Seeking Alpha Update

Readers have commented on how to find my Seeking Alpha posts.

It looks easy.  On signing in at seekingalpha.com, you should see a horizontal box on the right-hand side, near the top, that allows you to type in a keyword such as an author.  Typing in doctorx should bring up a list of my posts.  I'm able to do that; please let me know if you are not able to.

 I do not know if it is possible to obtain an RSS feed of my SA posts.

Thanks for following.

Seeking Alpha Follow-Up; Jim Rogers Shorts Treasuries

A second article, on gold/GLD, has been published on SA:

I picked GLD for a general readership.  My preference is either for physical or for a true physical fund, basically PHYS, the Sprott fund that allows Americans to get capital gains treatment; no other fund has this capability.  Thus gains in GLD etc. get treated as commodity gains.  In any case, the longer-term bull case on gold looks better to me than it has since mid-2011, though as restated below, times are unusually uncertain.  Gold has no short-term momentum behind it, so this is not a "wild bull" piece, more of a statement of a bullish bias toward the asset versus the USD and other USD-based investment choices.

I am in the process of getting links or notifications in place between SA and this site.  My daughter who lives down the street from us just had a C-section and a healthy baby, and I've been busy with other mission-critical things, so -- everything in its time.  It's gratifying to start that relationship.  I think that SA has potential and that it might be attracting a better class of writers; likely that's their goal.

I published a thematic article in which the message was "gold on hold, buy munis" piece at The Daily Capitalist in September, 2011 around the current gold price but at much higher muni bond yields.  This was a good call.  Gold has gone nowhere even though stocks have caught up and QE is now underway in a huge way.

I now reverse that muni call and think munis are at best a hold, or a sell-- the fear factor is finally gone from munis.  Though some California zero-coupon low-investment grade tax-exempt munis-- a very special niche, to be sure, yield much more than Treasuries and may still see some nice price appreciation faster than the yield implies.  And given how I feel about stocks "for the long run", I also took some spare cash and purchased a small odd lot of Illinois GO's maturing in 2016 at a pretty decent yield for the times we're in.  The reasoning was the the President is not, not, not going to let his home state default.  I think that Illinois GO's are money-good for a while.  It's sad that investors are reduced to scrounging for 100 basis points of yield, but as Charlie Munger said, we have to suck it up.

And actually, per today's topic, Treasuries are beginning to finally be looking like the tail end of a bear move, though perhaps they have some more upside potential in yield even if lower yields await (though the structural bull market may or may not be over).

One reason I say this is the following headline in BBG (LINK):

Jim Rogers Joins Bill Gross Warning on Treasuries

Much as I have enjoyed reading Jim Rogers' travel books and have followed him into investing in Russian ETFs (a modest exposure, to be sure), he has been the single best contrarian indicator on the movement of Treasuries I have seen over the past three years.  It seems to me that the time to short Tbonds is when stocks have been pummeled and the VIX is high.  Even Jim Rogers has to pay the broker its call money to short a security, and he is out the coupon.  So on an annualized basis, perhaps he's out 6% or more just to short the long bond.  Who needs it?  Why not just go long silver if he's so confident that price inflation is going to accelerate?

The other reason I'm sniffing at least a rally is that, finally, the speculators are shorting them on the futures board.  Now we will just have to see how the politicians handle things in DC, and how the real economy appears to perform, and whether Europe actually finally suffers an extreme event or actually starts healing for real.  These are unusually uncertain times, and thus I'm not trading much or initiating new positions.  Is the long-term secular bear market in stocks actually ending, or resting?  Could be, you never know.  Or are we due for a third crash?  Could be, you never know.

Bill Gross, OTOH, has not been much of an indicator either way.  Sometimes he's right on interest rates, sometimes he's wrong-- at least in his public pronouncements.  But sometimes he's talking his book, and sometimes perhaps he's trying to move markets a bit so he can trade against the market.

For want of a better valuation metric in today's very strange markets, I'm happy to use Value Line's time-tested and self-adjusting algorithm.  Based on that, and based on a mediocre Q4 earnings season and higher interest rates than at year-end (a negative for stock prices in their equation), stocks are ahead of themselves at best. (Their average projection for the Dow for 2013 was 13,440; that would be lower now given higher yields.  Thus a correction to 13,000 would make sense to their computer even in a non-recessionary situation.)

I am also researching RyanAir (RYAAY in the US), the Irish airline, which is the European version of LUV (Southwest Airlines).  Here is a LINK to the max timeframe chart.  To a nerd like me, this chart is a thing of beauty, not necessarily for a short-term trade, but on a longer-term basis.  The agreement with SA is that the articles are unique, so I won't say more now.  If any readers have personal experience with the airline or if you have thoughts on it as an investment, please comment.  I have not solidified my thinking on it.  It just announced a bang-up quarter and analysts raised out-year earnings estimates a lot, so it appears to be achieving strong operational results.

