On the surface, the Federal Reserve’s objective is to make sure America doesn’t fall into ruins. Following an aggressive strategy of monetary easing, the end result is interest rates at nearly zero percent and an endless flow of easy money. As I have already stated many times in these pages, the Federal Reserve has created an artificial economy.
Yet, if you think about it, the Federal Reserve’s push for low interest rates has helped the economic recovery—but it has also made life difficult for many Americans. The Federal Reserve’s low finance rates tend to make consumers buy more, enticed by the low carrying charges. This means more buying in homes, furniture, cars, clothes, or whatever goods and services that can be financed at cheap rates. But therein lies the problem. What happens when the Federal Reserve begins to raise interest rates? It’s going to get ugly.
There will be massive debt loads that will be subject to higher carrying charges and greater hardships for many consumers as wages for many continue to be flat.
And with the low interest rates due to the Federal Reserve, people are reluctant to save. Making less than one percent at the bank is not exactly an incentive to deposit money. In my last article, I discussed this issue of low savings. According to the Employee Benefit Research Institute (EBRI), a staggering 57% of workers surveyed said they had less than $25,000 in combined household savings and investments, excluding their homes. (Source: Greene, K. and Monga, V., “Workers Saving Too Little To Retire,” Wall Street Journal, March 19, 2013.) The problem is that the low … Read More
The more I look at the size of the national debt, the more I get squeamish. With the national debt at $16.7 trillion and growing, something needs to be done, as the Federal Reserve continues to print money, creating the artificial economy that is making people think America is faring well and forgetting about the national debt.
The sequestration program will help, but will it hold as the two parties continue to argue about where the cuts should be from and alternative revenue sources? Budget cuts due to the sequestration are already at $17.2 billion and running (source: U.S. Debt Clock web site, last accessed March 14, 2013), but as I have said on numerous occasions, $85.0 billion a year will likely do very little to tackle the mounting national debt. Just the interest on the national debt is already around $223 billion, so the national debt will continue to expand in spite of the sequestration cuts. I wonder if the government gets it. You have $17.2 billion in cuts as of March 14, but $223 billion in interest costs. Something just doesn’t add up here.
The U.S. national debt as a percentage of the country’s gross domestic product (GDP) stood at 102.9% in 2011. (Source: “List of Countries by Public Debt,” Wikipedia, last accessed March 15, 2013.) This was just below the massive 208.2% in Japan and the 160.8% in Greece, according to the International Monetary Fund (IMF).
Translation: America is in a financial mess, and it will not be easy to get out of it.
And despite the national debt burden, the Federal Reserve has its hands tied. … Read More
When it comes to developing and creating a long-term investment strategy for your portfolio, one of the more difficult aspects is maintaining a focus on the horizon. What this means is that sometimes one needs to look past the short-term aberrations and focus on where the economy and stocks will be in the future.
The topic of mining stocks has come up quite often lately. Initially, when one talks about mining stocks, many people automatically gravitate toward gold and silver companies.
I would suggest that there are data showing that other commodity mining stocks might offer strong long-term potential capital appreciation.
Professionals know that the market price of a stock offers far more information than any one data point. If the price of a stock or commodity is moving, this is certainly an indication of where people are placing their funds through their own investment strategy.
While some might have an investment strategy primarily in mining stocks, I would urge diversifying away from any one commodity in this sector, creating a more diversified portfolio in general.
Getting ahead of the curve over the retail public is a difficult but attainable investment strategy. I would suggest that, in addition to looking at economic data in forming one’s own analysis, one should look to the price charts and see what’s happening on the ground.
Recently, we’ve seen a recent breakout in one commodity that might surprise a lot of people: copper.
“Doctor Copper,” as the commodity is often called due to its ability to predict economic growth, has just broken out of its downtrend. While many are focusing on the recent negative … Read More
In April 2011, when silver was trading at $50.00 an ounce, Bank of America Merrill Lynch was extremely bullish and suggested $80.00 was possible. (Source: “Prospect of silver hitting $80 shakes up stock, ETF markets,” International Business Times, May 1, 2011, last accessed January 22, 2013.) Of course, this hasn’t been the scenario, as the metal faces tough resistance at $35.00. Until there is a strong breakout here, I doubt the $40.00-level will be achievable.
While the majority of investors focus on gold, I feel silver could actually have more price upside, given its more speculative nature as more of a trading commodity.
In reality, the buying in the white metal is generally in line with the global economic growth, driving the demand for industrial goods that use silver as a raw material, pushing up income levels, and increasing the global demand for jewelry.
Here in the U.S., the economic recovery is faring well. The better-than-expected U.S. gross domestic product (GDP) growth, revised up to 2.7% for the third quarter, along with other encouraging economic data are also adding some optimism of economic renewal. China is offering some hope of a turnaround, but the stagnant condition in the eurozone and Europe remains an issue.
