Investment Blog

8 Rules For Investing in Companies That Pay High Dividends

January 29, 2013

Topics: Dividend yield

Dividends make a big difference when factoring in the overall return of a stocks performance. As a fact, Ibbotson Associates calculated that dividends have increased the historical long-term stock market return from an annualized rate of a mere 5.5% to an impressive 9.9% rate.

With interest rates at historical lows companies that pay high dividends become an attractive alternative to keeping cash in the bank especially with many blue chip stocks offering dividend yields several points above rates on bank deposits.

Investing in companies that pay high dividends is not the same as speculating in stocks for capital gains. There are different criterias to look for and I have laid out 8 rules for investing in companies that pay high dividends in the section below.

Elliot wave analysis

January 25, 2013

Topics: Elliot wave analysis

There are many schools and theories speculators and investors use to gain an edge in the market. Technical analysis or fundamental analysis may be most widely known, but another prominent school used by a growing number of investors is called Elliot Wave analysis, which is a form of technical analysis that is using market cycles and predicts market trends identified by investors psychology.

Elliot wave analysis is based on the idea that market price action follows a specific pattern, called Elliott waves. The crowd psychology moves investors between moves of optimism and pessimism in natural sequences. These patterns can be seen in the price action in all markets and at every level of a trend or time scale.

The market price action alternates between an impulsive and a corrective phase. The market cycles are composed of two major types of Waves: Impulse Waves and Corrective Waves. The impulsive wave is subdivided into five wave structure (1-2-3-4-5). Wave 1, 3 and 5 are forward moving and waves 2 and 4 are smaller retracements of waves 1 and 3. The corrective wave is subdivided into a there wave structure (A-B-C), where A and C are correcting the preceding five wave structure and wave B is making a smaller retraces of wave A.

Investing in 3D printing

January 16, 2012

Topics: Investing in 3D printing, Technology

Most people have never heard about 3D printing, but nevertheless, this industry is growing very quickly and investing in 3D printing may prove to be very profitable. This new technology will quickly change the retail landscape from the way people shop to how products are manufactured, marketed and distributed.

Imagine going to an online store to make a purchase. But instead of putting the item in your shopping card and having it shipped to your home, you simply download a cad file and print your merchandise on your 3D printer. This technology is no longer a fantasy but a reality, although still in its infancy.

Professional 3D printers made by companies like Stratasys Inc or 3D Systems are already used in jewelry, footwear, industrial design, architecture, engineering and construction, automotive, aerospace, dental and medical industries, among many other fields. These machines are already capable of making quite sophisticated items. For example, Engadget reported that a titanium jaw for an 83-year-old woman was printed out on a 3D printer. The woman returned to almost "normal speaking and swallowing the day after the operation." In another example, a hobby gun enthusiast printed out a gun and used it to fire more than 200 bullets.

Whats ahead for gold in 2013?

January 6, 2012

Topics: Gold

Gold has now been up for 12 years in a row. It closed the year with a 6% gain while silver was up over 8%. A 12 year long positive year-over-year return is very impressive and also highly unusual for any asset class.

It wouldnt be a surprise to see a setback or a temporarily correction in gold. Any asset in a bull market typically sees a correction sooner or later. Nevertheless, the long term outlook still looks favorable. There is very strong demand from central banks around the world. Add competitive currency debasement and a high probability of gold being reclassified as a tier one asset and you have a all the reason in the world to be bullish on gold long term.

The chart below shows the performance of gold and silver over the past 12 years.

Why Invest in Tesla Motors?

December 9, 2012

Topics: Tesla Motor

Most people still picture electric cars as little golf carts or a funny looking vehicle that will barely make it across town on a charge. But Tesla Motor is in the process of shattering that old perception with their new exotic performance vehicles. Their cars goes just as far as gasoline powered cars and they are both faster and have better road maneuvering abilities than their gas powered competitors.

There are two different approaches when it comes to making an electric car in regards to range, performance, and design. Teslas approach is to build the best possible vehicle using the latest in electric motor and battery technology to compete with the best gasoline powered vehicles on the market. The other approach is to build a cost competitive vehicle and sell en mass. This approach has been adopted by GM, Ford, Nissan, and others.

What is the Real Economic Growth in China?

November 3, 2012

Topics: Economics, China

There has been a lot of discussion about the state of the economic growth in China. There is no dispute about the phenomenal three decade long economic boom, which has transformed the country from widespread poverty in the second richest country in the world, with modern metropolises rivaling that of any other nation. Nevertheless, there has been mixed reports of the Chinese economy after the slowdown in 2008.

