January 14, 2013
- So much for that custom order at the U.S. Mint: Trillion-dollar platinum coin scrapped. Plus, two more White House edicts and one lingering uncomfortable question…
- “Forget about earnings” says our new income specialist — in the heart of earnings season! Neil George on what you should watch for instead
- After the fiscal cliff shakeout, the 2013 breakout: Guenthner/Elmerraji examine a telling S&P chart
- Sexy curves at the Consumer Electronics Show… and an essential secret when it comes to investing in high-tech
- “Where’s the oil crash?” asks Byron King, armed with evidence… the era of “ineptocracy”… a healthy way to approach investing (in The Washington Post, no less)… and more!
OK, can everyone just shut up about the trillion-dollar platinum coin now? It’s not going to happen.
“Neither the Treasury Department nor the Federal Reserve believes that the law can or should be used to facilitate the production of platinum coins for the purpose of avoiding an increase in the debt limit,” said a Treasury spokesman in what the Financial Times calls “a rare Saturday statement.”
Thus will the U.S. government be spared the reputation of “banana republic” and “international laughingstock” — to use the expression of Politico’s Ben White.
No, that comes later.
Then again, some people think we’re already beyond the point of no return…
Proving once again the best satire has a firm foundation in fact… more than 34,000 people signed a petition imploring the U.S. government to build a Death Star by 2016.
“We’re working hard to reduce the deficit, not expand it,” responded Paul Shawcross of the Office of Management and Budget.
Aw, c’mon, Paul, where’s your imagination? It’s the ultimate in stimulus… and a tip of the hat to Paul Krugman’s musings in 2011: “If we discovered that, you know, space aliens were planning to attack and we needed a massive buildup to counter the space alien threat and really inflation and budget deficits took secondary place to that, this slump would be over in 18 months.”
Krugman, we noted last week, was receptive to the trillion-dollar platinum coin. Heh…
To the surprise of no one, the White House also shot down the peculiar “mother-may -I” secession petitions that flooded its website after the election.
“As much as we value a healthy debate, we don’t let that debate tear us apart,” responded Jon Carson, director of the White House’s “Office of Public Engagement.”
We can’t wait to see how the White House responds to a rather more serious petition… to audit the government’s gold stash.
“As of 12/31/2012,” the petition reads, “the US Treasury claims to hold 261 million ounces of gold at Denver, Fort Knox, West Point and at the Federal Reserve Bank of New York. This bullion was last subjected to a full physical audit in 1953.”
So far, it has only 3,722 signatures — far short of the 25,000 threshold that triggers a White House response.
OK… That’s more than enough “things outside your control” for one day. Let’s move on to what we do best around here — things you can actually do something about…
“The market has not been kind to you as an investor,” sympathizes our new income patron Neil George.
Attentive readers will remember that we introduced the former banker and 25-year financial industry vet to the team last week. Today marks his debut in The 5.
Despite gut-wrenching plunges, “since the start of 2000,” Neil writes, “individual investors kept holding and hoping that if they just put up with all of the volatile trading and episodic collapses, somehow the market would reward their patience.
“But that hasn’t worked,” says Neil, “and the time of hold and hope is coming to an end for more investors.”
“Since January 2000,” Neil goes on, “investors have begun not just to lose their faith in the market, but to panic.”
The result? Investors are throwing in the towel, and liquidating nearly $1 trillion in U.S. stock funds. As a consequence, Neil explains, “stocks as a percentage of U.S. household assets have gone from over 50% in 2000 to only 37%.
“And this is accelerating,” Neil writes, “according to the Investment Company Institute (ICI), with the most recent data released showing that the dumping of general markets stock funds was over $4.5 billion in one week alone.
“The trouble is,” says Neil, “that investors still need to invest if they’re going to make it to and through retirement.
“Bank deposits won’t cut it. Nor will Treasury bills.
“There is a solution,” he insists. “There is a way to get beyond the market’s malice.
“You need to continue to think differently from how Wall Street wants you to. And this process starts with the income statement of your next stock.”
“Forget about earnings” Neil advises, “they can be manipulated to serve traders and fund managers. Look at the operations of the company. You want industry leaders with revenues rising faster than peers’. Then you want to see that as a company sells more, its margins not only remain fat, but actually get better year after year.
“In addition,” he goes on, “you need to ask yourself what could go wrong for this company’s sales and profits. Think about the threats to the business and then go back and look at when the company faced similar challenges and what happened then. Then you can get a handle on your risks.”
Neil also cites a few more things to be on the lookout for:
“You also need to think about what could go wrong on costs,” he says, pointing toward future challenges the company may face.
“Look at the balance sheet and the debts of the company,” he suggests. “If it is a good credit risk, it will more likely be a good stock.
“You then need to think like me, like a former banker, and ask yourself whether you would lend money to the company. If not, you shouldn’t be buying its stock.
“The key to these exercises is not only picking better stocks, but also avoiding what I call front-page risk. This is when you’re reading the front page of the financial papers and find your stock is the disaster of the day. Knowing what you’re buying can’t stop this risk — but it can surely make it lower.”