Over and out for now.

 

Joining the Seeking Alpha Team; Global Growth Steady and Positive in January

Yours truly has begun posting on Seeking Alpha.  An article I submitted last night was published today regarding my theme that a number of emerging stock markets have plenty of risk, but ultimately better risk-reward characteristics than does the U.S. equity market.  This article explored some of the reasons for investors to consider the major Russian ETFs such as RSX or ERUS, and the smaller-cap one, RSXJ.  This is the LINK.

In today's news, Markit reported strong global PMIs (LINK to list).  Here is the report from Russia:

“The Russian economy grew somewhat faster in January, theHSBC Russia Composite PMI survey revealed. Importantly, itfollows from the survey’s results that economic growth inJanuary was stronger than the average growth in both 2011and 2012. Translating Composite PMI Index values into GDPgrowth numbers using past correlation, we see clear signs offaster GDP growth over the recent months. Recent values ofComposite PMI Index are consistent with GDP growth of about4%, we estimate.“The PMI data show that growth engines rebalanced inJanuary: manufacturing has rebounded while the servicesector moderated its output growth that nevertheless remainedrobust. This rebalancing is healthy, we think, as it puts theeconomy on a more stable growth track. That said, somefurther moderation of business activity expansion in the servicesector is quite likely in the coming months due to the expectedslowdown of consumption demand growth.

Russia is performing well economically, it appears, regardless of its political situation.

Globally, the PMIs were positive, as well.  Russia's JPMorgan Mfg and Services PMI was reasonably strong at 53.3.  

Amongst the country services PMI, Brazil did well, with the HSBC Composite PMI accelerating to 54.9 from 53.2 in December.  I very recently went long the Brazilian real around today's price.  The USD-BRL ratio of 1.9860 has room on the charts to correct downward to 1.80 or so.  Given today's accelerating data from HSBC, I also went long the small-cap (domestically-oriented) Van Eck ETF, symbol BRF.  This ETF is well off its pre-crash highs.  It is not a value play but has good growth characteristics.  

A number of emerging countries have had stronger and steadier economic growth post financial crisis without having had to resort to massive overt monetization of the federal deficit.  This is where I want a good portion of my equity allocation to be while their stock markets have lower valuation metrics than those of the U.S.

A Quick Comment on Bund Yields, and Treasurys

One year ago, the 10 year bund yielded 1.93%.  After the recent furious back-up in rates, they are down 6 bps today to 1.62%.  Rates peaked at 1.71% on Jan. 30 (Thursday).  The precipitant appears to be more turmoil, but nothing major yet, in both Italy and Spain.

If rates can correct down so much so quickly with limited cause without coming close to year-ago rates, then I think the amazing bond bull market remains in force and will not be easy to overturn-- though of course it's quite possible.  I also think that ultimately, the U.S. rate structure can equal that of Germany on the downside, even if rates are negative when judged against current inflation.  After all, you can lose nominal capital in stocks, as well as losing ground to inflation.  This fact appears of little interest to today's stock traders, however.

The least-advertised fact the media has fed to John Q. Public is how many capital gains bond traders have made the last several years, and in fact in much of the past three+ decades.

Looking Back at Tim Geithner

Zero Hedge (LINK) points us tonight to a surprising bit of dialogue between FOMC member Jeffrey Lacker and then-Vice Chairman (and head of the NY Fed) Tim Geithner, from pages 14-15 of the following (LINK), which is to August 2007 minutes of the FOMC meeting in which I have previously dated the great, global financial crisis to have begun:

MR. LACKER. If I could just follow up on that, Mr. Chairman.
CHAIRMAN BERNANKE. Yes, go ahead.
MR. LACKER. Vice Chairman Geithner, did you say that they are unaware of what we’re considering or what we might be doing with the discount rate?
VICE CHAIRMAN GEITHNER. Yes.
MR. LACKER. Vice Chairman Geithner, I spoke with Ken Lewis, President and CEO of Bank of America, this afternoon, and he said that he appreciated what Tim Geithner was arranging by way of changes in the discount facility. So my information is different from that.
CHAIRMAN BERNANKE. Okay. Thank you. Go ahead, Vice Chairman Geithner.
VICE CHAIRMAN GEITHNER. Well, I cannot speak for Ken Lewis, but I think they have sought to see whether they could understand a little more clearly the scope of their rights and our current policy with respect to the window. The only thing I’ve done is to try to help them understand—and I’m sure that’s been true across the System—what the scope of that is because these people generally don’t use the window and they don’t really understand in some sense what it’s about.
CHAIRMAN BERNANKE. Okay. President Rosengren. 