After a recent trip, traveling across the country from Shanghai to Shenyang, I decided to share some observations from China that are not reported in the mainstream news.

Real estate bubble?

Reports about a widespread property bubble seem to be accurate. New apartments in Shenyang run about ¥6000 Yuan per square meter. This comes out to about $100,000 for a 900 square feet apartment. This is very high if you compare it to local incomes. Price to income Ratio is about 1:15 in Shenyang and as high 1:30 in Shanghai and Beijing.

Speculate in Gold

September 3, 2012

Topics: Gold

Gold has been a profitable investment over the past decade but there is a big difference between physical gold and other gold derivatives such as gold stocks and ETFs among other. Physical gold has been a far better investment than gold equities.

As a hedge against inflation, insolvent banks, and a turbulent stock market, gold is far more suitable than gold equities for the average investor. Gold has offered stability and positive year over year return for over a decade, while equities have been lagging behind. The chart below compares different gold products such as GLD, CEF, GDX, HUI and physical gold.

Gold equities have been lagging behind for the past four years. There are many explanations behind this, some say that new investment instruments such as GLD are competing for capital while others believe that people have been flocking to gold as a fear trade.

Inflation or Deflation

August 4, 2012

Topics: Inflation or Deflation

There has been an ongoing debate between economists about whether we will have inflation or deflation. And as funny as it may sound I think that they are both right I believe that we will have both. The key for investors is timing.

The natural outcome of a recession is deflation as a result of falling asset prices and cuts in discretionary spending. But governments have responded to the recession with inflationary spending programs and stimulus packages. These two giant forces are pushing up against each other and as a result we see glimpses of inflation and glimpses of deflation all at the same time but in different parts of the economy.

Much of the developed part of the world is in a phase of no growth, slow growth or recession and if you combine this with the deleveraging of the private sector you have real deflation on your hands. This is the reason why central banks have been able to print so much money without having inflation spiraling out of control. The velocity of money is falling and banks are simply sitting on the money.

How to raise money for your next real estate deal?

July 14, 2012

Topics: Real Estate

Real estate investing is one of the most common ways for people to accumulate wealth. You can buy houses, apartment buildings, office space, retail space, etc and rent it out. You can also make money from appreciation, assuming that real estate prices are rising. To generate a quick profit some investors buy distressed properties, fix them up, and put them back on the market at a premium.

Real estate is also a great tool for generating cash flow, and falling home values have made it easier for investors to generate a positive cash flow. A trend over the past couple of years have been depreciating house prices and rising rents, an ideal situation for a real estate investor.

A thing to keep in mind is that real estate is really a function of jobs and the strength of the local economy. A dynamic and vibrant local economy will support property values and offer an ample supply of qualified tenants.

Many investors are starting out buying a small house or a condo with the intent to rent it out. This may be a profitable venture but the real money is made by buying larger units such as duplexes, triplex, fourplex, apartment complexes, etc. These larger units are more expensive but they offer a much wider margin, while a single condo is not really designed to generate a lot of cash flow.

Understanding the Real Estate Cycle

June 16, 2012

Topics: Real Estate

Real estate is a cyclical business and like any other industry or market, it goes through periods of contractions and expansions. These booms and bust takes place in different cities, states, and countries. Understanding the real estate cycle is critical for real estate investors, realtors, and developers.

A common misconception among many real estate investors is that prices are always going towards equilibrium and that the market sets a fair price. This belief is misleading because markets are rarely in equilibrium they fluctuate between overvaluation and undervaluation, like a pendulum. The market swing between phases of excess and shortfall due to market imperfections and time lags as information slowly spreads among market participants. Excess inventory and shortfalls are caused by time delays of new housing developments. Shortages in inventory make developments profitable; while excess inventory curtail prices and limits the profits of the real estate developers. This process creates a cyclical real estate market.

Bargains Can Be Found Among The Top Gold Stocks

May 26, 2012

Topics: Gold Stocks

The sentiment in the gold market has been bearish and not without a reason; the price performance of many shares has been dreadful despite high gold prices. But many gold mining companies, especially the senior producers that are listed in the market vectors ETF (GDX), have continued to publish bullish earnings.

