This could be the most important financial news of the entire year

From Dan Ferris in DailyWealth:

Since November 1, long-term U.S. Treasury bonds have fallen 7% in value. That's not supposed to happen. But it's happening.
Since November 1, the municipal bond market has fallen 6%. That, too, isn't supposed to happen. But it's happening.
For most of the last century, the whole world has believed the obligations of the U.S. government – and the obligations of thousands of states, cities, towns, and other municipalities in the U.S. – were the safest investments in the world. These "safe" investments aren't supposed to crash.
The reason U.S. Treasurys and municipal bonds are crashing is by far the most important financial development of 2010...
Read full article...
More on U.S. Treasurys:
It can't get any better for bonds right now...
Marc Faber: The bear market in bonds is just beginning
Interest rates soaring: Treasury yields are now higher than before Fed announced "QE2"
View the original article here

Oil could be starting another runaway move

From Newsmax:

Oil prices surged to a 26-month high on Wednesday near $91 a barrel as a third straight weekly drop in U.S. crude inventories and cold weather on both sides of the Atlantic spurred pre-holiday buying.
Crude stockpiles fell 5.3 million barrels last week, bringing the past three weeks' declines to 19 million barrels, roughly equivalent to one day of U.S. fuel consumption. Companies have drawn down inventories for year-end accounting purposes, analysts said.
U.S. data showed the economy picked up in the third quarter, signaling a more solid pace of recovery and improving oil demand prospects.
A Reuters poll released on Wednesday showed a surge in...
Read full article...
More on oil:
Why oil may never be cheap again
Marc Faber: The three commodity investments you must buy now
Top energy firm: Oil will be the world's primary fuel for the next 25 years
View the original article here

A bond MASSACRE is approaching

From Bloomberg:

Bond mutual funds had the biggest client withdrawals in more than two years last week as a flight from fixed-income investments accelerated.
U.S. bond funds experienced withdrawals of $8.62 billion in the week ended Dec. 15, up from $1.66 billion the week before, according to a release from the Investment Company Institute, a Washington-based trade group. Last week's withdrawals were the largest since the week ended Oct. 15, 2008, when investors yanked $17.6 billion from bond funds.
Investors are retreating from bond funds after signs of an economic recovery and a stock market rally increased speculation that interest rates may rise. The selloff in Treasurys accelerated after the Federal Reserve last month pledged to buy $600 billion in assets to revive the economy. The 10-year note yields 3.35 percent, up from 2.49 percent Nov. 4, according to data compiled by Bloomberg.
Most of the money was probably pulled by institutional investors looking to lock in higher yields by buying bonds directly, rather than through funds, said Geoff Bobroff, a consultant based in East Greenwich, Rhode Island.
"I would guess most retail investors are staying put because you aren't seeing the money go anywhere else," he said in a telephone interview.
Vanguard, Pimco
Removals included $3.77 billion from taxable bond funds and $4.85 billion from municipal bond funds. U.S. stock funds had withdrawals of $2.4 billion while foreign equity funds attracted $2.24 billion in the week, ICI said.
Investors put $245 billion into bond mutual funds this year through November, bringing net deposits since the end of 2007 to $636 billion, according to data from Chicago-based Morningstar Inc. Vanguard Group Inc., based in Valley Forge, Pennsylvania, had deposits of $33.4 billion into its bond funds through November while Franklin Resources Inc. of San Mateo, California got $23.7 billion, Morningstar data show.
Pacific Investment Management Co., the Newport Beach, California-based firm that runs the world's biggest mutual fund, attracted $57 billion to its bond funds in the first 11 months of the year.
The $250 billion Pimco Total Return Fund, managed by Bill Gross, had its first net withdrawals in two years in November as investors pulled $1.9 billion, Morningstar reported. Pimco Total Return this month said it is expanding its policy to allow investments in equity-linked securities for the first time since 2003.
"Fixed-income has been the lifeline for a lot of these firms," Douglas Sipkin, an analyst with Ticonderoga Securities in New York, said in an interview earlier this month.
Pimco this month raised its forecast for U.S. economic growth next year as policy makers pump a "massive amount" of stimulus into the economy, Chief Executive Officer Mohamed El-Erian said.
To contact the reporter on this story: Charles Stein in Boston at cstein4@bloomberg.net.
More on bonds:
Ten signs that confidence in U.S. Treasurys is dying
Marc Faber: The bear market in bonds is just beginning
Former Fed chief Greenspan: A bond market crisis is coming
View the original article here

How you'll know when the gold market tops

From Sovereign Man:
My friend Doug Casey has frequently written that you’ll know the bull market for gold has peaked when there’s a picture of a golden bull tearing up the dollar or the New York Stock Exchange on the cover of Time Magazine.
I have a similar view, but with a different indicator.
I’m sure you’ve seen those TV commercials, fliers, and billboards that say “WE BUY GOLD”. The business model is simple– they take in whatever gold you can find around the house (a false tooth, granny’s wedding ring, etc.) and trade you for worthless paper money.
If that’s not bad enough, they capitalize on people’s ignorance of the gold market and offer a ridiculously low valuation, sometimes less than 50% of the spot price for gold. People are getting ripped off, and they’re happy about it because they’re able to sell their ‘junk’ for a few extra bucks.
These are the types of things that are common in a rising bull market that has...
Read full article...
More on gold:
This chart says the gold mania is coming
The No. 1 reason you must own gold and silver now
Man denied access to his gold at Swiss bank: "The gold was not there"
View the original article here

What the tax-cut extension means for you

From Financial Samurai: Hip hop hooray! With House Democrats agreeing to not hold the middle class hostage anymore, the tax bill passed 277-148! It was a landslide victory, but still it's interesting to see that there were 148 dissenters. What's more amazing is that Democrats weren't able to lower the estate tax exemption amount of $5 million per individual, and raise the estate tax level of 35%. Talk about bad negotiating!
The real fun now begins where we all do rough pro forma calculations of how much more disposable income we'll have in 2011 and potentially 2012! First off, I'm glad to see that everybody will pay 2% less on the first $106,800 they earn thanks to a cut in payroll taxes (Social Security and Medicare) from 6.2% to 4.2%.
From $100,000 to $172,000 (28% Federal marginal tax bracket for singles), you really aren't going to see much of a change in that money earned after, because the government wasn't going after you guys. But, for all you lucky ducks who make $172,000-$380,000 (33% Federal marginal tax bracket for singles), and $380,000+ (35% Federal marginal tax bracket for singles), you're in for a big treat!
... Note, If you make anywhere between $106,801 and $172,000 your disposable income only increases by $2,136. If you make under $106,800, you'll save...
Read full article...
More on taxes:
Your property taxes are probably too high
Why Democrats are crazy to hate tax cuts for the rich
Upcoming gov't loophole will allow huge estate tax avoidance
View the original article here

Surging oil could set off another financial crisis

From The Economic Collapse:

Oil prices are starting to spin out of control once again.
In London, Brent North Sea crude for delivery in February hit $91.89 a barrel on Friday. New York crude moved above $88 a barrel on Friday. Many analysts believe that $100 oil is a virtual certainty now. In fact, many economists are convinced that oil is going to start moving well beyond the $100 mark.
So what happened the last time oil went well above $100 a barrel?
... [W]e had a major financial crisis. Not that subprime mortgages, rampant corruption on Wall Street and out of control debt didn't play major roles in precipitating the financial crisis as well, but the truth is that most economists have not given the price of oil the proper credit for the role that it played in almost crashing the world economy.
... [N]ow that oil prices are on a relentless march upward again, what can we expect this time?
Read full article...
More on oil:
Why oil may never be cheap again
Marc Faber: The three commodity investments you must buy now
Top energy firm: Oil will be the world's primary fuel for the next 25 years
View the original article here

Jim Rogers: Get out of the financial sector before it's too late

From Newsmax:
Investor guru Jim Rogers says life on the farm will bring far more riches in coming years than the trenches of Wall Street.
Rogers, a commodities evangelist for more than a decade, has tweaked his pitch, saying the producers of the world — whether individuals, companies, or countries — will become the new growth sector.
In short, Rogers told the Reuters 2011 Investment Outlook Summit in New York, being productive, saving the fruits of your labor, and owning hard assets hold the keys to a bright future.
"All these people who got MBAs made a mistake. The city of London and Wall Street are not going to be great places to be in the next two or three decades. It's going to be the people who...
Read full article...
More from Jim Rogers:
Jim Rogers rips into Ben Bernanke at Oxford
Jim Rogers: The only assets you must own today
Jim Rogers: Paul Krugman is an idiot... Obama barely knows anything about the world
View the original article here

Must-read interview with gold investment legend John Hathaway

From an interview in Casey's BIG GOLD with John Hathaway, Tocqueville Gold Fund:

