The three best stocks of the past decade
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Baltimore: If today’s action from the markets is any indication of what investors think about Uncle Sam and his Washington minions, the upcoming mid-term election is going to get interesting.
Nothing talks in Washington any louder than money. Today, the big spenders are betting against the land of the free and the home of the brave. But of course, if you’ve been paying attention, the action is no surprise.
If you invested in United States treasuries over the last year, you bought into the worst performing sovereign debt across the globe. Thanks to the Obama administration’s unending yearning to artificially pull the nation’s GDP into positive territory, investors are quickly raising their nose to the country’s ever-growing pile of debt.
In all of 2009, the Treasury Department received loans of $2.1 trillion from the world’s investors. It was an extraordinary year of borrowing that took the nation’s debt liability from $5.80 trillion to $7.17 trillion at the end of November.
Of course, with unemployment likely to show yet another rise later this week and some 45,000 businesses tossing in the towel over the last twelve months, Obama is not done spending yet.
Many experts believe 2010 will mirror the borrowing habits of 2009, when Geithner and the Treasury hit the auction market 79 times.
As we are seeing today, excessive borrowing can lead to strong market opportunities for well-positioned investors.
As long as Uncle Sam is spending more than he is pulling from the pockets of hard-working Americans, the value of the dollar will be at risk.
After a very strong December, the greenback is showing weakness today. It now trades at $1.4436 against the euro, a dip of more than a penny below the 2009 closing figure. A penny may not sound like much to the uninitiated, but a quick look at anything dollar-denominated tells a different story.
Oil is up, gold is up and the equities market is soaring. A turnaround in the dollar is just what we needed to get the pendulum swinging once again.
As I have said many times before, a falling dollar is good, but it can only drop so far before it turns out to be an utter disaster. Once the markets believe the bottom is going to fall out, it is all over for the security of the world’s top currency.
But that’s a problem we won’t have to deal with until the Fed pulls out of the game. Unfortunately, Bernanke’s likely to put the fiscal rejuvenation machine into reverse in the not-so-distant weeks ahead.
For now, however, it is time to make money while you can.
Any good contrarian investor loves the gold markets lately. I love it because we are raking in the gains over at TFN Strategic Trader thanks to recent swings in the precious metals market.
For nearly all of December, I took flak because of my gold-market pessimism. But folks that followed my advice saved themselves some big money as the shiny metal lost nearly 10% of its value.
But in the final week of the year, you may recall, I noticed the market was ready to change direction. On Thursday morning, with just a couple of trading hours left in the year, I made my move. I wrote my subscribers about a strategic option contract.
The move paid off. Thanks to gold prices surging by more than $26 per ounce today, the contract has soared by 44%. I am sure plenty of members are taking the one-day gains, but I’m holding out for more.
2010 will be the year of all years for currency and hard-asset traders. We are already proving it.
*** Here’s a question that will help you get the New Year off to a profitable start.
What do Medifast (NYSE:MED), Green Mountain Coffee Roasters (NASDAQ:GMCR) and Hansen Natural (NASDAQ:HANS) have in common?
The answer: They all make food or drinks designed to make you feel good. Even better, they comprise the three best performing stocks of the last decade.
Medifast, with its popular weight-loss diets, soared over 16,000% over the past ten years. Green Mountain, and its diverse coffee lineup, led investors to gains of 9,210%. And Hansen, the maker of a variety of popular drinks, is up by 7,022%.
Not bad figures for a time that most pundits are eager to call a lost decade. It is not surprising to see a decade that was so focused on consumer spending and short-term happiness to produce these kinds of figures.
Looking forward, however, into a decade when unemployment is creeping higher, discretionary spending is down and it is becoming hip to be frugal (finally, my time to shine), the three stocks listed above may give back plenty of their recent gains unless they reposition their product portfolio.
In ten years, it won’t be “fun” food we will be talking about. With the nation’s population growing by leaps and bounds, it will be staples like corn, wheat and water that dominate the headlines.
Don’t worry. We’ve got plenty of time to figure it out.
Original source for this article: Contrarian Profits
‘Fortress Companies’ – finding security with value investing
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Kent Lucas, Editor of Taipan’s Safe Haven Investor, shares some of his keys for skillful value investing, as written for Taipan Daily.
Kent Lucas (Taipan Daily):
I’m sure many of you know all too well about the problem of insomnia. It affects four in 10 adults, according to the European Journal of Psychiatry. And a 2009 National Sleep Foundation study indicated that 67% of those surveyed experienced a sleeping problem at least a few days a week compared to only 13% in 1991.
I’m sure the wildly swinging stock market – down 50%, up 60% from the lows, etc. – hasn’t helped. Even as times get increasingly hectic, though, you want to make sure you’re getting enough quality sleep. It’s proven to help you function better during the day (and live longer).
The tie-in is that, when it comes to long-term investing at least, I’m here to help you sleep better at night. So today we’ll look at the importance of financial strength when searching for high-quality investment ideas.
The Financial Fortress
To that end, my game plan is investing in Financial Fortresses – rock-solid companies that can withstand economic fallout (and occasional serious beat downs from Mr. Market. (Picture a Sherman tank that can withstand serious artillery attack.)
There are many high-quality companies in outstanding financial position because of the many reasons, including having a “very wide economic moat,” that I previously discussed.