There seems to be a consensus among industry veterans that stock valuations are suppressed and do not represent anything resembling fundamental value. In a recent interview on King World News, Rick Rule said that he had started looking for bargains. He stated that there is a good chance that we may even see lower valuations over the next 12 18 months as much of the traditional financing from hedge funds and institutional investors is drying up, especially among junior exploration companies. This will open up opportunities to accredited investors to take advantage of private placement deals over the coming months.

But even senior gold companies such as Newmont Mining, Gold Corp, and Barrick Gold Corp are sold at a discount. At present levels they are a very attractive alternative to holding physical gold. They have physical gold in reserves and offer plenty of upside potential, in addition to paying a dividend. For example, Newmont Mining pays a 3.09% dividends; this is about twice the amount you get on bank deposits while having an asset that will hedge against inflation. The table below shows seven intermediate and large gold mining companies that offer substantial value.

The Next Target of the Bond Vigilantes

May 18, 2012

Topics: Bond Vigilantes

The media has been talking about sovereign debt defaults nonstop. Greece is not able to make interest payments and Spain and Italy is not too far behind. The fact is that most countries in the developed world have lived above their means and run budget deficits for decades. As a consequence debts have been rising and many countries are quickly heading towards a point of no return; when interest rates become too high to handle. At this point the country will be forced with options of; defaulting on the debt, printing and inflating away the debt, or doing a little bit of both.

Many countries are in the danger zone of defaulting but there is no magic number or formula that determines when a country runs up against the wall. It is a confidence game and once the market loses confidence in the countrys ability to pay its bills; interest rates quickly skyrockets.

Greece ran up against the wall when debt-to-gdp went to 125%, but this is by no means a benchmark. For example, Japan is currently able to maintain a debt-to-gdp of 233% while Russia defaulted on a debt-to-gdp of only 12% in 1998. The chart below shows at what level other countries have gotten into trouble before.

Chart Countries that defaulted World silver demand 2011

Whats ahead for Silver in 2012

May 11, 2012

Topics: Silver

Silver became a hot topic during the aggressive run up in May of 2010, but it has been in consolidation mode ever since. Many investors who expected silver to make new highs by now have been disappointed.

The most recent data from the silver institute shows that demand for silver is still strong, but slightly lower than in 2010. Investment demand was flat for the year and industrial demand and demand for jewelry was down.

Silver has been in tight supply, but because half of all demand comes from industrial applications it is very sensitive to the business cycle and economic growth. Investment demand has been rising but it will not be enough to offset the decline in demand that comes with a recession. The chart below shows the demand for silver from 2002 to 2011.

Investing in Emerging Markets

May 06, 2012

Topics: Emerging Markets

There is no secret that China and other emerging economies have been growing rapidly. But this latest growth story in emerging economies is more than just a temporary investment opportunity. It is a paradigm shift and we appear to be witnessing the rise of the east and the slow decline of the west.

Many emerging markets such as China and India may be far off when it comes to GDP per capita, but in terms of the share of global GDP they are closing in quickly. During the 1980s and the 1990s the United States and Japan were unquestionably the two largest economies in the world. Then came China and surpassed Japan in the early 2000s. But the United States was still unrivaled in terms of economic might, and economists in the early 2000s claimed that the US would remain the largest economy until at least 2030. But a lot has changed since the great recession of 2008 and according to recent data from the IMF China is estimated to surpass the United States as early as 2016. The chart also shows India passing Japan. Even economic power houses such Germany is losing ground against the rising economies of the east.

How to Profit From the Next Credit Bubble

April 29, 2012

Bb: Robert Hallberg, Topics: Credit Bubble

Over the past 20 years we have had two major asset booms infused by easy credit. The lose money policies of the 1990s under the watch of Mr. Greenspan led to a stock market mania. After the .com crash and the recession following 9/11 the Fed once again came to the rescue and lowered interest rates to multi-decade lows. This led to a second bubble in real estate that burst in 2007/2008.

The combination of easy credit and legislation encouraging home ownership ignited a real estate boom throughout the country. Coastal areas in California and Florida saw prices rise several times over to ridicules levels within a few short years. It seemed like everyone was involved in real estate in one way or another, whether they were buying houses, selling houses, building houses, or worked as loan officers providing loans.

The US went into a severe recession after the housing bubble burst and the fed quickly came to the rescue and lowering interest rates to about zero in addition to throwing trillions of dollars at the problem through programs like TARP, QE I, QE II, etc. This stabilized the system and the economy has been in stagnation or in a slow recovery ever since.