There was no on-the-record further discussion of this, at least on the contiguous page.  Hmmm...

I began this blog in December 2008 in large part from disappointment that President-elect Obama had nominated Mr. Geithner to head up Treasury.  (There was not even a Zero Hedge yet.)  My position was based on his role as bailout-er, but then another issue surfaced.  Treasury contains IRS, and it turned out that Mr. Geithner had been challenged on his taxes.  This is what I first wrote about him, after the news broke (LINK):

TUESDAY, JANUARY 13, 2009 

Trust and a State 

You could not make this one up. Forget Zoe Baird (a Clinton AG nominee who was dropped because she had employed an "undocumented" nanny).
Mr. Timothy Geithner has been revealed to be a tax cheat of the first order. The Times hates to point it out, but has to spit it out, probably in return for a scoop. After an IRS audit showed that he underpaid his taxes by up to $17K for his 2003/4 returns, it turns out that the same "mistake" causing those returns to be a wee bit short were also present in 2001 and 2002. (You really can't make this up.)
When were the 2001-2 errors found? Last year, when Mr. Obama's "vetters" found the problem and "brought it to Mr. Geithner's attention", after which he paid tax and interest of $25,970.
So Mr. Obama has sat on this knowledge for 2 months and could not find anyone else in the entire US of A to be head of the Treasury Department. Which is in charge of the IRS, one might recall. So the Cabinet member in charge of the IRS is a tax cheat and this is just fine with Mr. Obama.
Recently, my wife did her part to combat the recession by giving the girls down the street some work making her nails gleam and glisten. One of those gals was Russian. She exclaimed with some emotion that in Russia, they knew the higher-ups stole, but they did not expect the same out of America. Her eyes are now open. And so are ours.
What does this have to do with markets and the economy?
Everything.

This was my next comment (LINK):

TUESDAY, JANUARY 13, 2009

          Geithner II (follow-up to "Trust and a State")

It doth worsen. The WSJ-online provides add'l details to the Times' article on Mr. Geithner's aggressive use of the tax code tonight in, "Geithner's Tax History Muddles Confirmation".
Read it and weep. Sleepaway camp? Some juicy extracts:
"As to why Mr. Geithner didn't pay all his back taxes after the 2006 audit, an Obama aide said the nominee was advised by his accountant he had no further liability. Senate Finance aides said they were concerned either Mr. Geithner or his accountant used the IRS's statute of limitations to avoid further back-tax payments at the time of the audit."
"Other tax issues also surfaced during the vetting, including the fact Mr. Geithner used his child's time at overnight camps in 2001, 2004 and 2005 to calculate dependent-care tax deductions. Sleepaway camps don't qualify."
"Amended tax returns that Mr. Geithner filed recently include $4,334 in additional taxes, and $1,232 in interest for infractions, such as an early-withdrawal penalty from a retirement plan, an improper small-business deduction, a charitable-contribution deduction for ineligible items, and the expensing of utility costs that went for personal use."
As someone who has been tres critical of the bailout(s), the secrecy, and the general incompetence of Government that allowed the crises to fester and then explode (and continue to fester), I have felt that the choice of Mr. Geithner was a sign that the new Administration would show continuity with the old, and that this was a bad thing for resolution of the problems.
Mr. Obama, take down this nominee. Real change is needed. Here's your excuse to do it.

And my next one (LINK):

WEDNESDAY, JANUARY 14, 2009 

Geithner Must Go (Not Arrive)

The New York Times continues to push to make the appointment of Mr. Timothy Geithner appear inevitable. Its latest writeup is titled, "Geithner's Skill May Trump Tax Issue".
There is something wrong with this title. What is wrong is that everything important that Mr. Geithner has been involved with in the past year has failed. So where is the skill?
There is a howler in the Times article. What do you make of this part of it?
"On Oct. 17, at a New York hotel, Mr. Obama and Mr. Geithner met for an hour and talked about policy and personal matters, according to accounts of the session. . ."
"Obama advisers say the candidate “fell in love” with Mr. Geithner, in the words of one, while a Geithner associate said Mr. Geithner reported being “smitten” with Mr. Obama. “They both have that kind of quiet confidence in their demeanor,” the associate said."
DoctoRx here. "Fell in love" and "smitten"? Is this Brokeback Mountain come to the Potomac?
In any case, Mr. Geithner is a failure at his current job and a tax cheat. For him to become Treasury Secretary would be bad for the economy. It doesn't matter whether Mr. Obama loves him or how many Senators rally round him.

