be denominated in SDRs.

 

The third case is a return to the gold standard. This would have to be done at a much higher price to avoid the deflationary blunder of the 1920s, when nations returned to gold at an old parity that could not be sustained without massive deflation due to all of the money-printing in the meantime. I suggest a price of $7,000 per ounce for the new parity.

My final case is chaos and a resort to emergency economic powers. I consider this the most likely because of a combination of denial, delay, and wishful thinking on the part of the monetary elites.

 

Peter: What do you see as Washington’s end-game for the present currency war? What is their best-case scenario?

 

James: Washington’s best-case scenario is that banks gradually heal by making leveraged profits on the spreads between low-cost deposits and safe government bonds. These profits are then a cushion to absorb losses on bad assets and, eventually, the system becomes healthy again and can start the lending-and-spending game over again.

 

I view this as unlikely because the debts are so great, the time needed so long, and the deflationary forces so strong that the banks will not recover before the needed money-printing drives the system over a cliff – through a loss of confidence in the dollar and other paper currencies.

 

Peter: I don’t think this scenario is likely either, but say it were… would it be healthy for the American economy to have to carry all these zombie banks that depend on subsidies for survival? Wouldn’t it be better to just let the toxic assets and toxic banks flush out of the system?

 

James: I agree completely. There’s a model for this in the 1919-1920 depression, when the US government actually ran a balanced budget and the private sector was left to clean up the mess. The depression was over in 18 months and the US then set out on one of its strongest decades of growth ever. Today, in contrast, we have the government intervening everywhere, with the result that we should expect the current depression to last for years – possibly a decade.

Peter: How long do you think Currency War III will last?

 

James: History shows that Currency War I lasted 15 years and Currency War II lasted 20 years. There is no reason to believe that Currency War III will be brief. It’s difficult to say, but it should last 5 years at least, possibly much longer.

 

Peter: From my perspective, what is unique about a currency war is that the object is to inflict damage on yourself, and the country often described as the winner is actually the biggest loser, because they’ve devalued their currency the most. Which currency do you think will come out of this war the strongest?

 

James: I expect Europe and the euro will emerge the strongest after this currency war by doing the most to maintain the value of its currency while focusing on economic fundamentals, rather than quick fixes through devaluation. This is because the US and China are both currency manipulators out to reduce the value of their currencies. In the zero-sum world of currency wars, if the dollar and yuan are both down or flat, the euro must be going up. This is why the euro has not acted in accord with market expectations of its collapse.

 

The other reason the euro is strong and getting stronger is because it is backed by 10,000 tons of gold – even more than the US This is a source of strength for the euro.

 

Peter: You and I both connect the Fed’s dollar-printing with the recent revolutions in the Middle East. This is because our inflation is being exported overseas and driving up prices for food and fuel in third-world countries. What do you think will happen domestically when all this inflation comes home to roost?

 

James: The Fed will allow the inflation to grow in the US because it is the only way out of the non-payable debt.

Initially, American investors will be happy because the inflation will be accompanied by rising stock prices. However, over time, the capital-destroying nature of inflation will become apparent – and markets will collapse. This will look like a replay of the 1970s.

 

Peter: How long do you think China’s elites will put up with the Fed’s inflationary agenda before they start dumping their US dollar assets?

 

James: The Chinese will never “dump” assets because this could cause the US to freeze their accounts. However, the Chinese will shorten the maturity structure of those assets to reduce volatility, diversify assets by reallocating new reserves towards euro and yen, increase their gold holdings, and engage in direct investment in hard assets such as mines, farmland, railroads, etc. All of these developments are happening now and the tempo will increase in future.

 

Peter: In your view, what is the best way for investors to protect themselves from this crisis?

 

James: My recommended portfolio is 20% gold, 5% silver, 20% undeveloped land in prime locations with development potential, 15% fine art, and 40% cash. The cash is not a long-term position but does give an investor short-term wealth preservation and optionality to pivot into other asset classes when there is greater visibility.

 

[Editor’s note: Opinions expressed are the interviewee’s own and do not represent investment advice from Peter Schiff or Euro Pacific Precious Metals.]


Peter: What, if any, silver lining do you see for us in the future?

 

James: I continue to have faith in the democratic process and the wisdom of the American people. Through elections, we might be able to change leadership and implement new policies before it’s too late.

Failing that, the worst outcomes are all but unavoidable.

—–

We would like to thank James for speaking to us about this topic and educating the public about the dangers of currency wars. We at Euro Pacific Precious Metals believe they represent the greatest threat to investors’ financial wellbeing today.