When John Hathaway spoke at the Casey’s Gold and Resource Summit in October, many in the audience came away feeling like they were listening to Doug Casey, with his contrarian views, bold statements, and laying much of the blame for our current problems at the feet of government. Read what John, a seasoned investment pro and manager of the famously successful $1.4 billion Tocqueville Gold Fund, has to say about gold, precious metals stocks, and the future of the U.S. dollar.
Jeff Clark: John, give us your big-picture perspective on why you're investing in gold.
John Hathaway: We launched the Tocqueville Gold Fund (TGLDX) in 1998 when it was a very contrarian idea. I always like to say it was the "Rodney Dangerfield" of investments at the time because a lot of people laughed at us and we didn’t get much respect. It was essentially a very contrarian investment theme, and we did it at a time when the markets were going nuts for dot-com stocks, which we thought was absolute lunacy.
Our thesis is basically related to the lack of faith that institutions, investors, and citizens have in paper money. That shift in opinion has come in fits and starts but is the core reason gold has risen to the extent it has. And until you have a significant restoration in terms of confidence in paper money, gold should do very well.
Jeff: Some are calling gold a bubble.
John: Many people – I'd say most people – are...
Read full article...
More on gold:
There's a stealth trend developing in gold
Top commodity analyst: Gold to beat silver now
The long-awaited gold mania may be starting... in China
View the original article here

Five easy ways to become wealthier in 2011

From Buy Like Buffett:

According to the Federal Reserve, the wealth of Americans grew $1.2 trillion during the last quarter. The bulk of the rise in assets is attributable to the stock market with stocks increasing $939 billion and mutual fund shares gaining $378 billion. The biggest depressant was the real estate sector, which declined nearly $700 million.
In the face of all this positive economic news, do you feel any richer? Have the balances on your 401(k), Roth IRA, and stock portfolio increased? Have you increased the balances in your bank account and reduced the balances on your credit card accounts?
If so, this is the perfect time to outline your plans for 2011. Here is a checklist to follow so that you can make sure that 2011 is better than 2010...
Read full article...
More on saving money:
Ten easy ways to lower your cost of living
Five simple steps to improve your finances
Six big mistakes that could ruin your financial future
View the original article here

Three ideas for safely buying stocks today

From The Reformed Broker:
Lots of people feel as though they're under-invested after this week. The anxiety is palpable. They've digested the latest economic data and have come around to the fact that they should probably be in some stocks. The cascading bond market certainly offers a bit of reinforcement in that regard with yields on the the 10-year Treasury ripping back above 3%. And rising.
The sideline dwellers must now confront their fears of top ticking the stock market. We've had an incredible run in equities for 20 months now and valuations are beginning to price in a recovery that is more robust than what many economists are forecasting. The under-invested are caught between the rock of misallocation and the hard place of not wanting to chase.
But never fear - I'm in the solutions business and I'm going to let you in on a few tricks you can use when you find yourself not quite long enough...
Read full article...
More on stocks:
Top research firm: Don't get too bearish now
Warren Buffett is dumping these long-held stocks
BREAKOUT: These stocks are about to make new yearly highs
View the original article here

Top currrency hedge fund: Euro crash could resume TOMORROW

From Zero Hedge:

John Taylor appeared earlier on the 2011 Reuters Investment Outlook Summit, and among various interesting things (namely another call for EUR-USD parity, and that he would "love to be owning gold right here"), he said that the U.S. is imminently headed for another recession, a development that will boost the USD and weigh on commodities.
Yet what is more interesting is that in his latest "Chairman's View", Taylor put down a specific date for the end of the recent recovery in European currencies: the date is tomorrow, the day of the Irish Budget decision, and also the day when Europe may see a coordinated effort for a bank run. Taylor also notes that...
Read full article...
More on the euro crisis:
Top currency hedge fund: Nothing can stop the euro crash
Forget Greece and Ireland, this is the only country that matters
This simple chart shows why the euro bailout is guaranteed to fail
View the original article here

Why oil may never be cheap again

From Frank Holmes of U.S. Global Investors:

Lost in the shuffle of the European debt woes, a second round of quantitative easing and gold's record run has been the resurgence in global demand for oil. Global oil demand is strong; in fact, it has never been stronger. Oil demand during the third quarter of this year was up 3.7%, the fourth-straight quarter of growth.
Who's behind this increase in demand? Emerging markets.
You can see from the chart that global oil consumption has bounced well off early 2009 lows and now...
Read full article...
More on oil:
Rick Rule: Oil supply outlook "positively scary"
Professional bets on $100 oil are skyrocketing
World's biggest supertanker operator is seeing a huge rebound in Chinese oil demand
View the original article here

Fed "quarantines" $110 billion in bungled U.S. dollars

From The Daily Crux:

Counter to what we've been hearing about Ben Bernanke firing up the printing presses, the Fed has actually stopped them.

New $100 bills were being touted as more secure, but the printing presses can't handle the technology. So more than 1 billion unusable bills will have to be destroyed.

This equals about 10% of of the entire U.S. cash supply…

Read full article...
More government stupidity:

END GAME: The Federal Reserve is now bailing out the world

Must-read: The airport security story you won't see anywhere else

Today's entertainment: The Fed's "Quantitative Easing" is finally explained

View the original article here

How to find stocks with a "margin of safety"

From Buy Like Buffett:

Value investors like Benjamin Graham and David Dodd invented the phrase "margin of safety." Those value investing masters classified a stock's margin of safety as the difference between a stock's market price and its true value.
Value investors like Warren Buffett love to buy stocks that are selling at a discount to their true value. This is number nine on our list of the 10 Things To Look For When Buying A Stock.
How do you find a stock's true value?
A stock's true value is based on a number of factors including current earnings, cash flows, earnings potential, P/E ratio, and...
Read full article...
More on value investing:
Three methods for finding some of the world's best value stocks
Warren Buffett's favorite measure says stocks are expensive today
Must read: Legendary investor Klarman makes the most bizarre market analogy ever
View the original article here

The "perfect storm" in commodities continues

From Bloomberg:

Commodities headed for the biggest weekly gain since October 2009 as global shortfalls of cotton and wheat drove agriculture prices higher.
The Thomson Reuters/Jefferies CRB Index of 19 raw materials rose 3.25, or 1%, to 315.35 at 1:31 p.m. New York time. A close at that level would mark a weekly gain of 4.7%.
Cotton was poised for the biggest weekly jump in 39 years after India put limits on exports. Heavy rain is eroding the quality of Australian wheat after a drought cut Russian grain output. The dollar tumbled against major currencies, boosting the investment appeal of energy, metals and crops. Crude oil rose to a 25-month high, and gold topped $1,400 an ounce.
"The perfect storm in commodities continues another week," said Fain Shaffer, the president of Infinity Trading Corp., a commodity brokerage in Medford, Oregon. "Between weather problems, financial problems and China saying they want to buy gold, all these markets are up pretty good today."
To contact the reporter on this story: Elizabeth Campbell in Chicago at ecampbell14@bloomberg.net.
To contact the editor responsible for this story: Steve Stroth at sstroth@bloomberg.net.
More on commodities:
The stars continue to align for dramatically higher coal prices
Porter Stansberry: Food crisis looming... prices set to skyrocket...
GOLD CRAZY: New wave of Chinese money is set to slam the gold market
View the original article here

Superinvestor Mark Mobius: "Consumers are back"

From Bloomberg: Rising confidence among U.S. consumers will help drive global economic growth and spur a "secular bull market" in developing-nation stocks, investor Mark Mobius said.
"The consumers are back," Mobius, who oversees about $34 billion as executive chairman of Templeton Emerging Markets Group, said in a phone interview today. "There's still an incredible amount of economic activity taking place, more in emerging markets, but it's also true in the U.S."
The Conference Board's index of U.S. consumer sentiment rose in November to the highest level in five months, while figures from ADP Employer Services today showed companies boosted payrolls by more than economists' estimated ahead of the holiday-shopping season. A Brazilian gauge of consumer confidence jumped to a record last month. Companies that sell discretionary consumer goods have led gains in global equities this year, according to MSCI Inc. indexes.
"The airports are packed with people traveling and shopping," said Mobius, who spoke after reaching Hong Kong from Dubai. "You see that everywhere you travel."
The Conference Board's sentiment index increased to 54.1, exceeding the median forecast of 53 in a Bloomberg News survey, figures from the New York-based research group showed yesterday. Companies in the U.S. boosted payrolls by 93,000 in November, the most since November 2007 and propelled by increased hiring at small businesses, ADP Employer Services said today.
In Brazil, the Getulio Vargas Foundation's seasonally adjusted consumer-confidence index rose to 125.4 in November, highest since at least 2005, data compiled by Bloomberg show.
The MSCI All-Country World Consumer Discretionary Index has climbed 21 percent this year, compared with a 5.2 percent gain in MSCI's gauge of global shares.
"I never believed in a double dip" recession, Mobius said. "It's just not in the cards."
To contact the reporter on this story: Michael Patterson in London at mpatterson10@bloomberg.net.
To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net.
More from Mark Mobius:
Mark Mobius: The China bull market is back
Mark Mobius: One of the best emerging markets to buy today
Legendary investor Mark Mobius: Buy commodities... and buy 'em big
View the original article here

Must-see video shows what happens the day the dollar dies

From The Daily Crux:
The National Inflation Association just released a video of what could happen during the first 21 hours of a dollar collapse.
The video shows the effects of hyperinflation after the Fed decides to have QE4. There’s a huge run on gold, China loses all faith in the U.S., and chaos rules the streets.
You can watch the video here:
http://www.youtube.com/watch?v=2N8gJSMoOJc

Could This Really Happen? Why Not!!! I Think It's Pretty Scary.
Leave A Comment.