And the final one on Mr. Geithner (LINK):

THURSDAY, JANUARY 15, 2009 

Geithner Follow-Up 

The WSJ is reporting as of its Jan. 15 edition in "IMF Informed Geithner on Taxes":
"Timothy Geithner, whose nomination as Treasury secretary has been delayed by his past failure to pay taxes, was repeatedly advised in writing by the International Monetary Fund that he would be responsible for any Social Security and Medicare taxes he owed on income he earned at the IMF between 2001 and 2004."
His nomination may be toast.

Wrong!

Here's one more related post (LINK):
Here is the title:

SATURDAY, JANUARY 31, 2009I Second That Evasion: Tom Underpays Tim

And the most cogent part of a relatively long post:

Here is the Times' headline:

"Use of Free Car Lands Tom Daschle in Tax Trouble"

DoctoRx here: Doesn't sound too bad, does it? Perhaps just a forgotten couple of limo rides? 

President Obama's pick for health and human services secretary, Tom Daschle, failed to pay more than $128,000 in taxes, partly for free use of a car and driver that had been provided to him by a prominent businessman and Democratic fund-raiser, administration officials said Friday.
Note the word "partly", whichindicates that the headline of the article was too easy on Mr. Daschle, and also note that $128,000 far exceeds Treasury Secretary Tim Geithner's tax underpayments.
Mr. Daschle, concluding that he owed the taxes, filed amended returns and paid more than $140,000 in back taxes and interest on Jan. 2, the officials said. 

At least Mr. Daschle stayed in the private sector.

Tech Top? Plus, More on Utilities and Inflation Hedging

While it certainly appears that on a longer-term basis, tech is the best-positioned sector in the years ahead from the standpoint of growth, current free cash flow, and chart positioning (with the March 2000 high of 5100-ish on the NAZ still a long way off), my reading of sentiment is that the pros have started selling to the little guys.  Now, the legitimate giant growth stock of our era, AAPL, is so cheap on a growth-to-P/E basis that it may be immune, but most of the NAZ is not doing well operationally (partly due to Apple).  Thus I'm suspicious that this second great run of tech stocks in this calendar year "needs" to, at best, consolidate.

Yet my call that utilities (income) "should" outperform tech may or may not be true, given the ramifications of QE to infinity.  After all, the premise of owning a high P/E, slow- or no-growth stock is that the dividend is desirable no matter whether the stock price rises.  In this regard, the aggressive Fed rhetoric has forced me to reduce utilities' weighting.  Income vehicles have simply performed poorly during QE1 and QE2.  Why it should be different now, short-term moves aside, with a more aggressive QE policy, is unclear.

The Fed may have engaged in as important a policy initiative with QEternity as did the Volcker Fed in October 1979 with its new policy of restraining the money supply growth rate to fight the inflation that prior Feds had helped cause.

So as Lord Keynes said, when the facts change, so must our minds, and our strategy.

Interim pullbacks notwithstanding, it looks as though the U.S. its post-Depression history of rapid growth in the money supply in an environment of negative interest rates as far as the eye can see.

Historically, the more "negative" that interest rates are relative to price inflation, the faster gold and silver (and oil) prices rise.  All other asset prices have been less predictable, including mining stocks.

Back into the inflation hedge pool big-time.

Utility Stocks Well-Positioned for the Short Term and Beyond; But Also Bullish on Cheap Inflation Hedge Plays in the Stock Market

A few months ago, I was (half-)joking that utility stocks were turning into the new mo-mo stocks.  Well, the NAZ stocks as usual have turned into what they so often are, and have out-performed the XLU and such stalwarts as Con Ed by a massive amount lately.  This tends to reverse.  Importantly, Treasury yields are stubbornly holding at very low levels.  The Treasury bond buyer is giving up quite a lot of yield versus utility stocks that both yield more and also, ultimately, provide a degree of inflation protection. 

Last year my Treasury holdings peaked at about 30% portfolio weighting, mostly in very long-term zero coupon bonds.  This has now gone to zero (as disclosed about 203 months ago), and I have been adding a bit more utilities to get to about a 15% weighting. 

There are also, though, a growing number of undervalued inflation hedges in the portfolio, as I think the ultra-ultra-low interest rate scenario in the U.S. is looking a bit bizarre.  But I think the simpler play is for a convergence of interest rates between Treasurys and high quality muni bonds and utilities, with the former yields moseying on up over time and the latter moving on down-- potentially explosively as occurred last summer with Treasury yields.  If you blinked, you missed the move.

Over time, I am increasingly bullish on inflation/value stocks such as HP and AGU.  AGU is of interest in that it is challenging a multi-year triple top with the catalyst of a New York-based hedge fund (Jana Partners) looking to force a restructuring.  At 10X earnings with strong finances and a global reach, this one looks very interesting.

