9. In the end it’s quite simple. Really. Let me give you some encouraging
data. GMO predicts asset class returns in a simple and apparently robust way:
we assume profit margins and price earnings ratios will move back to long term
average in 7 years from whatever level they are today. We have done this since
1994 and have completed 40 quarterly forecasts. (We started with 10-year
forecasts and moved to 7 years more recently.) Well, we have won all 40 in that
every one of them has been usefully above random and some have been, well,
surprisingly accurate. These estimates are not about nuances or PhDs. They are
about ignoring the crowd, working out simple ratios, and being patient. (But,
if you are a professional, they would also be about colossal business risk.)
For now, look at the latest of our 10-year forecasts that ended last December
31 (Exhibit 1). And take heart. These forecasts were done with a robust but
simple methodology. The problem is that though they may be simple to produce,
they are hard for professionals to implement. Some of you individual investors,
however, may find it much easier.
November
retail sales advanced only modestly over disappointing October sales.Sandy
impacted the first two weeks of the month.
October
personal income was flat versus expectations of a 0.3% rise; personal spending
fell 0.2% versus estimates of a 0.1% increase.Both numbers were impacted by Sandy.
Other
The
age of financial repression (medium and a must read):
Yesterday,
the indices (DJIA 13021, S&P 1415) continued their rally after some early
morning turmoil.Both finished for the
second day above the upper boundary of their short term downtrends (12453-12950,
1350-1396).A close today above those
upper boundaries will confirm a break and the Averages will re-set to a short
term trading range.
Should
this occur, candidates for an upper boundary would be (1) their 50 day moving
averages [13190/1419] and (2) two former support now resistance levels
[13302/1422 and 14190/1576].
The
indices remain within their intermediate term uptrends (12847-17847, 1356-1952)
Volume
fell, breadth was mixed.The VIX
declined, finishing below its 50 day moving average and the upper boundary of
its short term downtrend but above the lower boundary of its intermediate term
trading range.
GLD
recovered some of Wednesday’s loss but remains below its 50 day moving average
and the lower boundary of the very short term downtrend for the second
day---which confirms the break of this trend.There is some good news in that the bounce made Wednesday’s low a higher
low than the previous one in early November.Nonetheless,our Portfolios Sold
at the close one half of the shares purchased Tuesday morning. GLD remains above the lower boundaries of its
short term uptrend and the intermediate term trading range.
Bottom
line: the bulls have the reins right now, however much I may disagree with
their reasoning.As a result, I am gutting
today out to be sure the short term downtrends are confirmed as broken.Even if they are, the new trading ranges
would have a lower boundary of the mid November low (12463/1343) and a
potential upper boundary of the 50 day moving averages (13190/1419).In other words on a technical trading basis,
more downside than upside and no reason to be chasing stocks at current prices
especially with them trading above Fair Value (as defined by our Model).
Yesterday
was another decent one for economic data: the bad news was the November retail
sales were anemic; but the first two weeks were impacted by Sandy.The good news was that (1) revised third
quarter GDP was up considerably, though some
economists are complaining about the make up of its components and (2) jobless
claims were down albeit not as much as expected.So none of these stats were unmitigated
positives or negatives; but they were weighed to the positive side.That works for our forecast.
That
said, the pin action followed the political narrative on the fiscal cliff.Early in the day, prices were off on some
disappointing comments from Boehner; then rallied as more positive comments
surfaced in the afternoon.However,
after the close, the WSJ reported that it had a copy of Obama’s negotiating
points, the important ones being (1) $1.6 trillion in tax increases and (2) $50
billion in INCREASED spending---no wonder Boehner was a sour puss.Clearly, if the trend in prices remains
highly correlated to fiscal cliff news, the Market will open down this morning.
Under
the category of Investing for Survival (medium):
Ann
Coulter may have the long term solution to the fiscal cliff problem, although
it will cause short term pain.The GOP
stands back, agrees the Obama won the election, give Him what He wants but makes
it clear (1) that the dems now own the economy lock, stock and barrel and (2)
why their policies are misguided.
Bottom
line:I continue to believe that we are
going to get a resolution to the fiscal cliff; though there are two associated
issues: (1) the terms of the compromise; andI have seen nothing that would lead me to believe that the agreement
will be anything but non-optimal---including the above linked to article which I
consider optimistic. (2) when we get it; and if it is not done or almost done
by Christmas [Obama’s ‘hoped for’ deadline], it will still get done early
2013.To be sure, that will likely scare
many investors.But, all other things
being equal, a sell off based on that fear would be a buying opportunity.