One might ask why the fed did not try to take away the punch bowl before the party got out of hand. The problem with money printing and keeping ultra low interest rates is that the undesirable effects of inflation and asset bubbles occurs with a time lag, making it difficult to know when its gone too far. Central banks can only measure the effects after the fact, and by then it may well be too late.

Opportunities In Frontier Markets

April 22, 2012

BY: Robert Hallberg, Topics: Frontier Markets

The west has been in stagnation since the crash of 2008 and most of the growth in recent years has come from emerging economies such as China, Brazil, and India, among others. But these economies have been saturated with investors by now and they no longer have the bargain deals that once made them so attractive.

Although most traditional emerging markets do not have the same investment potential they once had new opportunities can be found in frontier markets. Some of these new opportunities are coming from places that until very recently were closed off to the rest of the world.

Frontier markets are typically defined as less developed than emerging Markets but different from the so called failed states. Most of these places have not yet been saturated with foreign investors and they offer retail investor the advantage of coming in early. They are considered risky but they also offer tremendous investment opportunities. Besides, just as little as 10 years ago investing in places such as China, India, and Brazil, was considered highly risky, yet today they account for a large percentage of most funds.

Many frontier markets like Mongolia, Nigeria, Cambodia, and Vietnam are at the same stage of development that emerging markets like China, Brazil, India, and Russia was at a decade ago. They are all starting from a very low base with people only earning a couple of dollar per day. Growing from this level does not require much positive change and a little bit of foreign capital will go along way of boosting GDP.

Whats behind the high gas prices?

April 19, 2012

BY: Robert Hallberg, Topics: Oil

The price of gas has steadily been increasing since around year 2000 and we have already seen gas prices in the $4 range in many parts of the country this year. If this trend continues we may well see record high gas prices this summer.

What is behind the high gas prices? Is it the evil oil companies that want to squeeze every penny out of the consumer? Or are there more fundamental reasons behind the higher prices of gasoline?

Conversation About Mongolia With Hedge Fund Manager Harris Kupperman

April 9, 2012

BY: Robert Hallberg, Topics: Mongolia

Last week we talked about investment opportunities in Mongolia. To follow up on that topic I recently did an interview with hedge fund manager Harris Kupperman.

He is the Chairman and Chief Executive Officer of the Mongolia Growth Group (ticker symbol YAK in Canada or MNGGF in the US), a real estate and financial services conglomerate focusing on operations in the rapidly growing economy of Mongolia.

Robert: Most funds and foreign companies in Mongolia are investing in mining and natural resources, but your fund focus on real estate and insurance. Is there any particular reason you chose this niche?

Harris: Mining is a tough business and most investors do not make money in that industry. There is a boom in Mongolia right now and real estate and insurance do well in an expanding economy. Those two sectors should offer the most leverage to the growth of the economy.

Robert: Your fund is traded on the Canadian National Stock Exchange and on the pink sheet in the US. Do you have any plans to list in other markets?

Harris: We are currently exploring having our company listed on the Mongolian Stock Exchange (MSE). Naturally, this is a detailed process and there are lots of considerations needed. A MSE listing would of course be a long term goal of ours.

Robert: The MSE has been one of the best performing stock markets in the world. Its up about 300% since 2010. However, I have heard about problems of liquidity and investors having difficulty of getting orders filled.

Harris: The MSE still has some problems with liquidity but volumes have been rising. The MSE is also based on outdated trading technology but it is in the process of being modernized.

What A Trillion Dollars Look Like

April 8, 2012

BY: Robert Hallberg, Topics: Money

The budget deficit in the US use to be in the billions of dollars but it has lately been described as trillions of dollars. We hear this word thrown around in the media but how much is a trillion dollars. The pictures below may help you but this amount of money in context.

Mongolia The New Wild West Of Investing

April 1, 2012

BY: Robert Hallberg, Topics: Frontier Markets, Mongolia

The days of the Wild West in the United States are long gone, but Mongolia is as close to the Wild West as an entrepreneur can hope for these days. It is a post-Soviet satellite state in the middle of free-market reform. It has a red hot economy with a GDP that grew 15% last year and the outlook for 2012 looks just as good.

The country is very rich in natural resources but it also has one of the most favorable demographics in the world. Mongolia is a country that is dominated by young people: 70% of the population is under the age of 35. This means that they move extraordinarily quickly and are hungry to get deals done.