While James and Peter may disagree on some key points, we think he has accurately diagnosed the mentality that may drive the US to a dollar collapse. Unless the US decides to quit the currency wars, investors will continue to be pushed into precious metals and other hard assets. And, as James illustrates, declaring a truce is easier said than done.

 

James G. Rickards is Senior Managing Director at Tangent Capital Partners LLC, a merchant bank based in New York City, and is Senior Managing Director for Market Intelligence at Omnis, Inc., a technical, professional and scientific consulting firm located in McLean, VA.


Peter Schiff is CEO of Euro Pacific Precious Metals, a gold and silver dealer selling reputable, well-known bullion coins and bars at competitive prices. To learn more, please visit www.europacmetals.com or call (888) GOLD-160.

For the latest gold market news and analysis, sign up for Peter Schiff’s Gold Report, a monthly newsletter featuring original contributions from Peter Schiff, Casey Research, and other leading experts in the gold market. Click here to learn more.


The Best Growing Energy Stocks With Highest Dividend Yield

Energy is of huge importance for the growth of the economy. The demand is steadily growing and the political change away from nuclear power to renewable energy slows the supply growth of energy. I screened stocks from the investment theme by the best growth over the past 10 years. I decided to select only stocks with a double-digit sales growth and a dividend yield of more than three percent. Fourteen stocks fulfilled my criteria. The highest growth was realized by Penn Virginia Resource Partners (PVR) who had a yearly growth of 40.3 percent. One company has a yield of more than 50 percent.

Here are my favorite stocks:

BPL

1. Buckeye Partners (BPL) has a market capitalization of $5.89 billion. The company employs 859 people, generates revenues of $3,151.27 million and has a net income of $43.08 million. The firm’s earnings before interest, taxes, depreciation and amortization (EBITDA) amounts to $338.70 million. Because of these figures, the EBITDA margin is 10.75 percent (operating margin 8.87 percent and the net profit margin finally 1.37 percent). 

 

The total debt representing 50.51 percent of the company’s assets and the total debt in relation to the equity amounts to 129.65 percent. Due to the financial situation, a return on equity of 5.27 percent was realized. Twelve trailing months earnings per share reached a value of $0.80. Last fiscal year, the company paid $3.82 in form of dividends to shareholders.

 

Here are the price ratios of the company: The P/E ratio is 79.04, Price/Sales 1.88 and Price/Book ratio 3.26. Dividend Yield: 6.44 percent. The beta ratio is 0.26. 


HEP


2. Holly Energy Partners (HEP) has a market capitalization of $1.22 billion. The company employs 148 people, generates revenues of $182.10 million and has a net income of $58.87 million. The firm’s earnings before interest, taxes, depreciation and amortization (EBITDA) amounts to $121.35 million. Because of these figures, the EBITDA margin is 66.64 percent (operating margin 49.84 percent and the net profit margin finally 32.33 percent). 

 

The total debt representing 76.43 percent of the company’s assets and the total debt in relation to the equity amounts to 449.52 percent. Due to the financial situation, a return on equity of 17.33 percent was realized. Twelve trailing months earnings per share reached a value of $2.47. Last fiscal year, the company paid $3.32 in form of dividends to shareholders.

 

Here are the price ratios of the company: The P/E ratio is 22.39, Price/Sales 8.30 and Price/Book ratio 4.86. Dividend Yield: 6.41 percent. The beta ratio is 0.65. 


PAA


3. Plains All American Pipelines (PAA) has a market capitalization of $11.65 billion. The company employs 3,500 people, generates revenues of $25,893.00 million and has a net income of $514.00 million. The firm’s earnings before interest, taxes, depreciation and amortization (EBITDA) amounts to $1,016.00 million. Because of these figures, the EBITDA margin is 3.92 percent (operating margin 2.96 percent and the net profit margin finally 1.99 percent). 

 

The total debt representing 43.47 percent of the company’s assets and the total debt in relation to the equity amounts to 137.19 percent. Due to the financial situation, a return on equity of 8.01 percent was realized. Twelve trailing months earnings per share reached a value of $4.18. Last fiscal year, the company paid $3.76 in form of dividends to shareholders.

 

Here are the price ratios of the company: The P/E ratio is 18.64, Price/Sales 0.47 and Price/Book ratio 2.60. Dividend Yield: 5.25 percent. The beta ratio is 0.50. 

 

Take a closer look at the full table of energy stocks with fastest growth and big dividends. The average price to earnings ratio (P/E ratio) amounts to 20.95. The dividend yield has a value of 9.02 percent. Price to book ratio is 2.70 and price to sales ratio 2.88. The operating margin amounts to 26.35 percent.


Related stock ticker symbols:
ARLP, BPT, BPL, HEP, MMP, MMLP, PGH, PVR, PTR, PBR, PAA, RES, TGS, YZC