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Two Unconventional Precious Metals Investors Should Consider
By Sasha Cekerevac for Investment Contrarians | May 23, 2013
Many investors in the precious metals sector have been disappointed with the significant decline in prices this year. Precious metals mining stocks have fared even worse than the commodities, with massive drops in their share prices.
An area where many investors make a mistake is in portfolio diversification. I’ve mentioned this many times in the past, but it bears repeating: never place all your money in one company or asset class.
While the precious metals index has declined, not all of the components have had the same performance or even the same level of fundamental developments. While gold is down 18% this year, and silver has dropped by 26%, platinum is only down 5.3%, and palladium is up 4.7%.
As I’ve mentioned in a previous article, investors should clearly look at adding platinum and palladium to their well-diversified portfolios if they are interested in having some exposure to the precious metals sector. The reason is that demand for both platinum and palladium is set to increase from industrial use. Investors should diversify part of their portfolios away from the traditional precious metals of silver and gold and into both platinum and palladium if they still wanted exposure to this sector.
Note that I’m referring to exposure to the precious metals sector directly through the commodities themselves, not the mining stocks for platinum and palladium. This is because the vast majority of platinum mining stocks are located in South Africa, and much of the platinum supply comes from Russia. Mining stocks in these precious metals are facing increasing costs, significant labor problems including strikes, and potentially stricter regulations.
Precious metals mining … Read More
Japanese Stocks in a Bubble Again?
By George Leong for Investment Contrarians | May 23, 2013
Japan is currently on cloud nine, with exports bursting out of the gate and Japanese stocks flying high. The benchmark Nikkei 225 index in Japan is up a whopping 48% this year.
Fueling the massive climb in the stock market has been the steady decline in the value of the Japanese yen triggered by the significant money printing by Prime Minister Shinzo Abe’s strategy to inject $2.4 trillion into the Japanese economy over the next decade.
It’s the same everywhere you go around the world. Money printing triggered by record-low interest rates and major monetary and fiscal stimulus is driving the economy and spending.
Yet what about the impact on the inflation rate of the importing country?
The devaluation of the yen against the greenback and other major global currencies makes Japanese goods much cheaper for foreigners, but it also creates a higher inflation rate for Japan.
In the chart below, the gap (as indicated by the blue oval) that has developed between the yen (as shown by the red candlesticks) and the U.S. dollar (as reflected by the green line) is clearly shown. In my view, while Japan is currently seeing growth, the country’s strategy is risky.
Chart courtesy of www.StockCharts.com
The widening gap between the two currencies will present problems in the future for the Japanese consumer due to the rising inflation rate.
Let me explain: the weak yen translates into higher prices paid for imports as more yen are required to pay for the same goods now than in the past.
For now, import prices are starting to edge higher—slowly but surely.
Over time, if the yen … Read More
How the Coming Shift in Monetary Policy Will Affect Your Investments
By Sasha Cekerevac for Investment Contrarians | May 22, 2013
One of the most interesting debates regarding monetary policy is emanating from the Federal Reserve members themselves. The Federal Reserve’s current monetary policy program includes an $85.0-billion monthly asset-purchase program. Recent comments made by many of the Federal Reserve members indicate that they are as unsure about the current monetary policy program as the rest of us.
Increasingly, it appears that more Federal Reserve members are leaning toward reducing and even eliminating the current aggressive monetary policy program of bond buying, and doing so sooner rather than later.
Conversely, there are still several Federal Reserve members who currently vote on monetary policy and want to continue the asset-purchase program, as they don’t see an economic recovery coming anytime soon.
This divergence makes it extremely difficult to predict the future of monetary policy. This is important, because when the Federal Reserve indicates that it will begin reducing its bond-purchasing program, it will have large ramifications throughout various markets.
Personally, I have been of the opinion that the Federal Reserve will begin to reduce its aggressive monetary policy program, or at least indicate that it plans to do so, later this summer or early fall. This shift in monetary policy, I believe, will cause many assets to decrease in price, with bonds being sold off and stocks getting hit as well.
Economically, there are many mixed and conflicting data points. Both vehicle sales and housing are strong points in the economy; however, manufacturing still continues to lag. As well, the recent survey by the Federal Reserve Bank of Philadelphia indicated that current manufacturing conditions are weak, but that business owners are optimistic … Read More
Housing Market’s On Fire; Why It’s Not Time to Buy
By George Leong for Investment Contrarians | May 22, 2013
The housing market continues to vault ahead. We are seeing strong housing starts and the flow of building permits in the pipeline. Home prices are also steadily moving higher.
The S&P/Case-Shiller Home Price Index, comprising the 20 largest U.S. metropolitan cities, increased a better-than-expected 9.3% in February, representing the 13th straight up month for prices.
Looking at the chart below, notice the S&P/Case-Shiller index is currently at its highest point since late 2008, when the subprime credit crisis was in full bloom. Home prices remain well below the levels we saw in 2006, prior to the housing market meltdown.
You can thank the Federal Reserve for creating the ideal environment for the hot housing market via its strategy of record-low, near-zero interest rates and the continued buying of $85.0 billion monthly in bonds to drive down the financing rates.
Chart courtesy of www.StockCharts.com
You can feel the housing market is ready for a bubble, but the trend continues to point higher, albeit at a slower rate and with interest rates inevitably going higher. You need to be careful; but for the time being, the housing market is where it’s at.
I would be hesitant to touch the homebuilder stocks, due to their already massive gains. The chart of the S&P Homebuilders Index below shows the steady upward trend since December 2012, as indicated by the parallel blue lines. Yet also notice that prices have been rising higher without any major adjustment back to the bottom support line since late April. Look at the area marked by the red oval: this is the downside risk to which you are exposed. As … Read More
Divergence Between the S&P 500 and Current Economic Recovery Grows; Are Investors Too Optimistic?
By Sasha Cekerevac for Investment Contrarians | May 21, 2013
There continues to be mixed data regarding the strength of the economic recovery in America. This is creating an interesting divergence between the level of the S&P 500 and the growth rate of the economic recovery, which is far less than many had expected so far.
The Federal Reserve Bank of Philadelphia recently released its index of manufacturing activity, which dropped to -5.2 in May, versus a reading of 1.3 in April. (Source: “Business Outlook Survey,” Federal Reserve Bank of Philadelphia web site, accessed May 17, 2013.)
The survey shows no consistency over the past seven months regarding the current conditions of the economic recovery. The report indicates that the economic recovery has oscillated between positive and negative readings. Current demand for manufactured goods dropped substantially to -7.9 in May, from -1.0 in April. As well, the level of inventories increased to 4.1 in May, versus -22.2 in April.
This indicates that for the surveyed businesses during the month of May, there appears to be less demand for manufactured products, and inventories are piling up, which is clearly not a sign of strength. However, the S&P 500 continues to move higher. The question is: is this upward movement sustainable?
Obviously, no one can predict the future, but investors in the S&P 500 try to anticipate future shifts in the business landscape. While the economic recovery is currently weak, people who are now buying the S&P 500 believe that growth is close at hand. The current data do not support such a strong economic recovery; however, there is the possibility that such a recovery might occur.
One such data point that … Read More
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