Of course, all
things are never equal and the risk posed by multiple eurozone sovereign and/or
bank insolvencies, in my opinion, is much more significance than the fiscal
cliff (1) because it is more likely than the fiscal cliff and (2) the economic
consequences are unquantifiable where as we have enumerable studies precisely
outliningthe economic costs of going
off the cliff.
Meanwhile, Greek
pensioners rage at officials who invested much of their pensions in Greek bonds
(this is long, just read the first couple of paragraphs to get the jest of the
story):
***over night,
economic reports out of the EU show unemployment at record levels and retail
sales plunging.
With stocks now
slightly above Fair Value, there is no compelling case for buying stocks.On the other hand, there is no reason not to
add to those stocks on our Buy Lists, absent the eurocrisis.Unfortunately, conditions in the EU continue
to deteriorate and I can’t quantify to the downside.And that spells trouble with a capital
T.I love our Portfolios’ cash
positions.
HollyFrontier
Corp, which is the result of a merger of Holly Corp and Frontier Oil in July
2011, is one of the largest independent petroleum refiners in the US
producing gasoline, diesel, jet fuel, asphalt and specialty lubricant
products.Consolidated historical
figures are not yet available; however, earnings per share are expected to grow
from $6.42 in 2011 to $6.60 in 2012 while the dividend per share should
increase from $.33 to $.50.Return on
equity in 2012 will be roughly 25%.HFC
should benefit from:
(1) economies of
scale from its expanded infrastructure,
(2) margins are
benefiting from heavy crude differentials as well as price differences between
inland and coastal crude,
(3) stock
buybacks.
The
major negative is lack of volume growth.
HFC is rated B++
by Value Line, has a 24% debt to equity ratio and its stock yields 1.5%.
Statistical Summary
StockDividendPayout# Increases
YieldGrowth RateRatioSince 2002
HFC1.5%17%9%NA*
Ind Ave3.7631NA
Debt/EPS DownNetValue Line
EquityROESince 2002MarginRating
HFC24%21%NA*6B++
Ind Ave1317 NA7NA
• historical numbers not
available
Chart
Note:
HFC stock made great progress off its November 2008 low, quickly surpassing the
downtrend off its July 2007 high (red line) and the November 2008 trading high
(green line).Long term the stock is in
an uptrend (straight blue lines).Intermediate term it is in an uptrend (purple lines).Short term it is in an uptrend (brown line).The wiggly blue line is on balance
volume.The Aggressive Growth Portfolio
owns a 50% position in HFC. The upper boundary of its BuyValueRange
is $19; the lower boundary of its SellHalfRange
is $54.
The
Fed released its most recent Beige Book which was generally up beat though it
took pains to point out the impact of Sandy in multiple geographic and economic
sectors.
Revised
third quarter GDP came in up 2.7% versus
expectations of up 2.8% and the initial report of up 2.0%; the GDP
deflator was up 2.7% versus estimates of up 2.8% and the initial report of up
2.8%; corporate profits were up 18.6%.
Weekly
jobless claims fell 13,000 versus forecasts of a 26,000 decline.
The
indices (DJIA 12985, S&P 1409) spiked higher yesterday after an early
morning decline.They both (the S&P
for the second time) traded above the upper boundary of their short term
downtrends (12475-12965, 1349-1399).Our
time and distance discipline is now operative.Closes above these upper boundaries on Friday will confirm a break.Their 50 day moving averages remain overhead
(13194/1420).They also continue to
trade within their intermediate term uptrends (12835-17835, 1354-1950).
Volume
rose; breadth improved.The VIX fell,
remaining below its 50 day moving average and between the upper boundary of its
short term downtrend and the lower boundary of its intermediate term trading
range.
GLD
got seriously whacked, closing below not only its 50 day moving average for the
second day in a row but the lower boundary of its short term uptrend.Tuesday’s purchase, however small, still
looks like a very bad trade; and the best strategy for dealing with bad trades
is to terminate them immediately.So
absent a big rally today, I will Sell the shares Bought on Tuesday at the close---with
the full recognition that this was a trade and that I could re-initiate it at
any time.