As I said, while gold is considered more of a pure-play hedge against risk, any sign of industrial recovery helps, as silver, unlike gold, is used in numerous industrial applications.
As you can see on the chart, silver is caught in a sideways channel, largely between $30.00 on the support side and $35.00 on the top of the channel. Silver is currently testing its 50-day moving … Read More
We’re two weeks away from surviving the Mayan Doomsday and three weeks away from stepping over the fiscal cliff. But the unabated student loan debt is just getting warmed up. Instead of dealing with the problem, Washington’s policies continue to stoke the fire. And that economic strain spells continued misery for America’s ongoing credit crisis woes.
Outstanding student loan debt has surged 165% in just seven years, from $360 billion to $956 billion. Furthermore, the average loan balance for U.S. college students has increased more than 68% since 2005 to $27,000. (Source: “Student Loan Debt History,” Federal Reserve Bank of New York web site, last accessed December 11, 2012.)
On a more granular level, student loan debt jumped $42.0 billion, or 4.6%, over the previous quarter to $956 billion. During the same period, car loan balances increased for the sixth consecutive quarter to $768 billion. U.S. credit card debt held firm at approximately $601 billion.
Eleven percent of all student loan balances are 90 or more days delinquent, surpassing all other forms of debt. Credit cards, car loans, and mortgages are all in better shape than student loans, with 90-day delinquency rates of 10.0%, 4.3%, and 5.9%, respectively.
According to the Federal Reserve, student loan debt is the only form of consumer debt that has grown since the peak of consumer debt in 2008, and it is the largest form of consumer debt outside of mortgages. What’s more is that unlike credit card debt, student debt is not forgivable in bankruptcy.
And that is creating a nightmare scenario for graduates young and old. In fact, every age group is experiencing … Read More
Silver continues to hold strong on the charts, with a possible upcoming move at the tough $35.00 resistance level and potential retest of the $40.00 level. The aggressive upward move has largely been driven by the move in gold, along with speculative trading.
Buying in the white metal is generally in line with global economic growth, which drives the demand for industrial goods that use silver as a raw material, while it also pushes up income levels and the global demand for silver and gold jewelry.
Here in the U.S., the economic recovery is faring well. The better-than-expected U.S. gross domestic product (GDP) growth revised up to 2.7% for the third quarter, along with other encouraging economic data, is also adding some optimism of economic renewal.
While gold is considered more of a pure-play hedge against risk, any sign of industrial recovery helps, as silver—unlike gold—is used in numerous industrial applications.
The price of silver has had some bull legs on the chart since its breakout in August, based on my technical analysis.
As you can see on the chart below, the upward move in prices for March contracts above the 50- and 200-day moving averages (MAs), which is bullish. The March silver is also showing a bullish golden cross with the 50-day MA of $33.09 above the 200-day MA of $31.06.
The MA convergence/divergence (MACD) is also quite bullish, but it may be approaching a top. The risk is that the run-up appears to be overextended and vulnerable to some near-term selling pressure with resistance at around $35.00. For the white metal to advance, we need to see a … Read More
The market is moving lower, and there’s nothing that appears to be supporting it. The S&P 500 has lost nearly eight percent since its peak of 1,465 in September.
The fact that the S&P 500 failed to hold above 1,400 was not a surprise, based on my technical analysis. In May, the break at 1,400 was the S&P 500’s fourth top above 1,400 since 2008.
Since the election, the market has edged lower in six of seven sessions due to heightened stock market risk.
On average, only about 37% of U.S.-listed stocks are trading above their respective 200-day moving averages (MAs), versus 61% a month ago. The short-term weakness is even more prevalent with about 19% of stocks above their respective 50-day MAs, versus 61% a month ago.
What happened to what were supposed to be the best six months of the year for investment gains?
Based on historical records, investing in the six months from November to May has produced the best returns for stocks versus the June to October period, according to the Stock Trader’s Almanac.
So far, November has been horrible, with the key stock indices down more than four percent. But as I said when I previously discussed this pattern, things could be different this time around, given the abundant stock market risk, including the financial crisis in the eurozone, a stalling economy in China, tension in the Middle East, and the presidential election and upcoming fiscal cliff in the U.S.
We are seeing some selling capitulation in the market because of the abundant stock market risk and lack of any positive news that would encourage … Read More
Gold and silver continue to be bullish on the charts. I can see gold breaking to $1,800 an ounce, something that nearly materialized on October 5, when cash gold traded at $1,795.78 prior to slipping. The last time gold was above $1,800 was on November 8, 2011.
Silver is holding around $34.00 an ounce; but I’m not as bullish on the white metal, because the price is largely driven by the direction of the global economy.
I continue to like gold going forward, given the financial crisis in the eurozone—and, trust me, it is not going to get better anytime soon. It could take years. Moreover, with a recession expected to hit the eurozone in 2013, the crisis could deepen further.