[Ed. Note: Neil has already suitably “de-risked” one of the most lucrative income strategies you can put to work in your portfolio. Worst case, you can use it to defray your rising monthly gasoline costs. Best case, you can pull in enough money to fund a comfortable retirement. Neil walks you through the opportunity at this link.]
Of course, even in a secular bear market, you can have a cyclical bull. “Our market predictions for the new year are already coming true,” write our technical duo of Greg Guenthner and Jonas Elmerraji.
Faithful readers know they’ve been bullish on the broad market since last summer. “Just look,” they say, “at how the S&P 500 broke out to new post-2008 highs last week:
“Notice,” they write, “the dotted gray line that represents the market’s primary uptrend, which has remained intact since 2009. After bouncing off support following the late 2012 pullback, the market has sprinted higher and finally topped 1,470.
“It’s important to understand that trends occur in different sizes. Some are huge, while others are so tiny they’re practically unnoticeable. What we’re seeing now is the intermediate trends and the primary trend syncing up — which can be a very good time to be an investor.”
The S&P is pausing for breath this morning, down three points, to 1,469. All the major indexes are either up a bit or down a bit.
Precious metals are inching up — gold to $1,668 and silver to $30.96. That’s despite a dollar index holding steady at 79.6.
While “4K” super-high-resolution TVs were all the rage at this year’s Consumer Electronics Show… Samsung is looking at something different as the screen of the future…
“Curved OLED” it’s called. “A curved screen allows for more viewing angles than a flat one,” says our tech maven Ray Blanco, “and the image appears the same. We’ll have to wait and see if commercially viable TVs emerge from the project, but curved OLED TV technology is a foretaste of the flexible OLED smartphones Samsung is working on.” From where Ray sits, the money to be made from the trend isn’t in the giants like Samsung… but the lesser-known companies that supply the Samsungs of the world.
“As a technology investor,” chimes in our macro-strategist Dan Amoss, “what you avoid is more important than what you own. Estimating a margin of safety for a large, incumbent technology company is notoriously difficult. Future earnings can look nothing like the past. Stocks of mature tech incumbents can stay frustratingly ‘cheap’ for years on end.
“Most computer hardware markets,” he goes on, “are intensely competitive. New servers and chips arrive like clockwork. Technologies graduate from R&D labs to commercialization, disrupting competitive landscapes along the way. Incumbents react by overpaying to acquire the disruptive technology; often, they’re stuck watching as a new technology grabs market share.
“Competitive threats to computer chip maker Intel are as strong as ever. If the chip business were a war, Intel is like an expensive conventional military. A feisty competitor is gaining ground with guerilla warfare tactics. This competitor partners with chip foundries to deliver low-cost, low-power consumption solutions for all sorts of computing devices. With IT equipment consuming an estimated 10% (and growing) of global electricity supply, low-power solutions are taking market share.”
Intel shareholders have noticed: The stock was down 12% in 2012, when the market was up 13%. Learn how to profit from the threat to Intel in today’s 5 Min. Forecast PRO, at the bottom of today’s episode. Not a subscriber yet? You still have one full week to give it a test drive.]
“Saudi Arabia’s effective target for oil prices appears to have risen from $100 to $110 per barrel,” according to Reuters — which has been pulling apart the kingdom’s recent production numbers.
That’s using Brent crude as a yardstick… which trades this morning at $110.12. (West Texas Intermediate is at $93.45.) The Saudi oil minister went on record nearly a year ago today saying $100 was the kingdom’s target.
No more, says Reuters: “It is focused on balancing the physical market to avert a bigger-than-usual buildup of stocks in the first half of 2013 rather than attempting to push prices back toward $100.”
Back stateside, production from North Dakota’s Bakken Shale dropped 2.2% in November — the first decline since April 2011. The rig count in the state is down too — from 210 to 181.
“With a little decline in the rig count, and the very fast depletion rate of the wells, it’s not terribly surprising that the Bakken production leveled off,” says James Williams of WTRG Economics.
“Hmmm,” says our Byron King, assessing the previous two items… along with oil price forecasts last year of $63 (Citigroup), $40 (oil consultant Philip Verleger) and $35 (Venezuela’s oil minister)… “So tell me again about how oil prices are headed for a crash?”
“Just upgraded to PRO,” a reader writes. “Good Information. Thank you.
“I thought you might appreciate a picture a friend has sent me displaying the meaning of a ‘new word.’
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The 5: It appears to be sold by several Internet purveyors of T-shirts. And you’re right: On that appropriate note, we’ll end today’s episode where it began!
Cheers,
Dave Gonigam
The 5 Min. Forecast
P.S. “The economy is not the stock market,” Chris Mayer said in our virtual pages last month.
Yesterday, he took that message to The Washington Post and suggested a much healthier approach to investing… complete with one of his favorite mutual funds. It’s worth a look… and if a fund is too scattershot for your investing tastes, there are always Chris’ individual stock picks — which have delivered an average 42% annual gain.
P.P.S. Who says you can’t find yield today? Congratulations to readers of Total Income Alert, who just pulled in 31% gains on — of all things — a corporate bond. After only six months, to boot. If you have a substantial nest egg and want to put it to work to generate substantial payouts, check out the Total Income Alert strategy here.