***pre
market open it looks like GLD has already recovered half of yesterday’s loss.
Bottom
line: I was being more prescient than I thought when I said yesterday that‘one big up day would alter that assessment’
that assessment being ‘re-syncing of the S&P with the Dow in their short
term downtrends is obviously not a positive’.That said, the break of those downtrends has not been confirmed; and the
aforementioned statement regarding ‘one big up day’ applies equally to one big
down day.In other words, the Averages
remain at a pivot point which, in my opinion, is not an occasion to be taking
action whether buy or sell.
Fundamental
Headlines
Yesterday’s
economic news was neutral: positive weekly mortgage purchase applications,a very negative revision to September new
home sales and a mixed to positive report from the latest Fed Beige Book.The September home sales number was by far
the most important but not enough to impact our forecast.
Our
political class was center stage with both Boehner and Obama mewing about a
compromise on the fiscal cliff.To say
investors reacted positively would be an understatement; and they may be
right.To be sure, the electorate will
get some sort of compromise on the fiscal cliff.However, at the risk of being repetitious,
the issues are what will be the terms of compromise and when will we get
it.
In my opinion,
for the Market to move higher, the compromise needs to include at a minimum
$2-3 of spending cuts for every $1 of tax increases, those cuts have to come
largely from entitlements and it is clear that the timetable for agreement will
yield a solution by 12/31/12.This may all happen; my bet is that it
won’t.That, therefore, makes me very
cautious---forgetting that the EU muddle through scenario gets iffier and
iffier everyday.
One
final joyous Holiday note, the WSJ reported that the Fed
may be ready to provide more easing---I guess they missed the bankruptcy notice
of the Bank of Japan.
Bottom
line:I don’t share yesterday’s investor
euphoria.I believe that getting the
compromise will feel like a root canal but unfortunately the result will likely
not bring the relief.Further, virtually
every day the eurocrats edge closer to economic suicide even on those days that
they would have us believe they had just parted the Red Sea
and were leading the EU into the Promised Land.
Please.
I love our
Portfolios’ cash and if I have to sell some GLD, they will just own more cash.
Subscriber Alert
Three
stocks (Atrion [ATRI-$201], Balchem
[BCPC-$35] and Sun Hydraulics [SNHY-$26]) on
the Aggressive Growth Buy List traded above the upper boundaries of their respective
BuyValueRanges.Accordingly, they are being Removed from that
Buy List.
The
Aggressive Growth Portfolio owns shares of BCPC and SNHY.No shares will be Sold.
Buying and storing gold and
silver offshore by Mark Nestmann
The perception that America’s
debt is a safe investment gave this country the upper hand during the 2008-2009
financial crisis. It made it easier for us to borrow money and for the Federal
Reserve to buy bonds to keep interest rates low.
Today, that confidence has all but evaporated as a dithering Congress can’t
agree on a balanced long-term budget. Politicians have taken the debt ceiling
hostage, stirring up a whirlwind of uncertainty over America’s
ability to manage its deficit.
This is driving foreign and domestic investors into “safer” investments that
have real value… like precious metals.
Gold, for instance, has unique properties that make it an unmatched medium
of exchange. It is the anti-fiat money currency. Silver should continue to
perform well, thanks to its dual role as both an industrial metal and currency
metal.
Owning physical gold and silver in the form of coins and bullion will help
to conserve your purchasing power as paper money loses its value. But where do
you store it?
Gold and silver should be held in a diversified way. You can hold it in your
home (coins in a safe), with a family member you trust, or in a safety deposit
box at a bank.
But for real safety, peace of mind and asset protection, you should really
keep at least some of your gold and silver overseas. This is not just for tax
reasons, but for insurance.
Here are seven strategies you can use to safely purchase and store your
precious metal holdings offshore…
Strategy 1: Buy locally overseas and store in a secure residential
location. Do you live or own property overseas? If so, you can buy
precious metals locally and then store them at your offshore home, in a secure
location. A floor safe is ideal… one capable of deterring a professional thief
for at least an hour or two. For that, expect to pay several thousands of
dollars or its equivalent in foreign currency. Installing the safe is a job for
a pro. If you can’t find a trusted local contractor, you can transport a U.S.
contractor to your overseas location to install it for you.