Mongolia started to grow rapidly after year 2000 as a result of economic reform and rising commodity prices. Their economy has expanded by 600% since year 2000 and the future looks bright. The IMF estimates that Mongolia will be among the four fastest growing economies in the world for the next four years, with an expected GDP growth of 23% in 2013.

How Long Will The Correction In Gold Last?

March 26, 2012

BY: Robert Hallberg, Topics: Gold

Gold has been up for 11 years in a row, which is impressive in any bull market. But with a sharp 20% correction at the end of last year the question is whether gold will be able to make new highs this year.

Anything is possible at this point as the world is becoming more and more unpredictable. A breakout of war in the Middle East or another black swan event certainly has the possibility of sending gold to the moon. But if we strictly use historical data as our only measurement stick we can see that it has previously taken anywhere from 68 to 78 weeks for gold to make a new high and stay above the old high after a similar magnitude correction. This would put the new high in gold around December of 2012 to March of 2013. The chart shows previous corrections in the gold bull market.

Price consolidation does not mean that is the end of the bull market, but rather that gold is taking a break and building a base for the next move higher. After an 11 year long run of positive returns, a correction is only healthy and just makes the bull market last that much longer. The charts show the year-over-year performance in gold since 1999.

Bitcoins; The Electronic Currency Of The Future?

March 25, 2012

BY: Robert Hallberg, Topics: Bitcoins

What are Bitcoins? It is a decentralized electronic cash system using peer-to-peer networking. It was created by Satoshi Nakamoto as open-source software on January 3, 2009.

In a world with endless money printing by central banks, lack of financial privacy and collapsing banks, bitcoins are certainly an attractive alternative currency. But before we get into that lets take a quick look at how this new virtual currency works.

The idea of creating digital money that is convenient, untraceable, decentralized, and not controlled by a central authority has been on the mind of many libertarian minded people ever since the early days of the internet. But before the arrival of bitcoins, no one had come up with a workable system. Ecash was an anonymous system that got started in the 90s but it failed because it relied on existing infrastructure in the banking system. Other ideas like bit gold and b-money never really got off the ground.

One of the main challenges with a virtual currency has been something called double-spending. The problem is that if a currency is just comprised of data, free from any other physical attributes, then what prevents anyone from just multiplying this data and spending it as many time as they want? Traditionally, this problem has been solved using a central clearinghouse that tracks all transactions; making sure that someone cannot spend the same currency unit twice. However, the approach still requires a central authority to manage the currency and Nakamoto was looking for a more elegant solution that would provide a decentralized currency.

Index of Economic Freedom

March 18, 2012

BY: Robert Hallberg, Topics: Index of Economic Freedom

Every year the heritage foundation comes out with a report called the index of economic freedom. They track the march of economic freedom around the world in this report and come out with a cumulative score (1 100) for each country based on 10 economic factors including: business freedom, trade freedom, fiscal freedom, government spending, monetary freedom, investment freedom, financial freedom, property rights, freedom from corruption, labor freedom. The score is in my opinion not a perfect representation of those countries total freedoms but it does provide a model on which to compare countries against each other.

The panic of 2008 and the recession that followed sent a lot of financial freedoms in reverse. The policy response to combat the recession has done the opposite to reverse this trend. In the United States and most other developed countries government spending and taxes has increased, while movement of capital has been restricted.

The countries that have remained mostly free have done better than countries that have intervened in their economies, imposed high taxes and burdensome regulations. Below is a chart of the 10 countries that have the highest index of economic freedom according to this model.

How To Earn A 10% Return On Your Idle Cash Through Peer-to-peer Lending

March 17, 2012

BY: Robert Hallberg, Topics: peer-to-peer lending

It wasnt too long ago since you could get a 5% return on your money with an online bank account and perhaps an additional 2% by locking your money into a CD. However, those days are now gone and the average interest rate in a regular savings account is well below 1%. Bonds are not much better with the S&P500 dividend yield sitting at 1.97%.

This is especially damaging for savers and retired people as inflation is several points above any traditional income generating instrument, making it impossible to find a return to be beat inflation, let alone making an income to live on.