Fading the Front-Running of the Fed

Today's to-be-revised at least twice employment numbers were mediocre but hardly disastrous.  In conjunction with yesterday's better-than-expected ADP employment numbers, which over time correlate with those of the BLS, and the modestly positive and better-than-expected ISM Services data also out yesterday, the macroeconomic picture in the US, and the action in economically-sensitive commodities, is better than a year ago.  What happened then?  Gold and silver were bid up, but the FOMC in both its August and September meetings refused to do another QE.  Oops!

Silver is now up about 20% in about 9 weeks.  Hedgies have been piling into the metals despite obviously depressed global demand.  Sorry, China planning to build a few more roads won't do it.  More junk FHA financing for a few more homes in the U.S. won't do it. 

The metals are, on a yearly chart, tracing out a series of declining tops. 

A massive QE is not priced in.  That would be too easy a trade.  However, the Fed is well aware that America still gets in its cars and shops, no matter the rise of the Amazon e-tailing economy.  Unless the Fed has more control over futures prices than I know, a QE now will lead to yet higher gasoline prices, further undermining consumer psychology and perhaps leading to less economic activity, not more.

Without a high degree of "confidence", I am not seeing the case for QE to be announced next week, though of course the usual statement about being ready to implement one will be made assuming a formal program is indeed not announced.

The Fed in this estimation of mine is having the best of both worlds.  It is getting asset prices up, thus making stockholders happy; but it knows there is already immense monetary tinder out there from the prior episodes of money-printing; and it believes that Operation Twist is doing more than half the "work" of QE already.  It is having its cake and eating it too.

Note I am not an have not been a deflationist.  There will be no "deflation" in the U.S. for the foreseeable future IMO.  Precious metals prices are thus likely to work higher.  We shall see what we shall see, but on a short-to-intermediate term trading basis I continue to see increasing downside to the precious metals if Europe 2012 continues to follow the U.S. 2008 pattern.

Betting Against QE3 Introduction at Jackson Hole

I have taken a dislike to all this QE 3 speculation and even discussion.  QE was introduced as an emergency measure at a time of crisis and deflation.  It ended at the end of June, 2010 and essentially was reintroduced in August 2010 after it quickly become apparent that "Recovery Summer" was not that at all.  This recurrent bond-buying program was dubbed QE 1.5 and segued seamlessly into what was called QE 2.  So, QE was basically one long program lasting slightly over 1.5 years taken to support economic activity in the wake of a contained depression, aka Great Recession.  Since then, even the stock market plunge last year and refusal of the government to rein in the deficit did not sway the Fed to resume QE. 

With economic stats decent and Europe potentially needing  Fed dollars as swaps, with the U.S. gov't having no difficulty financing the deficit, and with ongoing Op Twist, I think that a much worse economic state is required for QE to be announced at Jackson Hole or any time soon.

Not to mention that the Fed would prefer not to take drastic action until after the election.

Dr. B speaks at JH on Thursday.  My speculation is that gold/silver peak Tuesday or Wednesday.  BBG reported Friday that a weekly poll of commodities traders was at its greatest degree of gold-bullishness in nine months, which was a bad time to buy gold.  Harvey Organ reported his analysis of the COT for Ag/Au as being very bearish for Ag and somewhat bearish for Au.  Thus a bear move in the precious metals next week following higher recovery highs Monday and perhaps Tues-Wed into Wed AM makes sense to me. 

Utilities Sell-Off and Precious Metals Surge Is Badly Timed for Deteriorating Macroeconomic Conditions

Based on the derisking POV expressed in my post on The Daily Capitalist yesterday, I have taken further profits in the accounts I manage in PSLV and PPLT, tho I think platinum heads higher based on newflow.

Overall, earnings estimates continue to climb for CF, more or less on a daily basis.  Short-term volatility notwithstanding, I think it can trade a lot higher given EPS projections to be over $20/share for the next several years.  AGU is cheap and so is DE.

However, I basically think the markets have it wrong right here.  They are busting silver up to 10+% above its 50 day sma, but assuming the global recession moves thru the U.S. (per ECRI), industrial uses of silver will decline and my long-held target price of $21 would then have a good shot at being met.  There remains a good deal of speculation in silver (and gold). 

The reason I write the above, even tho I think the physical metals are going much higher over time, is the unwarranted sell-off in the "safe" high-quality utilities.  One can now receive over 4% in WGL, with a low-ish dividend payout, and about 4% in ED.  Both companies serve the two most vital cities in the U.S. and in this inflationary age, appear to be better buy-and-holds for anything other than the most hair-shirt part of a portfolio (high-quality bonds)-- and that is so even if their tax rate rises.  Even as Japan was (financially speaking) "going Japanese", their 10-year bond did not go below the rate of current CPI inflation, as the U.S. 10-year did recently. 