Across the Pacific, you have the stalling in China and its impact on the other Asian countries, like South Korea and Japan, along with the smaller emerging Asian countries.
For those of you who took my advice to hold on and accumulate gold on weakness down to $1,600, it has been a nice ride. Major price weakness should be viewed as an opportunity to accumulate.
I favor the metal plays and continue to see opportunities, especially in the mining companies and junior gold miners.
China and India continue to be the world’s top buyers of gold, and this is expected to continue. China has also been buying mining companies around the world in an effort to increase its reserves. This is a reason why I like some of the smaller mining companies, especially those with a massive reserve of proven metals in the ground, waiting to be developed and … Read More
Never mind gold and silver, strong growth for carbon fiber is making this composite an area for investors looking for a niche play, based on my stock analysis.
Carbon fiber is a compound used for applications that demand a high strength-to-weight ratio and rigidity. The material was previously found only in high-cost applications, but my stock analysis shows that prices have been declining over the past years, with carbon fiber being increasingly found in numerous consumer products, including laptops, tripods, fishing rods, tent poles, racquet frames, bicycles, sporting equipment, golf clubs, and motorcycles.
The commercial applications of carbon fiber include aerospace, automotive, offshore drilling, infrastructure, marine, energy storage, and wind turbines.
The global carbon fiber market is expected to see an estimated annual growth of 17% over the next five years to around 118,600 tonnes and a market value of about $7.3 billion by 2017, according to a report by Smithers Apex. (Source: “The Future of Carbon Fiber to 2017,” Smithers Apex, http://www.gmc2.org/images/pressreleases_pdfs/Future_of_Carbon_fibre_2017.pdf.) From 2012 to 2020, the annual growth for carbon fiber–reinforced plastics is estimated at 16%. These metrics make carbon fiber plays an intriguing opportunity, according to my stock analysis.
A potential play in the carbon fiber market for aggressive investors is small-cap, special situations play Zoltek Companies, Inc. (NASDAQ/ZOLT), which appears attractive given it is well down from its 52-week high of $15.01. My stock analysis is that Zoltek represents an above-average risk-to-reward opportunity in the equities market. Note that this is not a buy recommendation, but simply an idea.
Technical analysis shows the stock is a sideways channel just below its 50- and 200-day moving averages … Read More
Gold has shown some good support and buying after previously declining to below $1,525 an ounce. The metal has rallied above $1,600 and is currently showing some promise, being on the verge of a possible breakout towards $1,700.
I continue to like gold going forward, given the massive financial distress and possible exit of Greece from the eurozone, despite recent statements from the European Central Bank and its desire to keep the eurozone intact. And then there is Spain and the other five eurozone countries currently in a recession.
Even if the yellow metal fails to hold at $1,600, I do not feel it is time to dump gold stocks and believe major price weakness should be viewed as an opportunity to accumulate.
I favor metal plays and continue to see opportunities, especially in the mining companies and junior gold miners. You want to ignore the daily fluctuation in gold, silver, and copper prices, understanding that these mining companies will continue to mine.
China and India continue to be the world’s top buyers of gold and this is expected to continue. China has also been buying mining companies around the world in an effort to increase its reserves. This is a reason why I like some of the smaller mining companies, especially those with a massive reserve of proven metals in the ground waiting to be developed and needing a cash-rich partner to get the ore out of the ground.
You can buy the major gold players, such as Freeport-McMoRan Copper & Gold Inc. (NYSE/FCX), Barrick Gold Corporation (NYSE/ABX), or Newmont Mining Corporation (NYSE/NEM), but for the real big gains, … Read More
In early 2011, silver was the toast of the town, as speculators ran up the price to the $50.00 an ounce level on speculation that the world economies would continue to expand. But, straddled with the eurozone debt crunch and slowing in Europe and China, silver quickly fell.
The price of the white metal has steadily declined over the past 15 months. As you can see on the chart, the upward move in prices leading up to $50.00 was overextended and vulnerable to selling pressure that drove the metal to just above its multi-year lows.
Chart courtesy of www.StockCharts.com
The long-term chart of cash silver from 2003 shows the metal managing to trade above its 50-day moving average (MA) at around $25.00. The price is currently stuck below its 50-day MA of $27.76, as well as its 100-day MA and 200-day MA of $29.31 and $30.81, respectively.
Since May, trading has been lackluster. There is decent downside support around $25.00 on the bottom end and just over $35.00 on the top end based on technical analysis.
Silver is down 15.6% since the start of the year and is underperforming gold.
Yet, over the past 20 years, silver has largely outperformed gold, as shown in the following chart that indicates returns to July 1, 2012.
If the metal can hold, we could soon see another rally back above $30.00 towards $35.00. Of course, this would depend on the global economies picking up.
I would rather be in gold, which is used mainly as a hedge against risk and for jewelry.
Silver is used in numerous industrial and electronic applications; … Read More