Traditionally banks and savers have been working for mutual benefit. Savers put their money on deposit into a bank in exchange for interest and safekeeping. The banks then took this capital and lent it out to other borrowers including commercial businesses and consumers. They made a reasonable profit based on this model and were able to share more with their customers. But this model no longer seems to be working as the Fed is providing unlimited amounts of capital to banks at almost zero percent interest. And without strong demand for traditional bank deposits, from savers, banks are able to charge high interest rates to businesses and consumers while paying its lenders just a fraction, leaving the public holding the bag.

Despite low interest rates set by central banks the free market and technological advancements have solved this problem. The solution is based on a familiar technology called peer-to-peer lending which allows individuals to earn a higher return by cutting out banks and middlemen.

It may sound a little risky, making an unsecure loan to a stranger. Yet the number defaults are low with the vast majority of people paying their loans back on time. In addition, you can pick a loan according to certain risk categories based on the borrowers credit scores, debt-to-income ratios, and income verification, etc. The safest A-grade loans have a default rate as low as 1% while the highest yielding loans have about a 10% default rate.

The Best Inflation Hedge For The Coming Shock In Consumer Prices

March 11, 2012

BY: Robert Hallberg, Topics: Inflation Hedge

Inflation has been with us ever since the creation of the Federal Reserve in 1913, but it really started to escalate when Nixon took us off the gold standard in 1971. However, the reckless monetary policy really went into high gear after the crash of 2008. Since then we have seen prices rise across the board, especially in things like energy, food, college tuition and medical care. The bailouts, stimulus, and creation of money during the last couple of years only guarantee more inflation further down the road. Much of this money sits on the balance sheet in a number of banks and has never made it out in circulation. But once this happens we will feel a shock of rapidly increasing inflation; with more currency units required for purchasing the same amount of goods and services.

The Chart shows the spike in the money supply after the panic of 2008 as the Fed poured unlimited amounts capital to re-liquefy the system.

Concerns about inflation have been growing among the public and many investors have turned to the perceived safety of tangible assets such as commodities, real estate, and fine art, while a growing number of investors have loaded up on equities to hedge against inflation.

For the Technology investor; the promise of accelerating growth in technology

March 4, 2012

BY: Robert Hallberg, Topics: Technology

Part of being a successful contrarian investor is being able to watch trends, see how the world is changing and adapt to it. The Small changes of today will grow into large shifts tomorrow. In the world of technology the new breakthroughs of today will serve as building blocks for advancements in the future. Of course, no one knows exactly what the future entails, but by watching the emergence of trends you can anticipate how the world will shape up in; one, two, five or even ten years into the future.

The only thing that is guaranteed in life, other than death and taxes, is change. Some people are afraid of change and stubbornly cling on to the old way of things, but the successful forward looking investors and visionaries embrace change and benefit from it. By adopting to change and adjusting your strategies you are likely to find opportunities early, before most others.

Technology is not only changing and becoming more advanced but the rate of the change is also growing faster and faster. According to the inventor and futurist Ray Kurzwiel, the advancement of technology is growing exponentially. You can see this exponential growth in the semiconductor industry. In 1965 Gordon E. Moore predicted that the number of transistors that can be placed inexpensively on an integrated circuit would double about every 18 months. And despite many critics and naysayer the rate of growth in computing power has only increased over the past decades; now doubling every 12-14 months.

The chart below shows the rapid growth in technology. Just during the last 100 years the progress in technology has exploded, and we should expect this growth to continue. The internet has made the distribution of information available to virtually anyone; fostering an environment for collaboration and sharing of ideas. In addition, there are currently more engineers and scientists in the field today than all the accumulated engineers and scientists throughout history. The combination of these two variables will lead to greater growth in the field of science with evermore discoveries.

Another Gold and Silver Raid by the Cartel?

February 29, 2012

BY: Robert Hallberg, Topics: Silver

Today we witnessed what appeared to be another raid in the precious metals market. Gold and silver had started to generate some momentum, and were breaking out of their trading range.

Then, massive selling started to take hold at exactly 10:00 am EST, coinciding with the Fed's release of its monetary policy statement to the House Financial Services Committee. 225 million ounces of paper silver was dumped into the market within a 30 minute timeframe. To get an idea for the amount of paper silver being sold; 225 million ounces represents almost one third of annual production. The charts bellow shows the action in the gold and silver market.

Is the Baltic Dry Index Sending us an Early Warning Sign?

February 28, 2012

BY: Robert Hallberg, Topics: Economics, Baltic Dry Index

The Baltic Dry Index measures the costs of shipping commodities around the world and has served as an early warning sign of economic troubles. As the global economy came to a halt in the panic of 2008, the Baltic Dry Index expectedly crashed.