Last year I concentrated thru August on gold, and starting in the spring added Treasurys.  This year the theme is to lock up an interest stream that has a good chance of being valued much more highly in future years in a ZIRP-forever (ZIRP4EVA per ZH) world.  And if "NIRP" (negative interest rate policy) comes to America, one could see extraordinarily low dividend yields on these equities.

Finally, though they are riskier, both T and VZ are "growthier" than the above utes and offer higher dividend payouts. 

All the above have RSI's near or below 20 tho the fundos have not changed.  So I'm finishing the move into these guys.

Of course, in a new Lehman moment, the prices of all these things will collapse; but I'm betting that their dividend streams won't.

Updating Old Coverage and Introducing a New Favorite Group of Stocks

With family having left, I wanted to update the topic of recent posts. 

AAPL:  I penned a bullish note pre-earnings.  Sales and earnings disappointed, but leaks of upcoming product intros have spurred a massive rally.  This has occurred on significant declines in current quarter and next fiscal year estimates from the analysts.  AAPL fans are not deterred.  40% yoy increase in earnings estimates are expected from a number of members of an AAPL-oriented forum in which I participate, whereas analysts are looking for perhaps half that yoy gain.  For the first time since I started blogging enthusiastically about AAPL in spring 2010 around $250/share,  except for the period of uncertainty regarding SJ's illness/impending demise, I think that AAPL is a good but not great stock going forward-- though it is a great company.  I'd like to see more fear and improving fundamentals to think it's a great stock prospectively, which are situations I see with several other companies that unlike AAPL are well off prior highs though along with Apple they have record sales and earnings.

I have handled the commodities situation well so far, as well.  I stood back from PPLT and PALL a couple of months ago when they just didn't act right.  However, platinum was already at the marginal cost of production for a number of mines.  Probably, similar for palladium, which is a thinner market.

As soon as I read about the tragedy at the Lonmin mine in South Africa, with dozens of people shot dead by police for protesting, I bought the early surge up in PPLT from lower levels than where it had been when last I blogged on it.  I also bought PALL, which trades with PPLT.  These stocks (commodities) are "acting well".  I speculate that even in a "sluggish" global economy, these industrial (and ornamental) metals are going to rise over time.  In the short run, Johnson Matthey put out a report around March of this year suggesting that platinum would like sell around $1600 this fall, and palladium would be around $715 (per ounce prices).  They know the market super-well and have had a good track record on price projections so far as I have seen.  These are thus both "value" metals and I think they can be bought here despite the recent price surge.

Of my current favorite stocks, one is old, two are new.  Old is Con Ed (ED), which after hitting an all-time high took a tumble correlated with the sell-off in T-bonds and the NAZ surge.  Relative strength collapsed to 14 from a period of time at above 80.  Yet the fundos are fine operationally, earnings are rising.  Unbelievably for this boring company, Value Line's computer gives it above average price potential (rank 2) and a technical ranking also of 2.  I have been getting Value Line for decades.  If Con Ed has ever been a #2 for timeliness of stock price movement, I can't remember it.

Remember, ED is a bond substitute in my book.  I continue to foresee it trading to a 3% dividend yield, even in a scenario in which the 10-year T-bond rate rises to 2.5%.  I have no idea when this might occur.  (I thus see little need for most investors to hold bonds.) 

New entrants, and my current momentum favorites, are AGU and CF.  These fertilizer companies have P/E's below 10, strong financial strength, and rising earnings estimates.  CF has the best stock chart around.  AGU looks strong, as well.  AGU has the advantage here of having a catalyst.  Jana, a hedge fund, is an activist shareholder with a 5% stake.  They want AGU broken up, as it has a large global farm retail division.  I like ag over consumer electronics here.  One has shortages, the other is moving to saturation in parts of the world that don't require low prices to buy the product.

Getting back to electronics, the other strategic (not necessarily tactical) fave I have are the telecoms that are "doing well".  These include T, VZ and BCE.  These can be yield stocks when the market again starts to worry about growth, but they participate in the growth of data usage, etc. etc. from the spreading use of mobile devices.  All are rising out of bases on the stock charts, offer over 4% dividends which are expected to rise, and (importantly) have gently accelerating earnings growth already reported.  These stocks could all trade much higher simply as bond substitutes, as well.

The stock market, in fits and starts, overvalued by numerous metrics as it is, has thus begun to make the (usually slow) turn to being less overvalued than bonds.  This turn is just beginning, but it is clearly established for the stronger blue chips. 

Dangerous Markets

In my last post, a while ago pre-vacation, I talked up AAPL's virtues.  Events proved this correct, in a funy way.  AAPL disappointed on sales and earnings, yet the stock is close to its all-time high.  IMO, AAPL is at best a weak hold now on a trading basis.  The fanbois are loving it that a new iPhone will be out soon.  LOL, that's a surprise?