More on the dollar:

Bond King Bill Gross: U.S. dollar set to get smashed
China dumping U.S. dollar for what could be the next world currency
Great chart of the history of the dollar

View the original article here

Today's entertainment: The Fed's "Quantitative Easing" is finally explained

By The Daily Crux:

Many readers enjoyed the animated "movie" - created by our colleague Porter Stansberry - we passed along a couple of weeks ago... So today we're passing along another homemade video you don't want to miss.
This one is an amusing animation that explains the Federal Reserve's so-called "Quantitative Easing" in a way that even a child could understand.


Today's entertainment: Must-see video of the week
Today's entertainment: U.S. gov't to save $300 billion by cutting wasteful program
Today's entertainment: White House jester beheaded for making fun of the National Debt
View the original article here

Why gold will always be the best currency

From Frank Holmes of U.S. Global Investors:

Our interactive timeline traces gold's history back to its earliest origins but one question it doesn't answer is: Why gold? Why did our earliest ancestors choose gold over copper, neptunium or any other of the earth's elements as a form of currency?
The hosts of NPR's "Planet Money" set out to answer that question by breaking down the periodic table of elements. They sought the expert opinion of scientist Sanat Kumar, chair of Columbia University's chemical engineering department.
Kumar reveals the secret to gold's value as a currency is simple science. Here's his process...
Read full article...
More on gold:
How to know if you own enough gold
The colossal force driving gold higher and higher
Why a runaway move in gold could be just around the corner
View the original article here

Why silver could make another big move next month

From The TSI Trader:

There is no other way to describe silver's price movement of the past 13 weeks other than to call it parabolic. With that in mind, I thought it would be interesting to do a little study of past silver parabolic moves and see if I could get a handle on just how high silver could travel into December before it implodes.
For this study, I have chosen to examine the relative degree to which silver price can exceed its underlying 200-day moving average. This weekly chart of the World Silver Index (XSLV) uses the 40-week moving average as a proxy for the 200-day moving average.
Silver is currently making its 5th parabolic appearance since the secular bull market for gold and silver began in late 2001. The range that silver has been able to soar above its 200-dma in previous parabolic moves, ranged from a modest 21% to a mind boggling 65%.
The rule of thumb for these kind of things is...
Read full article...
More on silver:
What you need to know about buying silver today
Coin dealers are seeing unbelievable demand for silver bullion
Three new reasons to buy silver that many investors aren't aware of
View the original article here

This could be the No. 1 investment of 2011

From Forbes:

Don't let the People's Bank of China spook you with its anti-inflationary fifth hike in bank reserve requirements this year. China's economic growth will continue to be robust and so will its need for the world's natural resources. Some raw materials will be more in demand than others.

The investment mantra for 2011 is called differentiation, meaning there will be relative differentials in performance among commodities, precious metals, energy, agricultural, and base metals. Unlike 2008 when the commodity bubble burst and the entire asset class went down with stocks, or the early part of 2010 when expectation of a cheaper dollar rallied stocks and commodities, 2011 will be starkly different. QE2 will "provide cyclical stimulus" to the most...

Read full article...

More on commodities:

How the commodities bubble could burst

Legendary investor Mark Mobius: Buy commodities... and buy 'em big

T. Boone Pickens makes outrageous claim on America's natural gas supply

View the original article here

Coin dealers are seeing unbelievable demand for silver bullion

From Mineweb:

Silver coins are selling at a record pace as investors – especially in the U.S. – seek to limit their exposure to the dollar.

The world's top mints have seen their silver coin sales jump to record or near-record levels, and they and coin dealers are working overtime to meet the surge in demand from investors.

"The phones are ringing off the hook," said Jonathan Potts, managing director of...

Read full article...

More on silver:

What you need to know about buying silver today

Three new reasons to buy silver that many investors aren't aware of

Top resource investor Berry: Silver could triple in the next five years

View the original article here

The Fed just confirmed that "QE2" is nothing more than a secret bank bailout

From Pragmatic Capitalism: I've been assuming since day one (since there was no other logical explanation for QE aside from the fact that it can clean up bank balance sheets) that QE2 was a bank bailout and not a Main Street rescue plan and it now looks like Ben Bernanke and the Fed are (at least partially) confirming this. They are concerned about the capital positions of the nations largest banks.
The WSJ reports:
"The Federal Reserve will...
Read full article...
More on the banks:
Top risk analyst: It's time to prepare for the next bank crisis
New banking rules could drive emerging markets even higher
Euro CRISIS: Plans for a European "bank mutiny" are picking up steam
View the original article here

The run on muni bond funds has begun

Investors withdrew the most in almost 19 years from open-end U.S. municipal-bond funds in the week ended Nov. 17 as concern increased that cities' and states' finances are deteriorating.
Municipal funds lost $3 billion in redemptions in the week, the most since the week ending Jan. 8, 1992, according to Tom Roseen, senior analyst at research firm Lipper FMI. The funds had added $34 million in the previous week, Roseen said.
"It's become a negative-feedback loop," Thomas Metzold, co-director of municipal investments at Boston-based Eaton Vance Corp., said yesterday in a telephone interview. "Funds have to sell bonds to meet redemptions, putting pressure on prices, causing more redemptions."
Muni-bond fund prices have plunged an average 3.7 percent in the past month amid concern about renewed inflation, a flood of supply from issuers and speculation that Congressional Republicans, after winning control of the U.S. House in the Nov. 2 midterm elections, will block aid to cities and states.
Yields on top-rated tax-exempt bonds due in 10 years jumped 23 basis points on Nov. 17, the biggest gain since March 2009. A basis point is one-hundredth of a percent. The bond yields climbed to 3 percent yesterday, a seven-month high, according to a Bloomberg Valuation index.
"This began once the elections were completed and it was evident Republicans would have a majority in the House of Representatives," Metzold said.
Build America
The voting results cast uncertainty over the level of federal support states and cities will get in 2011 and over the prospects for an extension of the Build America Bonds program, he said.
The program, set to expire Dec. 31, typically provides a 35 percent subsidy on interest payments for issuers of taxable muni bonds. More than $150 billion in Build America Bonds had been issued as of Oct. 31, according to the Treasury Department.
Anticipation of its expiration, which could increase the supply of traditional tax-exempt muni bonds, has helped push prices down, Metzold said.
Of 610 open-end muni funds tracked by Bloomberg, three had a positive return in the past month. California issuers fell the most, dropping an average of 5 percent in the month ended Nov. 18, data from Morningstar Inc. show.
The $30.8 billion Vanguard Intermediate-Term Tax-Exempt Fund, the largest municipal bond fund, fell 3 percent in the month ended Nov. 18, according to data compiled by Bloomberg. It gained 2.6 percent this year.
Closed-End Funds
Closed-end municipal-bond funds declined an average of 6.4 percent in the month through Nov. 18, according to Morningstar. Their deeper loss reflects their greater use of leverage and their ability to trade at a discount or premium to net-asset values.
The funds, on average, traded at a 0.55 percent premium to their net-asset values on Oct. 15, according to Cecilia Gondor, a closed-end fund analyst at Thomas J Herzfeld Advisors Inc. in Miami. That fell to 0.36 percent on Nov. 17.
Closed-end muni funds extended their losses yesterday. The Nuveen Municipal Closed-End Index declined 1 percent yesterday and 7.4 percent in the past month. The $321.4 million Pimco Municipal Income Fund III dropped 4.1 percent yesterday and 9.8 percent in the last month, and the $190.6 million Nuveen Municipal High Income Opportunity Fund 2 fell 3.2 percent yesterday and 9.5 percent for the month.
Closed-end funds issue a fixed amount of shares that trade on an exchange. When investors exit, they sell via the exchange, as opposed to open-end shareholders, who redeem shares at net- asset value with the fund.
Reassuring Investors
Municipal bond funds received $35 billion in deposits this year before last week's withdrawals. The funds held $515 billion at the end of September, according to the ICI.
Eaton Vance and Western Asset Management, a unit of Baltimore's Legg Mason Inc., have rushed to reassure clients in an attempt to prevent further withdrawals.
"This is a cash-flow driven event, it's not a credit event," Joseph P. Deane, a muni-fund manager for Pasadena, California-based Western Asset Management, said yesterday in a conference call with financial advisers. "The market is incredibly cheap."
Deane runs the $5.7 billion Legg Mason Western Asset Managed Municipals Fund, part of Western's $38 billion in muni- bond assets. It dropped 4.5 percent in the past month.
Stephen Ban, a managing director at Chicago-based Nuveen Asset Management, said the Federal Reserve's plan to buy $600 billion in assets as part of a monetary-stimulus effort was also depressing muni-bond prices.
Fed Easing
"Treasury rates are rising and munis have taken their cue from that on top of the supply overhang" that the Build America Bond program's expiration may create, Ban said.
Nuveen, a unit of private-equity firm Madison Dearborn Partners LLC, manages $73 billion in municipal-bond assets, including those in open-end and closed-end funds.
Along with Deane and Metzold, he called the current conditions a buying opportunity.
"I put my entire year-end bonus in my fund yesterday," Metzold said, referring to the $5.8 billion Eaton Vance National Municipal Income Fund. The fund lost 8.2 percent in the past month.
View the original article here

Interest Rates are Flashing a Warning Sign

From Growth Stock Wire


By Jeff Clark
Thursday, November 18, 2010


Let the crisis begin.