This index hit a new low in February of this year, and it is down more than 90% from its peak in 2007. However, the last time this index crashed the stock market plummeted along with it. But this time the stock market is booming. So what is different this time?

It is important to remember that the Baltic Dry Index represents both supply and demand. This means that the price of shipping will fall if fewer shipments of goods are made around the world. A drop in demand would definitely be a negative sign for the economy. However, the supply side of the equation is equally important. And if new freight ships become available, the Baltic Dry Index will fall as well, but this decline is not necessary as negative indicator.

Some Interesting Facts About Silver

February 19, 2012

BY: Robert Hallberg, Topics: Silver

The strong fundamentals of silver have made a lot people bullish on the metal. There is strong evidence of supply and demand imbalances, possibly making silver the the investment of this decade to quote Eric Sprott. Nevertheless, there seems to some disinformation about silver and the silver market and I plan to uncover some these myths in this article.

True or False: There is currently more gold than silver on the market

Yes and no, there is roughly 20 billion ounces of above ground silver but a lot of this metal has already been used in industrial products, silverware, electronics, and art among other things. There is only about 2 billion ounces of investment grade silver available, which includes silver coins and bars. But there is about 5 billion ounces of investment grade gold available, so people who claim that there is more silver than gold are correct if they are referring investment grade material. Inventories are low because silver is an industrial metal, constantly being consumed, while gold is primarily a monetary metal used in jewelry or stored in bullion form. There is currently a 6 month supply of silver and a 40 year supply of gold above ground.

Still, there is almost 9 times more silver than gold brought to the market every year, yet the ratio between these metals is currently 50 to 1. Up until this point, the price of these metals has been determined by buying and selling on the Comex and not through real supply and demand of the physical product. The chart below compares the annual rate of production of gold, silver, and platinum.

Is Federal Reserve Printing Again?

February 14, 2012

BY: Robert Hallberg, Topics: Fed, QE & Gold

The Federal Reserve recently announced that they will keep the federal funds rate at 0 to ¼ percent at least through late 2014, and target inflation at 2%. This is not exactly the same as quantitative easing or outright monetization, but it is a form of easing and it could affect more rates than just short term rates.

Furthermore, the Fed suggested that the option of quantitative easing (QE) still remains on the table and I would imagine that QEIII in one form or another will be implemented by the slightest sign of weakness in the economy.

This year is an election year, not only in the US but in more than 50 other countries throughout the world, and we should expect the powers that be to use whatever methods available to hold the system together, at least until after the election. Zero percent interest rates may not do a whole lot for the economy, except for maybe giving it the appearance of growth and a boost in the stock market.

The chart of the central banks balance sheets shows which countries are engaged in money printing. The Feds balance sheet has remained stable for the second half of last year, with a minor increase when they opened up the swap lines with Europe, but the ECBs balance sheet has increased rapidly in their effort to bailout Greece.

How the Hype Cycle Applies to the Gold Mining Industry

February 13, 2012

BY: Robert Hallberg, Topics: Fed, QE & Gold

I went to the Cambridge House Resource Investment Conference this past weekend in Indian Wells, and I stumbled across an interesting theory in a speech made by gentleman named of Jim Letourneau. The topic of this speech was, What Happened to the Commodity Bull Market? and in his speech he explained how the hype cycle applies to the gold mining industry.

Now gold and silver has certainly done well over the last couple of years, but it is true that many mining companies have been trading sideways, and not made new highs since the panic of 2008. A bull market should in theory be a lot of fun with plenty of money making opportunities. But the last couples of years have not looked anything like a bull market for anyone invested in the mining shares. The charts show two most popular and widely watched indices for gold and silver stocks; the Philadelphia Gold and Silver Index (XAU), and the NYSE Arca Gold BUGS (HUI). They both confirm the sideways movements among gold stocks.

Is the US Dollar in Jeopardy of Losing its Status as the World Reserve Currency?

February 10, 2012

BY: Robert Hallberg, Topics: US Dollar

A weak economy, skyrocketing debts, and endless money printing has been an ongoing story in the US for the last couple of years. Given these set of circumstances one may wonder why the dollar hasnt lost more of its value. Perhaps its because all those other currencies arent much better or maybe its because the US dollar is still the reserve currency of the world used to settle international trade.