If one compares the platinum ETF, PPLT, with the SPY for as long as PPLT has been in existence, and goes back to the platinum futures markets for prior history, one will see a close correlation between the two.  This has diverged over the past year or so.  Platinum, and even more so palladium, are priced on the margin largely because they are used in the real economy.  The ETFs are secondary in importance; they are not "money" a la gold and perhaps silver.  If the central banks were inflating everything so much, or about to, said inflation would include these very rare and essential metals.  I thus take them as proverbial canaries.  I "think" that stocks have been carried aloft on a similar mode as bonds.  If I saw real strength in copper, platinum, palladium prices etc., I would suppose that bonds were all wet and go with the growth stuff.  But I don't see that.  In fact, the last few months that the Billion Prices Project covers (up to June 30) shows no inflation.  (Note they do not cover services.)

The VIX was down today on a down day for stock prices.  This joins the metals in non-confirming the action.  Meanwhile, fundos matter.  The European recession, misnamed a debt crisis, continues on.  The sedative of the Olympics is over.  For some time I have been analogizing what's been going in in Europe the past few years to what was going on in the US beginning in about 2006.  Europe 2012 continues to have similarities to the US 2008 that trouble me. 

There have been a few times in my investing career in which I had an atypical sense that I was smarter than the markets or the pundits and actually was right (i.e. lucky).  In the 1990s, this sense was that the insanity would continue on until it didn't.  I was lucky to stay with the trend until 2000 and get very much out of stocks that year, to get back in in the spring of 2003.  In the summer of 2007, I got out of stocks and into cash and bonds around Dow 13000, and when it went to 14300+, I was untroubled.  A year later, it had been halved.

I have a similar feeling now about things.  As was the case in the US through August 2008, the markets were trading as if things were normal.  But they manifestly were not.  While the authorities were on the case, they were not gods, and they did the best they could.  But troubles are troubles, and Europe has troubles; and the US economy has continued to trail expectations.  The president's plans for the country to double exports in a five year span is not on track, as the ROW is not cooperating. 

The VIX is 14.  It is 1/3 below its 200 day sma.  14 on the VIX is support (resistance for stocks) for the past 5 years.  Either the economic news is about to turn sunny, or the VIX is overbought.  Right now, I continue to like ED and WGL over AAPL and the growth stuff.

Newton's Fruit Still Falling Upwards, and Other Observations

With markets at a strange "new normal" of zero-ish interest rates for heavily indebted but "safe" sovereigns, and where an historically normal long-term interest rate of 6-7% for Italian debt is, we are told, unsustainable, a relative sanity prevails in a few sectors of other markets.  To wit, large-cap technology stocks are, despite operating in growth fields, relatively cheap.  Amongst them, none is as large or as cheap as Newton's fruit, aka AAPL.  As much of the investing public knows, Apple discloses how last quarter went for it on Tuesday afternoon.  It will offer a hint of the current quarter.

Apple is growing at an enormous rate.  Last quarter, its operating margin soared to 47%.  It has made no $6 B acquisition as MSFT just has written off.  There will be no writeoffs.  More importantly to me, there will be no non-GAAP earnings presentation.  There will be no acquisition of "cheap" debt. 

For those occasional investors who do not follow all things Apple as I do, the company has been on an unrecognized roll in key but under-reported areas.  It has been securing potentially important legal victories over Samsung in the court battle in California heard by the Korean-descended Judge Lucy Koh.  Florina Mueller, an expert blogger on these matters, said this past week: 

I've said it before that whatever happens at the upcoming trial, Samsung won't be forced out of the market, but a very significant breakthrough for Apple's intellectual property enforcement is increasingly likely.

Mr. Mueller is a cautious blogger.  It means something when he words this so strongly.

Competitively, Microsoft appears confused with its transition to Windows 8.  Unlike Apple, which is adjusting its Mac OS toward that of iOS but keeping it different, MSFT is going all in on the tablet-phone OS for Windows.  This is tres strange, given that MSFT has almost no market share in mobile devices.  Worse, MSFT's partner in telephony, NOK, had its debt rating lowered into deeper junk territory last week.  Also horrible for the Microsoft ecosystem is its "Surface" tablet product.  Mr. Softee is now entering into direct hardware competition with the hardware licensees that have been so

I suspect that as Retina Display-enabled Macs roll out and few Windows customers "upgrade" to Win 8, the Mac's market share in "PCs" will increase.  At some point, there could be a tipping point in which the Mac platform regains the lead over Windows in desktop and larger-than-iPad mobile computers.