For U.S.
persons, this is a completely non-reportable way to buy and hold precious
metals… although you must report and pay tax on any profits when you sell.
There are some drawbacks, however. You’ll likely pay full retail price for
the metals along with local sales or value-added tax.
Finally, when you sell, depending on the form of the metals you own, you may
need to pay to have them assayed. This is most commonly required for bars (less
so for coins).
Strategy 2: Buy locally and store in an offshore bank safety deposit
box. You don’t need to live offshore to use this method. You merely
need to open an account at a foreign bank and rent a safety deposit box there.
Make a personal visit and purchase precious metals from the bank or a private
dealer and store them in the box.
U.S. persons
who use this arrangement must report the foreign account to U.S.
authorities if the aggregate value of all foreign accounts exceeds $10,000.
However, under current law, you don’t have to report the metals in the safety
deposit box as long as only you have access to it. (This may change depending
on how final regulations interpreting newly expanded offshore reporting
requirements are written.)
Again, you must report and pay tax on any profits when you sell. Thefts from
safety deposit boxes are also less common than from residences.
Strategy 3: Buy locally and store in a box in an offshore private
vault. This works basically the same as strategy 2, except that there
is no need to open a bank account and report it to U.S.
authorities.
Strategy 4: Buy locally and store in a secure storage facility
offshore. You won’t have exclusive access to your metals this way, so
you’ll need to report this arrangement as a foreign account to U.S.
authorities. You’ll also need to pay custodial fees on the value of the metals
held on your behalf.
In some cases you can arrange for “bonded” storage that avoids the need for
an assay when you sell. Plus, theft from a secure storage facility is very
uncommon… and it’s likely that if your metals are stolen, the bank or the
insurance company will replace them.
Strategy #5: Buy from a foreign bank and have the bank maintain a
custodial account for your metals. Holding your metals this way means that both the account and the value of
the gold stored in the vault are reportable. You’ll also need to pay custodial
fees. On the other hand, you may obtain a more favorable purchase price and
avoid local taxes when you buy. In some cases you can also arrange for “bonded”
storage.
Again, theft from a bank vault is very uncommon, and it’s likely that if
your metals are stolen, they’ll be replaced.
If you purchase metals directly from the bank, know the differences between
“allocated” and “unallocated” storage. Allocated storage means that the bank
has specific coins or bars that are set aside for you. Unallocated storage
means that you have an ownership interest in precious metals the bank may not
necessarily have on hand. Unallocated storage is less expensive, but also may
entail greater risk if the bank becomes insolvent and is unable to deliver the
metals it has credited to your account.
Strategy 6: Open a precious metals account online. Once
again, you’ll have a reportable account and need to pay custodial fees. It’s
likely you’ll be able to get a more favorable purchase price and avoid local
taxes when you buy your precious metals online.
Selling rarely if ever requires an assay and your holdings are fully insured
against loss. If you want to take delivery of your metals, however, you may be
required to receive them in a form or denomination you don’t particularly
prefer.
Theft is unlikely, as the metals will be held in a secure vault. Your
holdings will also likely be insured against theft or other loss.
Strategy 7: Purchase a precious metals certificate.
This is one of the easiest ways to purchase precious metals offshore, although
once again, you’ll have a reportable account. You can often make the purchase
in the United States
and have the metals stored offshore on your behalf. You receive a certificate
indicating the quantity of metals you’ve purchased, and (if allocated) a list
of your specific holdings.
This purchase method avoids local taxes and often lets you buy at a more favorable
price. There’s also no need for an assay when you sell.
If you opt for allocated storage, you can take delivery of your metals
anytime, or you can allocate your unallocated metals and take delivery once
they’re fabricated. In one certificate program offered by the Perth Mint,
unallocated storage is backed by a government guarantee. The government of Western Australia guarantees that the unallocated metals held by
purchasers of a Perth Mint Certificate are 100% backed by physical metals
The
International Council of Shopping Centers reported weekly sales of major
retailers up 3.3% versus the prior week and up 4.0% versus the comparable
period a year ago; Redbook Research reported month to date retail chain store
sales up 0.8% versus the similar timeframe last month and up 4.5% on a year
over year basis.Both numbers were
impacted by the timing of Thanksgiving and Black Friday.