In the past week, the yield on the 30-year Treasury bond has popped 43 basis points, or roughly 12%. The U.S. dollar index made a new low for the year earlier this month, but has since rallied 6% in just six days.

Gold and silver have exploded higher. And food commodities are up more than 20% over the past two months.

The Fed has lost control of the bus, and the passengers are waking up just in time to watch it drive off the cliff.

The telltale sign of a budding liquidity crisis is an increase in long-term interest rates. And based on the following chart of the 30-year Treasury yield, the crisis is well on its way…

Interest rates have powered higher over three key resistance levels (red lines). Now that the 30-year yield is above 4.3%, there isn't any notable resistance to hold it back from running straight up to 4.8%.

That will crush the bond market.

Understand… the Fed controls short-term rates. Through its open market operations, buying and selling Treasury bills, the Fed can set its target for the short-term interest rate market. It's virtually unprecedented, though, for the Fed to be actively involved in the long-term interest rate market. 

So long-term rates have always been the best gauge of systemic economic pressures. Of course, that hasn't been the case since early 2009, when the Fed used the first quantitative easing (money-printing) program to artificially prop up the value of long-term bond prices.

By doing so, it manipulated long-term rates lower, signing a death sentence for the U.S. dollar.

You see… money flows to where it is treated best. It leaves low interest rate environments in favor of countries with higher returns. As money exited the United States and found more comfortable homes overseas, the dollar fell and other currencies rallied.

A weaker currency translates to inflation.

No, the government won't admit it. The Consumer Price Index is unchanged over the past year, and the Fed continues to dismiss clear evidence of inflationary pressures.

Gold is up 35% on the year. A gallon of milk costs almost 50% more than it did last December. Gas prices are higher. Electricity costs more. Virtually all the items we need to survive have increased in price.

Yes, big screen televisions are cheaper. Cell phone plans are less expensive. And Apple's products have come down a bit.

But you can't eat your iPhone.

Make no mistake… There are plenty of inflationary pressures in the pipeline. Not inflation of the things you want, but of the things you need. Those pressures have been masked by the Fed's participation in the long-term interest rate market.

Until now...

Interest rates are sharply higher over the past few weeks. Despite the Fed's willingness to manipulate long-term rates, there isn't enough demand for our bonds from other sources to keep up with the ever-increasing supply.

So bond prices are falling and interest rates are rising. And it's happening just after mom and pop investors put their entire life savings into the U.S. bond market at record low interest rates.

As I warned in August, this is going to end badly.

Bond investors have already lost 9% in the past two months. That's how far the iShares Barclays 20+ Year Treasury Bond ETF (TLT) has fallen. Though I doubt Mom and Pop have even noticed it yet. They won't see their statements for a few more weeks.

How do you suppose they'll react when they see their "safe" Treasury bonds have fallen in value and it'll take the next three years of interest payments just to get back to even?

You can send your thank you notes to Fed Chairman Ben Bernanke.

Everything the Fed has done since early 2009 was designed to intentionally manipulate security prices higher. Bonds and stocks have enjoyed a tremendous rally, even though nothing has been done to fix the problems that nearly collapsed the financial market two years ago. Those problems still exist. And now, the Fed is running out of magic beans.

Rising interest rates are bad. They're bad for bonds, bad for stock prices, and bad for commodities. The only thing that goes up in value is the dollar – and gold, though to a lesser extent.

In a liquidity crisis, investors sell off nearly everything in a mad rush to get cash. Need proof? Just look at the first quarter of 2009. Lehman Brothers had just gone belly-up and there was a genuine fear the United States' financial system was going to fail. Long-term Treasury bond prices fell 14%. The S&P 500 dropped 25%. General commodity prices dropped 17%. And the dollar rallied 10%.

Cash is king in a liquidity crisis. So hang on to yours.

Best regards and good trading,

Jeff Clark

 

NY Fed President: We are not printing money

From Pragmatic Capitalism:

NY Fed President Bill Dudley spoke to CNBC this morning and confirmed that QE is not "money printing."

Unfortunately, Mr. Dudley also proved that the Fed has no clue what is actually driving this recession and therefore continues to misdiagnose our current problems. Mr. Dudley rejected the notion that the Fed is "printing money" and showed that the Fed is...

Read full article...

More on the Fed:

Must-read: An open letter to Ben Bernanke

Obama SHOCKER: The President has no clue what the Fed's job is

Nassim "Black Swan" Taleb: The "humongous" risks of the Fed's money-printing

View the original article here

Germany doesn't want to bail out Ireland

From Mish's Global Economic Trend Analysis:

In case you were wondering about why there is intense pressure on Ireland to accept a bailout from the EU and the IMF, look no further than the fact that European banks have $650 billion Exposure to Ireland.

Nonetheless, in a clear backhand slap in the face to Ben Bernanke, Germany's Economy Minister says, "the European Union cannot throw money from helicopters." Let's explore this messy situation...

Read full article...

More on the euro crisis:

Return of the euro crisis: Irish yields are exploding higher

The Greek bond selloff could mean trouble for U.S. stocks

You can profit from the euro collapse without touching the dollar

View the original article here

Warren Buffett is dumping these long-held stocks

From Bloomberg:

Warren Buffett's Berkshire Hathaway Inc. sold stakes in Home Depot Inc. and CarMax Inc. and cut its holding of Nike Inc. as the billionaire replaced a retiring investment manager and built the company's cash holdings.

Buffett's firm lowered its stake in Nike, the world's largest sporting-goods provider, by 52 percent in the third quarter to 3.6 million shares, Omaha, Nebraska-based Berkshire said yesterday in a regulatory filing that listed U.S. equity holdings as of Sept. 30. Berkshire had 2.8 million shares of Home Depot, the largest U.S. home improvement retailer, and 7.7 million shares of auto seller CarMax on June 30.

Buffett has trimmed Berkshire's portfolio since the 2008 financial crisis and instead focused on buying whole companies. The 80-year-old chairman, renowned for multibillion dollar stock bets, is reshuffling his holdings as he welcomes hedge-fund manager Todd Combs, hired by Berkshire in October. Lou Simpson, 73, once identified by Buffett as his emergency stand in, is scheduled to depart at yearend from Berkshire's Geico unit.

"It looks to me like he's selling out of the Lou Simpson holdings," said Gerald Martin, a finance professor at American University's Kogod School of Business in Washington. Buffett may be amassing funds for Combs to invest "or he may have something up his sleeves, a potential acquisition somewhere and he's building the cash for that," Martin said.

Buffett's firm also eliminated stakes in trash hauler Republic Services Inc., NRG Energy Inc., and Iron Mountain Inc., a provider of records management. Berkshire divested or reduced holdings in 12 companies and boosted stakes in San Francisco-based Wells Fargo & Co. and Johnson & Johnson. Berkshire disclosed a new investment in Bank of New York Mellon Corp., the world's largest custody bank.

'Pot Gets Bigger'

Berkshire's equity sales exceeded purchases by about $1.2 billion in the third quarter, according to a Nov. 5 regulatory filing. It was the sixth period out of eight in which the company was a net seller of equity securities. Berkshire held $57.6 billion in stocks on Sept. 30.

"The equity investments have been a great driver of value for the company, but as the pot gets bigger it's harder to put it to work," said Paul Howard, director of research at Solstice Investment Research in Glastonbury, Connecticut. "He'd rather put the money into acquisitions of businesses and make it easier on the new investment managers" by leaving them with a smaller portfolio to oversee, Howard said.

Buffett acquired Burlington Northern Santa Fe in February for $26.5 billion to add a railroad to Berkshire's collection of more than 70 subsidiaries in industries spanning insurance, energy, and ice cream. In the last two years, the firm has cut its stockholding of Moody's Corp. by more than a third and divested a stake in SunTrust Banks Inc.

Procter & Gamble

Berkshire trimmed its stake in Cincinnati-based Procter & Gamble Co., the world's largest consumer-products company, by 1.7 percent to 76.8 million shares in the third quarter. Holdings of Comcast Corp., the largest U.S. cable-television company, dropped about 98 percent. Stephen Burke, a Berkshire director, is chief operating officer at Philadelphia-based Comcast.

Berkshire cut its stakes in Naperville, Illinois-based Nalco Holding Co., the provider of industrial water-treatment services; Ingersoll-Rand Plc, the Swords, Ireland-based maker of air conditioners, and Fiserv Inc., the Brookfield, Wisconsin-based provider of electronic commerce systems and services.

"Investment decisions are made for any number of reasons, not all of which reflect the underlying strengths of a business," Dan O'Neill, spokesman for Iron Mountain, said in an e-mail. "We're not privy to how or why those decisions are made, but our business is strong and performing well."

BNY Mellon

John Demming, a spokesman for Comcast, and Atlanta-based Home Depot's Ron DeFeo declined to comment. Buffett didn't respond to a message left with an assistant. Representatives of Nike and CarMax didn't immediately respond to messages.