Last but not least, the iPad is the product of the decade.  (The iPhone was the product of the prior decade.)  The iPad is estimated to have 90% share of its category, namely 10 inch tablets.  It is up to Apple whether it wants to make Google's new small tablet, Amazon's Kindle line, etc. wildly unprofitable by launching a mini-iPad.  Small matter.  The iPad is Apple's main entry into the business market.  The iPhone is a worthy partner.  Tim Cook, as an ex-IBMer and an MBA, is much more oriented to succeeding in the business world than was Steve Jobs.

A few months ago, Apple's head product designer, Jonathan Ive, disclosed that the current project he is working on feels like Apple's most important project yet.  One doubts this is simply the next iPhone iteration.  Assuming it is the long-awaited full-size television, and that it launches next year, Apple will have in 2013 a rapidly-growing iPad product or product line, an important and still-growing iPhone product, a potential third blockbuster television product, and a Mac line that continues to gain market share and could surprise to the upside.  Plus, iTunes is a large business that sooner rather than later would be a Fortune 500 company all on its own; and iPods remain a cash cow that both require no advertising expense and are so small that they take up little display room in Apple stores.

Apple is the financially strongest corporation in the world.  It has the fastest growth of any large company.  Its retail presence is so strong that if it wished, it could increase its marketing of other companies' products, thus filling any temporary gaps in its own product lines.  It is becoming more like an integrated oil company in that it is expanding its manufacturing operations backwards along with the growing direct retail presence.  Its dividend yield exceeds that of the 10-year T-note.  Value Line anticipates that it will have at least $200 B book value, with no intangibles or goodwill on the books, by the end of CY 2013.  It could easily earn $50/share this calendar year and could easily earn $100/share by CY 2015.  Why is its P/E below market when it has the best financial statement and the fastest growth of any large company in the world?

I think the answer is that the business and analytic community has never seen any very large company grow so fast organically.  There is fear that somewhere, somehow, Apple will go the way of RIMM and NOK; so, the analysts "won't get fooled again".  LOL.

Regardless of how trading goes before and after earnings, AAPL is IMHO the best growth stock around.  It is growing at an unbelievable rate.  It sells at roughly 10X expected CY 2012 earnings net of expected cash and marketable securities on hand by end-2012, even after "haircutting" the value of offshore assets.  Yet its two major product lines are early in their life cycles, and a major new product line may well be introduced next year. 

So far as I can see, most stocks are overpriced given the serious economic and financial dislocations that exist today globally and in the U.S. and other leading economic powers.  AAPL is an exception, though it is not a "Graham and Dodd" value stock.  (LOL again)

The only other stocks I find worth owning include the occasional DE-type of reasonably-priced cyclical stock and a few other high-quality equities, but I think they get cheaper before they get more expensive.  Then, for now, there is the derivative bond play, as it were, in the Con Ed-type stock.  Steady ED is simply too cheap if one believes that its dividend is secure.  You can own a 30-year T-bond at about 2.5% per year or ED at about a 50% higher yield with some inflation protection and- believe it or not- takeover possibilities.  With the 10-year yield at (say) 1.5%, ED should be about double its current share price to re-establish its historical relationship to that benchmark bond.  Thus ED is already discounting a major rise in interest rates. 

Spain is now widely recognized as bust.  I suspect that once Italy is so recognized, that will be the end of the bad news and it will be time to buy inflation hedges again.  John Mauldin is promoting France as next up.  I don't think that's in the cards, at least not this economic cycle, though of course we shall see what we shall see.  Thus my game plan for now strategizes 2012's coming hurricane season months as reprising some combination of 2008 (Europe's sovereigns taking the place of US financials this time around) and 2011, as economies lurch down again as they did last year in the pre-recessionary phase.

Meanwhile, the valuation and growth trends favor AAPL gaining a higher relative P/E to the market while earnings grow rapidly.  AAPL and ED, a strange combo to make up my investment faves.

Recessionary Dynamics Making Income Streams Paramount and Harming Metals Prices- For Now

Gold is vulnerable here as premium to platinum reaches about 12%. 

Yet platinum is much rarer and has gotten to the area where some high production-cost mines are operating at a loss.  I expect silver, platinum and palladium to lead the upturn over gold whenever the markets correctly sniff out a durable global economic upturn that occurs concomitant with additional monetary support from the central banks.

Meanwhile the Billion Prices Project has updated its findings through June 30 for the USA.  Year on year price inflation as it measures it (it cannot measure services, a huge failing) is at 1% and dropping.  Assuming ECRI is correct that the US is in recession, yoy price inflation is going to zero, it would appear.  This in turn would allow the 10-year T-note to drop to 1%.  This in turn would create yet more demand for "safe" dividend income. 

Thus, GARP investing will not "work" as the ED's and even PG's of the world will not be easily sold, short of a fall 2008-style forced-liquidation panic.