October
durable goods came in flat versus expectations of being down 0.8% and
September’s reading of +0.8%; ex transportation the stats were a lot
better---up 1.5% versus estimates of down 0.4% and September’s report of +2.0%.
The
indices (DJIA 12878, S&P 1398) sold off a bit yesterday.Importantly, the S&P finished the day
below the upper boundary of its short term downtrend after trading two days
above it.That (1) negates the threat of
a break of this boundary and (2) brings it back in sync with the DJIA.Now both are within the boundaries of (1)
their short term downtrends [12495-12979, 132-1401] and (2) their intermediate
term uptrends [12820-17820, 1354-1950] ---note the proximity of the Dow to the
lower boundary of this trend.Both are
well below their 50 day moving averages (13213, 1424).
Volume
was flat; breadth continued to falter.The VIX bounced but remained below its 50 day moving average and between
the upper boundary of its short term downtrend and the lower boundary of its
intermediate term trading range---basically neutral.
GLD
traded down, closing below the 50 day moving average for the first day but
continuing to trade above the lower boundaries of a very short term up trend, a
short term uptrend and an intermediate term trading range.
The
move back below the 50 day moving average is a bit disconcerting after the
small addition our Portfolios made to their holdings.For the moment, nothing will be done unless
GLD breaks below the lower boundary of the very short term uptrend.
Bottom
line: yesterday’s re-syncing of the S&P with the Dow in their short term
downtrends is obviously not a positive.On the other hand, one big up day would alter that assessment.So the Averages remain close to a pivot area
which, in my opinion, is not an occasion to be taking action whether buy or
sell.Patience.
Stock
Trader’s Almanac reviews December’s past (short):
Yesterday’s
economic data were generally upbeat: weekly retail sales were strong but that
was a function of the seasonal effect of Thanksgiving and Black Friday; durable
goods orders were not that great although ex transportation, the number was
good; the Case Shiller home price index, consumer confidence and the Richmond
Fed’s manufacturing index were all positive.That’s a good day and certainly supports our forecast.
So
why were stocks down?Two guesses:
(1)the announced ‘bail out’ deal of Greece
[a] was highly conditional and [b] if every thing comes up roses, it is still
in reality a restructuring/default---you pick the term.You may recall that a Greek bankruptcy is
part of our EU ‘muddle through’ scenario.The problem here is that the eurocrats are pretending that it is not.So instead of facing the situation straight
up and allowing the markets to enforce the consequences, the eurocrats are
dancing around the terms of the deal, obfuscating what will really occur,
allowing underlying economic conditions to continue to deteriorate and
ultimately making the situation worse than it already is.If Spain,
Portugal, Cyprus
and Italy
weren’t waiting in the wings for their turn at a bailout, this might not be so
bad.But...........
***over night:
having just heaped a mound of steaming scata on the eurocrats, it appears that
at least in the case of Spain’s banks they are trying to do the right thing,
i.e. downsize/cease operations and force losses on the bondholders.Let’s see if they follow through.
(2)Harry Reid, that silver tongued devil, held a news
conference and whined that the republicans weren’t cooperating in the fiscal
cliff talks.What he failed to mention
is that it is his f**king job as majority leader to produce an agreement---like
it has been his job to produce a budget for the last three years.Pardon my ranting, but no CEO, coach,
military officer would last a nanosecond in his job if he/she consistently
failed to perform a major function of that job.This guy is an incompetent weasel.Instead of whining, he needs to be hammering out the terms of a
compromise.That said, this is likely
just a part of a kabuki dance that will lead to what I think will be the
ultimate solution---a half baked compromise that screws all but the growing
dependent class.
Bottom
line: it is amazing that the Market
wasn’t down more.But in the end, as
annoying as it is to deal with the news flow out of the political class both
here and in Europe, nothing really happened
yesterday.The eurocrats keep pretending
to address their sovereign and bank debt problems but just create
confusion.Our own elected
representatives seem to be looking over the eurocrats’ shoulders for clues on
what to do next.In other words,
business as usual.
I still believe
that we will get a solution to the fiscal cliff; we are just not going to like
it.‘Muddle through’ is still our
assumed scenario for Europe; but a big reason is that I
simply don’t know how to quantify the alternative.My solution to this problem is to hold lots
of cash and gold and wait for prices to discount what I can’t.
The
latest from John Mauldin (medium and today’s must read):