Buffett's firm had 1.99 million shares of BNY Mellon at the end of the third quarter. The stake in Wells Fargo rose to 336.4 million shares from 320.1 million at the end of June. Berkshire has increased its Wells Fargo stake in four quarters since the beginning of 2009 as reductions in short-term interest rates and financial industry rescue programs helped revive banks' profits. BNY Mellon advanced 37 cents to $28.10 in late trading yesterday.

"That is very much a vote of confidence not only in Wells Fargo, but in the commercial banks and the banking sector," said David Kass, a professor at the University of Maryland's Robert H. Smith School of Business. "Warren Buffett is perhaps more confident now in the economic outlook that our recovery, however slow, will continue."

Johnson & Johnson

Buffett, who also is chief executive officer, has said Berkshire will divide his roles as head of investments and operations among more than one successor. Combs, who has specialized in financial-services investments, may initially manage $2 billion to $3 billion, Fortune magazine reported.

Berkshire increased its stake by 3.2 percent in New Brunswick, New Jersey-based Johnson & Johnson, the world's largest maker of health-care products, according to the filing. The stake was 42.6 million shares as of Sept. 30.

Buffett has said he built his equity portfolio by buying and holding stocks of companies that he believes have durable competitive advantages. Berkshire is the top shareholder in Coca-Cola Co., the world's largest soft-drink maker, and American Express Co., the biggest credit-card issuer by purchases.

Berkshire increased its stake in Munich Re, the world's biggest reinsurer, to more than 10 percent in October. Buffett's firm disclosed a three percent stake in the German company in January. Yesterday's filing by Berkshire includes only U.S. holdings. Equity investments abroad are reported to local regulators.

To contact the reporter on this story: Andrew Frye in New York at afrye@bloomberg.net; Natalie Doss in New York at ndoss@bloomberg.net.

To contact the editor responsible for this story: Dan Kraut at dkraut2@bloomberg.net.

More on Buffett:

Warren Buffett loves this up-and-coming automaker

World's richest man: Bill Gates and Warren Buffett are fools

Warren Buffett is loading up on two fast-growing tech stocks...

View the original article here

Euro CRISIS: Portugal threatens to abandon the euro

From Mish's Global Economic Trend Analysis:

The simmering stew in the Eurozone takes another turn for the worse as Portugal discusses a scenario in which it will abandon the Euro. The Wall Street Journal reports Portugal Foreign Minister Warns of Euro Exit...

A Portuguese government minister openly speculated over the weekend that his country's economic frailties could lead to its expulsion from the Eurozone, underscoring the growing fear in Europe that the continent's debt woes may force leaders to restructure the currency bloc.

In an interview with the Portuguese weekly Expresso published Saturday, Foreign Affairs Minister Luis Amado said Portugal faces "a scenario of exit from the Eurozone" if it fails...

Read full article...

More on the crisis:

Return of the euro crisis: Irish yields are exploding higher

The Greek bond selloff could mean trouble for U.S. stocks

You can profit from the euro collapse without touching the dollar

View the original article here

Why a runaway move in gold could be just around the corner

From The Reformed Broker:

Richard Russell, James Cramer and my mom all agree now – gold is on the move.

That doesn't tell me there's a top in gold – that tells me the parabolic, hyper-speculative phase is imminent. You know the one I'm talking about... Where the chart becomes an Empire State Building and Donald Trump announces the first-ever Mine & Casino somewhere out west.

Read this recap of last night's "Mad Money" and get scared:

"Gold is not just another commodity," Jim Cramer told the viewers of his "Mad Money" TV show as he once again urged investors to put up to 20% of their portfolios into gold....Cramer once again gave the nod to Eldorado Gold and Agnico-Eagle Mines, along with the speculative Novagold, a stock which he owns for his charitable trust...

Seriously, after a 10-year run, a recommendation to the least sophisticated audience imaginable to put 20% of their assets in gold. Yes, he said "assets", not "portfolio" on the show, but we'll assume he meant "portfolio" and give him the benefit of the doubt. Oh, and he sent his viewers to buy...

Read full article...

More on gold:

How to know if you own enough gold

Brace yourself for the coming gold shortage

Casey Research: Four big signs that it's time to sell your gold

View the original article here

Pimco CEO: Irish crisis puts the entire EU at risk

From Newsmax:

The European debt crisis has spread from Greece to Ireland, Portugal and Spain, and that spells trouble for Europe's economy, says Mohamed El-Erian, CEO of money-management titan Pimco.

"Default is now no longer just a Greek concern; measures of default risk for Ireland, Portugal and Spain reached record levels this week," he writes in the Financial Times.

"If these trends persist – and they will do so, absent major policy change – European governments will soon face...

Read full article...

More from Pimco:

Bond giant Pimco: U.S. stocks to crash again

Pimco: What you must understand about the euro crisis

Bond giant Pimco: The 4 big headwinds facing the markets

View the original article here

Bullish sentiment is now officially "off the charts"

From Pragmatic Captialism:


BEWARE!!!
Investors have officially become convinced that stocks do not decline.
Sentiment readings are literally off the charts this week, with the AAII small investor bullish sentiment survey surging 9% to 57.6%. That’s the highest reading since January 2007. Charles Rotblut of AAII is reporting that...
Read full article...
More on sentiment:
Investors are officially giddy about stocks again
Investors are becoming dangerously complacent again

Bullish sentiment pushes even further into extreme territory
View the original article here

Must-read of the week: The White House unveils new plan to slash federal deficit

By The Daily Crux:

Earlier this week, a White House commission revealed a plan to reduce the federal budget deficit by hundreds of billions of dollars a year, or $3.8 trillion over the next 10 years.

We're all for cutting the size and cost of the federal government , but it's important to realize the projected annual deficits over the same period total $7.7 trillion... meaning the government will still be adding another $4 trillion to the $13.7 trillion and growing federal debt.

It's also important to note that while 75% of the savings come from cuts to Social Security, Medicare, and defense spending, 25% comes from increased taxes... most of which are expected to target the middle class.

Naturally, the plan has drawn criticism from both liberals and conservatives... and highlights just how unlikely it is any meaningful reductions to the deficit will be passed.

Read full article...

More from Washington:

Gov't budget expert reveals U.S. debt far worse than Greece

Obama shocker: White House now in talks of reducing taxes

Gov't OUTRAGE: Fannie and Freddie to were paid to "manage" the Wall Street bailout

View the original article here

Richard Russell: The most profitable gold rally is yet to come

From Trader's Narrative:

... It would seem that Russell has basically given up on trying to time the market's gyrations, writing recently that "the stock market is too unsettled, too questionable, for me or my subscribers to assume an all-out bullish or bearish position."

But he continues to be an unabashed gold bull. This is the one market he has been pounding the table about for quite a long time, and he has been absolutely correct. To my chagrin, it took me far, far too long to realize that gold is indeed in a secular gold bull market. And of course, the next thought after that is the dread that it will be soon over.

Russell puts those thoughts to rest, writing recently...

Read full article...

More from Richard Russell:

Richard Russell: "Gold fever" is coming

The one chart that scares Richard Russell

Richard Russell: Everything you need to know about gold in three sentences

View the original article here

A huge buying opportunity in silver could be coming

From Trader's Narrative:

... [Y]esterday the CME raised the margin requirements for silver from $5,000 to $6,500. While this is being credited with causing the reversal, I don't think it completely explains what happened. It definitely contributed to it but often we grasp at news or reasons for the market's moves when all you need to do is watch the price action itself.

Anyone paying even cursory attention would know the precious metal was already extremely overstretched to the upside and had been sporting extreme bullish sentiment for some time. I outlined just how extreme in late September when silver reached a new 30-year (nominal) high accompanied by a 95% bullish DSI.

Silver managed to shrugged that off and went on a parabolic rise peeking above $29. Personally, I was expecting it to reach the nice, round number $30 before reversing. But it doesn't look like it is going to now.

There is currently a rare technical occurrence in silver...

Read full article...

More on silver:

The worst silver trade you could make right now

Three new reasons to buy silver that many investors aren't aware of

Top resource investor Berry: Silver could triple in the next five years

View the original article here

World Bank president: Gold could replace the dollar

From Mish's Global Economic Trend Analysis:

The current dollar-based global monetary system known as "Bretton Woods II" is on its last legs. We all know it, but what none of us know is what will replace it.

Inquiring minds should be interested to discover that World Bank President Robert Zoellick mentioned a role for gold in the development of a new monetary system to succeed...

Read full article...

More on the U.S dollar:

This region's food riots could set off the dollar crisis

The first signs of a dollar crash are showing up here

MUST READ Op-Ed: The world's monetary system is melting down...

View the original article here

U.S. CEOs are more optimistic than they've been in a decade

From Bloomberg:

More U.S. executives than ever are increasing earnings forecasts compared with those lowering them, helped by almost $2 trillion of Federal Reserve spending and a recovery in the global economy.

EBay Inc., United Parcel Service Inc., and 196 other companies raised profit estimates above analysts' projections last month as 130 firms cut them, the biggest gap since Bloomberg began tracking the data in 1999. Shipping companies and computer makers boosted forecasts the most, pushing the Morgan Stanley Cyclical Index of businesses most tied to the economy up 27 percent since July 2. That beat the 20 percent rally in the Standard & Poor's 500 Index.