The US dollar became the world reserve currency during the middle of the last century at a time when the pound sterling was losing its reserve status, as more and more people were gravitating towards the US dollar. Then during the early 1970s the US asked Saudi Arabia to only accept US dollars as payment for oil and to invest their surpluses in US Treasuries. In exchange, the US pledged to protect Saudi Arabian oil fields from the Soviet Union and other possible threats, such as Iran and Iraq. By the middle of the 1970s all members of OPEC was using dollars as payment for oil and from this monopoly the dollar slowly became a global reserve currency for most commodities and goods. The result was a huge increase in demand for US dollars, propping up its value.

This privilege has given the United States the ability to print huge amounts of money to fund domestic programs at home and military spending overseas. The inflation has been largely absorbed by foreigners trading and saving dollars overseas.

Nevertheless, the ongoing money printing and abuse of the dollar have gradually eroded its value. Many foreigners have become reluctant to store their reserves in a depreciating currency, and here are now clear signs that the dollar might be on its last leg.

The cracks in the foundation of the dollar system have become more and more evident. First, the US lost its triple A credit ratings and more downgrades are expected to follow. Secondly, the Fed has embarked on open monetization through quantitative easing and the Fed is now the largest holder of US treasury bills. Third, we have negative real interest rates even by using government numbers, with inflation running at 3.2% and bond yields around 1.9%. Furthermore, foreigners are already dumping the dollar and setting up alternative payment mechanisms for conducting trade.

Mixed Messages in the Latest Unemployment Report

February 06, 2012

BY: Robert Hallberg, Topics: Economics

Last weeks unemployment report appeared to have offered some encouraging news. The unemployment numbers dropped to 8.3% and the economy added 243,000 jobs in January. These jobs included 70,000 professional and business service jobs, 31,000 in healthcare, 13,000 in accounting/bookkeeping, 10,000 in mining, and 7,000 in architecture and engineering. Manufacturing and constructions also added another 50,000 and 21,000 jobs respectively.

Compared to prior reports the composition of these jobs was of much higher quality than the previously created service sector jobs and temp jobs. However, before we breakout the Champaign and celebrate, let take a closer look at these numbers.

At the first glance it certainly it looks like the unemployment situation is improving. However, this report excludes some 1.2 million discouraged long-term unemployed workers that have stopped looking for work. A better measure of the unemployment situation can be found by looking at the ratio of employed persons versus the entire population, or the so called labor force participation rate.

This ratio will show that the work force is still shrinking as people are dropping out of work force faster than new jobs are being created. The economy needs at least a steady creation of 200,000 jobs per month just to keep up with population growth. The chart show the labor force participation rate, which is still trending downwards without a sign of stabilizing.

Are Silver Investors Favoring Physical Metal After MF Global?

February 05, 2012

BY: Robert Hallberg, Topics: Silver

By now anyone remotely connected to the world of finance have heard about the MF Global collapse, were customers lost their funds in supposedly safe segregated accounts. Once the accounts were emptied they were transferred to other brokerage firms but without a cash balance, margin calls were issued, not because of a trade that had gone bad, but because the funds to cover margins were no longer available. As a consequence customers were forced to either closeout their positions or wire additional funds to the new brokerage firm to cover margins.

Nevertheless, many of the larger firms with connections high up in the financial world had more insight of the market and realized that something wasnt right and moved out of MF Global right before they collapsed, leaving the smaller individual traders holding the bag when the company went down. The turmoil that followed the collapse shook the confidence in the futures market, and many traders have withdrawn from futures altogether vowing never to trade again.

It is the responsibility of the commodity exchange to ensure that brokerage firms structure its trading practices so that money held in segregated accounts are protected. Before the MF Global disaster, it was understood that futures traders had never lost money due to bankruptcy, fraud, or theft. That myth is now shattered. Up until this point no acceptable justification has been given as to how MF Global were able to misplace $1.2 billion in client funds, with both the firm's former CEO John Corzine and the bankruptcy trustee saying they dont know where the money went.

Moreover, the Commodities Futures Trading Commission (CFTC) is the body responsible for regulating MF Global and other brokerages. The exchange is headed by Gary Gensler, a former coworker of Mr. Corzine at Goldman Sachs. A highly suspicious detail about the regulatory environment of MF Global is that the firm became a Primary Dealer in 2011, giving the firm the ability to buy and sell US Treasuries at auctions. Yet unlike other primary dealers MF Global was not regulated by the Fed.

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