Companies are raising the outlook for U.S. profits at the same time the Fed is trying to prevent deflation and reduce unemployment by purchasing an additional $600 billion in Treasurys. The last time executives were this optimistic, stocks climbed 39 percent over the next 3 1/2 years, data compiled by Bloomberg show.

"It's important for the rally and for the general health of the market that investors continue to anticipate higher earnings," said Dean Gulis, who manages $3 billion for Loomis Sayles & Co. in Bloomfield Hills, Michigan. "That companies themselves are expecting better profits is very positive. As we see rising earnings, we'll see improving stock prices."

GDP Growth

About 1.5 U.S. companies boosted earnings estimates above analysts' forecasts for each that cut projections in October. That's about three times the average of 0.59 in the past 10 years, data tracked by Bloomberg show. The ratio fell to a record low of 0.1 in December 2008, three months after New York-based Lehman Brothers Holdings Inc. filed for bankruptcy. When it reached 1.1 in March 2004, the S&P 500 rose from 1,126.21 to a record 1,565.15 in October 2007, Bloomberg data show.

The S&P 500 has gained 203 points since falling to a 10-month low on July 2 after companies from Baltimore-based T. Rowe Price Group Inc. to Google Inc. in Mountain View, California, topped analysts' estimates and investors speculated the Fed would act to boost growth. The benchmark measure of U.S. stocks rose 3.6 percent to 1,225.85 last week, the fifth-straight gain. S&P 500 futures expiring in December slipped 0.4 percent to 1,218.3 at 10:37 a.m. in London.

Earnings at EBay, the owner of the second most-visited e-commerce site, are getting a boost as consumers make more purchases online and use its PayPal service to handle money transfers. The San Jose, California-based company forecast more fourth-quarter sales and earnings than analysts estimated on Oct. 20, spurring the biggest gain in the shares in nine months.

Credit Expansion

Consumer borrowing in the U.S. unexpectedly increased in September by the most in two years, led by a surge in non-revolving credit such as college loans and auto financing, the Federal Reserve said on Nov. 5. The report was released the same day the Labor Department said employers added 151,000 jobs in October, more than twice the median economist prediction.

"We have outperformed our expectations through the first three quarters of the year, and enter the holiday season with confidence in our payments business," said Bob Swan, EBay's chief financial officer, on a conference call following the earnings release. "From a business standpoint, our global footprint is expanding."

Rising international demand for everything from transportation services to tobacco and power tools is helping drive profits at companies such as UPS, Philip Morris International Inc., and Danaher Corp. While forecasts for U.S. gross domestic product in 2011 have fallen to 2.4 percent from 2.9 percent in July, the biggest emerging markets are expected to expand at least twice as fast, based on economist estimates and International Monetary Fund forecasts compiled by Bloomberg.

Freight Traffic

UPS, the world's largest package-delivery company, raised its estimate for 2010 income on Oct. 21 and projected growth of 51 percent to 53 percent for the year. That would be the biggest annual earnings increase for the Atlanta-based firm since before 2000, data compiled by Bloomberg show.

Freight-train traffic has risen 16 percent since July 9, according to the Association of American Railroads. The index of carloads at the largest U.S. lines plunged 31 percent from its highest level in 2008 to May 2009, Bloomberg data show.

"Looking towards peak season, customer sentiment is mixed, but leaning towards cautious optimism," UPS CFO Kurt Kuehn told investors and analysts on Oct. 21. "We're expecting a good, strong fourth quarter, and I'm extremely confident we're on our way back to the high levels of profitability that we've demonstrated in the past."

Overseas Edge

Investors are betting profits at S&P 500 companies with the most sales outside the U.S. will beat the market. Corporations getting at least 50 percent of their revenue from foreign sources rose 10 percentage points more than American-focused stocks since July 2.

Earnings for the 30 companies in the Morgan Stanley index of economically sensitive shares will grow 25 percent next year, almost twice the rate of the S&P 500, according to analyst estimates compiled by Bloomberg. The cyclicals gauge trades for 12.2 times estimated 2011 earnings, or 0.5 point lower than the S&P 500, Bloomberg data show.

Philip Morris said on Oct. 21 that currency fluctuations, lower taxes, and rising sales in countries from Algeria to Indonesia led the New York-based company to increase its 2010 income projection. The biggest publicly traded tobacco maker has advanced 30 percent since July 2.

"We have strong business momentum going into the fourth quarter and will benefit from higher margins in Japan as well as price increases in Argentina, France, Indonesia, Italy, Poland, Portugal, Russia, and the U.K.," said Hermann Waldemer, the CFO, in a conference call. "We have market leadership and are growing volume and overall share in emerging markets."

Craftsman Tools

Danaher cited faster growth in emerging markets as one of the reasons for increasing its 2010 profit forecast on Oct. 21 to between $2.25 and $2.30 a share, the highest since at least 1999, up from a range of $2.16 to $2.23. The Washington-based maker of Craftsman tools said on Nov. 4 that it gets about 20 percent of revenue from developing nations.

Increased regulation of the financial and health-care industries is leading businesses to outsource computer services, Cognizant Technology Solutions Corp. said on Nov. 1. The Teaneck, New Jersey-based provider of data systems support raised its 2010 earnings forecast and beat analysts' third-quarter estimates. The shares are up 28 percent since July 2.

"Clients continue to search for cost savings in order to fund growth and innovation in other areas," Chief Executive Officer Francisco D'Souza said on the call after the quarterly profit report.

Already Rallied

Stock prices have already risen to account for higher corporate earnings and shares will require a strengthening economy to climb more, said Trym Riksen, chief investment officer for the private-banking division of DnB NOR ASA. The valuation for the companies in the S&P 500 has climbed to 15.4 times reported profit from the past year, from a 14-month low of 13.7 in July, according to data compiled by Bloomberg.

"This huge wave of positive guidance has already been priced into the market," said Riksen, whose Oslo-based firm oversees the equivalent of about $391 billion. "It would be very surprising if that huge wave were to be prolonged."

Rising raw-material prices are reducing profitability for Clorox Co., a maker of household-cleaning products, and apparel company Jones Group Inc. Earnings are being squeezed as companies struggle to pass costs onto shoppers at a time when year-over-year gains in the consumer price index have averaged 1.8 percent in 2010, compared with a 10-year average of 2.5 percent, data compiled by Bloomberg show.

Record Cotton

Clorox lowered its annual profit forecast on Nov. 2, citing weakening U.S. growth and higher commodity costs. Shares of the Oakland, California-based company fell the most in almost two years. Jones Group cut its 2010 sales projection on Oct. 27 amid soaring cotton prices, which reached a record $1.446 a pound on Nov. 5. Shares of the New York-based clothing maker are down 6.9 percent this year.

Gains in U.S. GDP are trailing the average pace following a contraction, according to data compiled by the National Bureau of Economic Research and Bloomberg. NBER said the worst recession since the 1930s ended in June 2009, and Bloomberg data show GDP growth will average 2.5 percent a quarter through June 2011, or half the average rate in the two years following contractions since 1949.

Most companies are earning more than analysts expected. More than 70 percent in the S&P 500 beat profit forecasts in the July-to-September period for the sixth straight quarter, the longest streak in Bloomberg data going back to 1993. S&P 500 earnings since Oct. 7 were 7 percent higher than analysts predicted, the data show.

Biggest Nations

Brazil, Russia, India, and China, the biggest developing nations, are forecast to expand more than the U.S. next year. Their growth will average 6.6 percent, according to the median economist forecasts in a Bloomberg survey and IMF projections.

"Earnings have been phenomenal out of corporate America," Robert Doll, who oversees $3.45 trillion as chief equity strategist at New York-based BlackRock Inc., said in a Nov. 3 interview on Bloomberg Television's "First Up" with Susan Li. "They've delivered versus expectations, yet again outshining the tepid economic recovery. I think that's the real story."

To contact the reporters on this story: Lynn Thomasson in Hong Kong at lthomasson@bloomberg.net; Whitney Kisling in New York at wkisling@bloomberg.net.

To contact the editors responsible for this story: Darren Boey at dboey@bloomberg.net; Nick Baker at nbaker7@bloomberg.net.

More on stocks:

The best dividend stocks in the U.S.

Why shorting stocks just got much harder

These popular mining stocks could easily fall 50% in a month

View the original article here

How to survive the coming increase in the social security age

From Money Crashers:

... The government has borrowed from the Social Security fund throughout the years and now the time has come to pay the piper. The key problem is that Social Security will pay out more benefits than it has received in payroll taxes this year, and this is expected to continue into the next few years. In fact, according to many economists, Social Security is expected to regularly operate with an annual deficit in the foreseeable future.

As a result, it appears that changes to the Social Security system are inevitable. The government may have no choice but to postpone the age at which people qualify for Social Security benefits.

Since the social security age is out of your control, here are three ways to prepare...

Read full article...

More on retirement:

The five most common retirement myths

Protect yourself from the single biggest threat to your retirement

This could be the most important retirement decision you'll make

View the original article here

Federal Reserve President says rates have to be raised

From Bloomberg:

Federal Reserve Bank of Kansas City President Thomas Hoenig said the central bank needs to increase interest rates to foster a more solid U.S. economy.

"I believe that moving rates modestly off of zero, where they have been since December 2008, still represents highly accommodative monetary policy," Hoenig said today in the text of remarks at a real estate conference in New Orleans. "More importantly, such action is necessary if we are to ensure a more stable economy that can thereby foster a more sustainable housing market."

The Federal Open Market Committee on Nov. 3 said it will buy an additional $600 billion of Treasuries through June, expanding record stimulus after it failed to bring down an unemployment rate stuck near a 26-year high. Hoenig this week cast his seventh straight dissent, the most at consecutive regular policy sessions since 1955.

Hoenig was concerned the "continued high level of monetary accommodation" may "destabilize the economy" by increasing long-term inflation expectations over time, the FOMC statement said.

"With regard to promoting housing through interest rate policies, I have many times publicly expressed my views about the dangers of using monetary tools and the Federal Reserve's balance sheet to pursue low interest rates and fund mortgage- backed securities," Hoenig said.

"For home financing to follow a path that is sustainable over time, the Federal Open Market Committee must begin taking steps to normalize monetary policy," he said.

Reduce Subsidies

Hoenig also said that the U.S. needs to reduce government intervention and public subsidies in housing because they have "distorted the market" and the nation can't afford to continue with such expenditures as the federal budget deficit grows.

Fannie Mae and Freddie Mac, the mortgage firms operating under federal conservatorship, may cost taxpayers as much as $685 billion as the U.S. covers losses and overhauls the housing-finance system, Standard & Poor's said yesterday.

"Given the costs and market distortions these government- supported institutions brought with them, we should be confident that they should not be allowed to operate in the future as they have in the past," Hoenig said. "We must move toward a system with fewer subsidies and misdirected incentives."

To contact the reporters on this story: Caroline Salas in New York at csalas1@bloomberg.net; Joshua Zumbrun in Washington at jzumbrun@bloomberg.net.

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

More on boondoggles:

Credit Suisse: These industries will get crushed by the Fed's "money printing"...

Tea Party founder: The Tea Party has become "an absolute joke"

Must-read letter from top manager Jeremy Grantham

View the original article here

How the commodities bubble could burst

From Mineweb:

Whatever was the real reason for the Fed to initiate another round of quantitative easing (QE), the end result is fairly clear: the Fed is wittingly or unwittingly in the process of creating new bubbles - in equity and commodity markets.

What we had feared would transpire from spring 2011 until around mid-2012 may now be starting to play out. One of our friends eloquently described QE as nothing more than another great government Ponzi scheme with a fancy name…

Read full article…

More on commodities:

Legendary investor Mark Mobius: Buy commodities... and buy 'em big

Commodity prices are about to explode as power shifts from West to East

Stunning chart shows the "real" rate of inflation

View the original article here

Legendary investor Jim Grant: The Fed is trying to debase the dollar

From The Daily Crux:

Legendary investor Jim Grant just did an interview with Bloomberg. He says Fed Chief Ben Bernanke is making terrible money printing decisions.

These decisions are blowing up investment bubbles, like Iowa farmland.

If you have an extra five minutes, this video is worth a watch.

Click here to watch it…
More from Jim Grant:

Legendary advisor Jim Grant: I'd give the Obama administration an F-minus

Legendary advisor Jim Grant: The world is abandoning the U.S. dollar

Legendary advisor Jim Grant: Huge round of money-printing coming soon

View the original article here

Must see chart shows how U.S. debt service bill is going to skyrocket

By David Galland in Casey’s Daily Dispatch:
... The U.S. and most of the world’s major economies are flat broke. Bankrupt, actually. Forget the whole debt vs. GDP metric… Focus instead on debt + obligations vs. GDP, as that's where the scale of the problem – and the scope of the coming pain – is most apparent.
We are literally tens of trillions of dollars underwater. To return to fiscal solvency is now impossible without overt default, or the covert default of a serious inflation.

... The debt problems are now so extreme that the Republicans, Tea Partiers, and desperate Democrats now rediscovering good old fiscal sanity have no feasible way of making a dent. Even the stingiest Republicans are only talking about freezing spending at 2008 levels. For the record, that still means an annual federal budget deficit of just shy of half a trillion dollars.
Add to that approximately $150 billion in annual state budget shortfalls. And that’s before the economy is knocked sideways by the onrushing tidal wave of retiring baby boomers… or body slammed by the inevitable increase in U.S. interest rate expenses, as rates move up sharply from today's unsustainable historic lows.
The point is that, even to get back to 2008's budget deficits, will require cutting almost a trillion dollars in federal spending. And that's just for starters. Talk about a pain party.
... On surveying the political landscape, do you think that Republicans, Democrats, or even Tea Partiers will raise their hand in favor of slashing social security to the extent necessary to advert the coming currency crisis? How about Medicare? The military?
Crux Note: Each day in Casey's Daily Dispatch, David Galland brings you an informative and entertaining overview of the markets, the economy, and politics... all from his unique and often contrarian perspective. Casey's Daily Dispatch is absolutely FREE and comes right to your inbox, five times a week. To sign up, click here.
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The best dividend stocks in the U.S.

From The Dividend Guy Blog:

Back in August, I created a filter to find the best U.S. dividend stocks. My criteria were the following:

- Dividend yield over 3%
- Stock price over $10.00
- Payout Ratio under 60%

Then, with your comments, I decided to pull out another search for the top US dividend stocks by changing my filters for the following:

- Dividend yield over 3%
- Maximum dividend yield 7%
- Payout Ratio under 60%
- Dividend growth (min 5% annualized growth over 5 years)
- P/E ratio under 15

As you can see, we have taken out...

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Legendary investor Barton Biggs is bullish on this coming investment mania

Barton Biggs warned of a U.S. stock- market bubble as early as January 1997 and stayed bearish for most of the following three years as the Standard & Poor's 500 Index surged more than 90 percent to a record.
A decade later, Biggs says another bubble is beginning in emerging-market shares. This time, he's bullish.
"We're only halfway along the way to a gigantic eventual bubble in the emerging markets," Biggs, the managing partner of New York-based hedge-fund firm Traxis Partners LLC and former chairman of Morgan Stanley Asset Management, said in an Oct. 29 interview on Bloomberg Television. "The emerging markets, particularly Asia, are a place where I want to have a really major representation."
Biggs's view is shared by Jeremy Grantham, whose investment firm had its assets under management shrink 45 percent in the late 1990s as his pessimistic outlook for high-priced technology stocks spurred clients to buy better-performing mutual funds. The chief strategist at Grantham Mayo Van Otterloo & Co. wrote on Oct. 26 that his forecast for an "emerging emerging bubble" was in "splendid shape" after the MSCI Emerging Markets Index soared 146 percent in the past two years.
While the 49 percent plunge in the S&P 500 from March 2000 to October 2002 proved Biggs, 77, and Grantham, 72, were right to warn of overvalued U.S. shares, their strategy now in emerging markets shows investors are increasingly seeking to profit from bubbles as the U.S. Federal Reserve increases its unprecedented monetary stimulus.
Surging Growth
Investment strategists at Bank of America Corp., Credit Suisse Group AG and Societe Generale SA have all said in the past two weeks that emerging-market stocks may climb above levels justified by companies' assets and earnings because of surging economic growth and the Fed's efforts to reduce yields on debt securities.
Emerging-market asset prices "may be running ahead of economic fundamentals" as "herding behavior" prolongs the rally, Nouriel Roubini, the New York University professor who predicted the global financial crisis, said at a conference in Cape Town today.
The MSCI emerging-market index rose 1.4 percent yesterday after a report showed China's manufacturing strengthened and data on American spending and incomes underscored pressure on the Fed to announce more asset purchases this week. The index climbed 0.1 percent to 1,122.38 at 9 a.m. in London.
'Everyone' Overweight
Investors poured more than $60 billion into emerging-market stock mutual funds in 2010 amid developing-nation growth that the International Monetary Fund says will reach 7.1 percent this year, more than double the 2.7 percent pace in advanced countries, data from Cambridge, Massachusetts-based EPFR Global show. Professional investors are more bullish on emerging markets than any region, according to a Bank of America survey last month of money managers overseeing $492 billion.
"Everyone and his dog are now overweight emerging equities, and most stated intentions are to go higher and higher," Grantham, who helps oversee about $104 billion, wrote in his quarterly letter to clients posted on the firm's website. Developing nations' faster expansion "will give a powerful impression of greater value," he said.
The MSCI emerging-market index's 13 percent advance this year has lifted its price to 2.1 times net assets, a record relative to the MSCI World Index of developed-market shares, which trades at a ratio of 1.8, according to weekly data compiled by Bloomberg.
Analysts' Estimates
Valuations are the "most stretched" in emerging markets, making them vulnerable to a selloff should global growth disappoint investors, Bob Janjuah, the co-head of cross-asset allocation strategy at Nomura International Plc, said in a Bloomberg Television interview on Oct. 27.
The MSCI emerging-market gauge still trades at a cheaper level than its October 2007 high of 2.9 times net assets, or book value, data compiled by Bloomberg show.
The S&P 500's price-to-book ratio climbed as high as 5.3 in March 2000 as technology companies including Cisco Systems Inc. and Microsoft Corp. surged on speculation that widespread use of the Internet would cause earnings to soar. Stocks plunged in the next two years and Internet companies including Pets.com Inc. failed.
This year's best-performing equity benchmark index among major developing nations, Indonesia's Jakarta Composite Index, has climbed 44 percent and trades for 3.4 times book value, 48 percent more than the average ratio since Bloomberg began compiling the data in September 2001.
Emerging Premium
The emerging-market index trades at 13.1 times analysts' estimates for 2010 earnings, a discount to the S&P 500's ratio of 14, data compiled by Bloomberg show.
Grantham said in his Oct. 26 letter that developing-nation shares will command premium price-earnings ratios in the next few years because of faster economic growth and lower debt levels. He recommended a "moderately overweight" position in emerging-market equities.
Stocks, bonds and currencies in developing nations are likely to climb to bubble levels as the Fed announces another round of bond purchases this week, Michael Hartnett, Bank of America's chief global equity strategist, wrote in an Oct. 21 report. Hartnett's scenario, which he called the "most likely" of three outcomes, assumes the Fed will seek to buy $500 billion to $750 billion of debt securities and indicate it's open to more purchases if needed.
Bullish Options
Credit Suisse's Andrew Garthwaite says the combination of high savings rates, negative real interest rates and rising asset prices has made emerging-market countries including China and India vulnerable to speculative inflows.
"If ever the stage were set for an emerging-market bubble, we think it is now," Garthwaite, Credit Suisse's London-based global equity strategist, wrote in an Oct. 27 research report.
Stocks in the biggest developing nations may double as the Fed's stimulus sends valuations back to their 2008 peak, Dylan Grice, a global strategist at Societe Generale, wrote in a research report e-mailed Oct. 22. Buying call options on emerging-market equities may be a cheap way to profit from a "nascent" bubble, Grice wrote.
Investors use options to guard against fluctuations in the price of securities they own, speculate on share-price moves or bet that volatility, or stock swings, will rise or fall. Calls give the right to buy a security through a specific date for an agreed price.
"The headache posed by bubbles depends on the asset managers' perspective," wrote Grice, who is based in London and was ranked the No. 2 strategist behind SocGen's Albert Edwards in Thomson Extel's Pan-Europe 2010 survey. "For skeptics the pain is on the way up, for true believers it's on the way down."
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The biggest reason to sell stocks right now

From Trader's Narrative:

This week's sentiment overview outlines the bullish overtones of the market. As we await the results of the mid-term U.S. elections and the imminent arrival of the second wave of quantitative easing from the Federal Reserve, it may be useful to recall the old Wall Street adage to "buy the rumor and sell the news."

Sentiment Surveys

Contrarian investors should sit up and take notice as we are finally getting a definitive extreme reading from the weekly AAII sentiment survey. According to the survey, the majority of retail U.S. investors believe that the stock market will be higher six months from now: 51.2% were bullish and only 21.6% were bearish.

As I mentioned yesterday, this is the first time we are seeing such a larger bullish camp since...

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Get ready for higher interest rates

From Bespoke Investment Group:

With QE2 on the way, there are a contingent of investors who believe that even with interest rates near record low levels, long-term U.S. Treasurys are a can't lose proposition.

The argument goes that if the economy is weak, Treasurys will rally, and if the economy stabilizes or picks up, purchases by the Fed will support prices.

While the argument sounds good in theory, those buying Treasurys...

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Gold shock: Iran is stockpiling huge amounts of gold

From Zero Hedge:

As of today, one of the world's top oil exporters announced that it has exchanged about $15 billion of its FX reserves into gold. Earlier, Iran announced that the country has converted about 15% of its foreign exchange reserves into gold, and "will not need to import the metal for the next ten years."

There is your mystery buyer to all that gold the IMF was selling in Q3... And since Ahmadinejad said that Iran's total FX reserves exceed $100 billion, the amount of gold in stock held by Iran is more...

Read full article...

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Morgan Stanley: Oil prices to surge to $100

From Bloomberg:

Crude oil prices will rise as spare production capacity drops to "untenable levels" by the end of 2012, Morgan Stanley said in a research report.

Spare capacity passed its peak this year and may decline to 4.1 million barrels a day by the end of 2011 from 5.9 million barrels today, Hussein Allidina, an analyst at Morgan Stanley, said in the report today. It could drop to 2.5 million barrels a day by end-2012, he said.

"Tighter, impossible levels of spare capacity are seen from 2013 to 2015," the report said. "With demand relatively inelastic in the short run, we reiterate our view that higher prices will be needed to ration demand."

The bank maintained its end-2010 forecast of $95 a barrel, its 2011 forecast of $100, and 2012 estimate of $105 a barrel. Oil for December delivery traded at $81.83 on the New York Mercantile Exchange at 2:45 p.m. Singapore time.

Non-OPEC production may decline by 380,000 barrels a day in 2011 to 52.2 million barrels, and by a total of 2.2 million through 2015, according to the report. That means OPEC will need to pump more as global demand increases.

"OPEC will increase production prompted by declining inventories," Allidina said. "Although OPEC production capacity grows, contingent on an Iraqi production increase of 1.4 million barrels a day, the 1.5 million OPEC crude production increase envisioned through our forecast horizon is not sufficient to offset non-OPEC declines."

To contact the reporter on this story: Dinakar Sethuraman in Singapore at dinakar@bloomberg.net.

To contact the editor responsible for this story: Clyde Russell at crussell7@bloomberg.net.

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Bond king Gross: Keep your eye on 10-year Treasurys

From Bloomberg:

Bill Gross, manager of the world's largest bond fund at Pacific Investment Management Co., said a rise in 10-year Treasury note yields would signify success by the Federal Reserve in reviving inflation and economic growth.

"If it does work, here's why the 10-year goes down in yield then back in yield, it's because the out years, five, six, seven, eight, nine, and 10 are vulnerable to inflation and higher policy rates in those particular years," Gross said in an interview today on "Bloomberg Surveillance" with Tom Keene.

The Fed, led by Chairman Ben S. Bernanke, will announce another round of asset purchases when policy makers meet next week after deploying $1.7 trillion to pull the economy out of the financial crisis, according to a survey of the 18 primary dealers that trade debt with the central bank. Fed officials, who already cut interest rates almost to zero, are discussing more purchases of Treasurys to flood markets with cheap money as well as strategies for raising inflation expectations to prevent stagnating prices from undermining the recovery.

Gross, a founder and co-chief investment officer of Newport Beach, California-based Pimco, said yesterday in his monthly commentary that a renewal of asset purchases by the central bank will likely indicate the end of the 30-year bull market in bonds. Treasury yields are near historically low levels in part because Fed purchases make it mathematically impossible for bonds to do much better, he said today.

"It's not an end from the standpoint of over-the-cliff or over-the-edge," Gross said. "It's not a Columbus thing where he thought he was sailing off the ocean and may fall off the edge. It's an end from the standpoint of recognizing that certain maturities can't go much lower in yield."

Total Return Fund

Gross has reduced holdings of government-related debt in the $252 billion Total Return Fund for the third straight month in September, after the securities accounted for 63 percent of assets in June, the highest since it held an equal amount in October 2009.

Pimco hasn't cut the flagship fund's duration, which is in line with the 4.25 years to 4.5 years of Barclays Plc's benchmark index, Gross said. Duration, a measure of a bond's price sensitivity to interest rate changes, generally increases with maturity. The firm is focused on "safe-space" that's not vulnerable to inflationary expectations, Gross said.

"A two-year Treasury and a three-year Treasury only yield 37 to 60 basis points, but that's safe yield because the Fed isn't going anywhere," Gross said. "We've been willing to accept the lower yield in anticipation of a hand-off to federal officials maybe six months down the road."

'Tighten Monetary Policy'

The yield on the 10-year Treasury note dropped from a 2010 high of 4.01 percent in April to a low of 2.33 percent on Oct. 8, according to Bloomberg data, as investors purchased Treasurys in anticipation of further asset purchases by the central bank. The record of 2.04 percent was set in December 2008.

"They have to buy assets and at some point, if inflation starts to get to their target, whether it's a 2 percent target or a price target, then they begin to raise the cost of those reserves, and therefore tighten monetary policy," Gross said.

Pimco added to its mortgage holdings in September to 28 percent of assets, from 21 percent in the prior month. Pimco also expanded its emerging-market debt to 12 percent last month, the highest since at least September 2006. Non-U.S. developed debt was unchanged at 6 percent.

The Total Return Fund, also the world's biggest mutual fund, handed investors a gain of about 11.09 percent in the past year, beating about 76 percent of its peers, according to data compiled by Bloomberg. Pimco, a unit of Munich-based insurer Allianz SE, managed $1.236 trillion of assets as of September.

To contact the reporter on this story: Susanne Walker in New York at swalker33@bloomberg.net.

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net.

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Bond King Bill Gross is dumping U.S. bonds

Bond king Bill Gross loves these emerging markets

Top blogger Zero Hedge: Bill Gross is a supreme hypocrite

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