From my perspective, a Financial Fortress is typically an investment-grade company that either has
a) a great balance sheet
b) large cash flow generating capabilities, and/or
c) impressive asset efficiency
To give you some idea of what I mean, here is a sample list of companies that are cash-rich or otherwise don’t carry any long-term debt.
Fiscal Prudence
Companies with great balance sheets have low long-term debt levels or even no debt at all (with actual net cash on their books). This creates a solid cushion, enabling such companies to weather tough economic times or temporary challenges to the underlying business. Operating with cash on hand and little or no debt also allows for tremendous financial, strategic and operational flexibility to fuel growth and generate solid shareholder returns. And for our purposes of protecting and creating wealth, a company with a superior financial position increases the odds of generating above-market returns.
Some companies are just very conservative and refuse to take on significant amounts of debt. Among corporate financial theorists, there is plenty of research and debate in regard to potential optimal levels of debt, equity and so on.
For many if not most companies, taking on a certain amount of debt makes sense. Companies can manage what is known as their “capital structure” by issuing debt or raising new funds through equity offerings (issuing more stock) during a strong market period. Or, companies can be so profitable that they generate ample “free cash flow” from their day-to-day operations.
Click here for the rest of Mr. Lucas’ article on Taipan Daily.
Original source for this article: Contrarian Profits
What Likely Lurks Around the Corner
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Doug Casey and the editors at Casey Research are very skeptical that we are experiencing any sort of economic recovery. In our opinion, too many economic indicators are based on faulty data and optimistic assumptions. Our research suggests that a recovery isn’t sustainable yet. And with that, we lack the foundation needed to support the rapidly rising stock markets.
Jeff Clark (Casey Research):
In the short term, a catastrophic deflation is quite possible. But in the long term, extremely high levels of inflation are now inevitable. The situation is very serious. Gold is the best hedge against both of these things. The better part of your financial assets should be in gold, augmented by well-thought-out speculations. Doug Casey, November, 2009.
Doug Casey and the editors at Casey Research are very skeptical that we are experiencing any sort of economic recovery. In our opinion, too many economic indicators are based on faulty data and optimistic assumptions. Our research suggests that a recovery isn’t sustainable yet. And with that, we lack the foundation needed to support the rapidly rising stock markets.
Among the many reasons for our doubt is this standout:
Over the next two years, the so-called Alt-A and Option ARM loans face massive resets. Even with today’s low mortgage interest rates, most of these home loans, currently enjoying ultra-low teaser rates or pick-your-own-monthly-payment schemes, will see their monthly payments adjust higher – far higher. The result: loan losses and write-downs will balloon for banks, and mortgage holders will get hit with another wave of homeowner defaults. We just don’t see any way for the economy and markets to escape the fallout.
Even the Fed’s perpetual public smiley face can’t hide what’s happening. In their own statement last month, they said, “Household spending appears to be expanding but remains constrained by ongoing job losses, sluggish income growth, lower housing wealth, and tight credit.” A clear and present danger remains in the system.
What does this mean for our favorite sector? Following the market lows in March, gold and gold stocks have, with some exceptions, mirrored the market’s moves both up and down. If the markets correct again, whether mild or severe, gold and gold stocks could get taken down as well.
There will come a point when gold stocks separate from the movements of the general markets, and we look forward to that day. But for now they’re still holding hands.
In the meantime, our view of the big-picture outlook hasn’t changed. Rising inflation and a falling dollar are baked in the cake. Price inflation follows monetary inflation, and governments around the globe have pursued an unprecedented and unsustainable policy of inflating the money supply. Monetary inflation + time = price inflation. It’ll come, and when it does, it will wipe out those who are unprepared.
But in the near term, current economic uncertainties mean heightened risk and call for caution. In other words, this isn’t the time to be aggressive with stock purchases.
So, how does one invest in this kind of environment? Is there a way to hedge your exposure against price fluctuations?
Yes! The secret lies in asset allocation.
Achieving good portfolio performance is possible without overexposing yourself to stocks. The strategy involves playing defense as well as offense.
The following tables compare the returns an investor could expect using different asset allocation models under three hypothetical market scenarios, and assumes a starting portfolio of $10,000.
*All returns exclude commissions and taxes
*Cash return for 1 year of 1.55% based on use of money market account; higher rate possible with a CD, but access to your cash is restricted, and it involves fees and penalties for early withdrawal.
You can see that you’re giving up only 6.6% in gains in Scenario #1 by apportioning your portfolio in equal thirds vs. being overweight stocks. But if stocks decline while you’re overweight that category, as shown in Scenario #2, you stand to lose 16.8%.
If you don’t elect a defensively positioned portfolio at this point, and gold stocks indeed get sucked into the vortex of a general market sell-off, you’ll wish you had that extra $2,300 in cash – which buys well over 100 shares of Kinross at today’s price. And when KGC likely doubles in a couple years, as we expect, remorse may be knocking on your door.
By allocating your investments in a more defensive mode, you’re making a small sacrifice for possible profits over the next six months without sacrificing long-term returns.
You can continue to follow the thinking of the editors at Casey Research — and get specific recommendations for solid, secure gold investments — with an inexpensive subscription to Casey’s Gold and Resource Report. It comes with a free report called The Three Best Ways to Invest in Gold, and until December 18, you’ll get a free subscription to Casey’s Energy Opportunities — all for only $39. Click here to find out more.
Original source for this article: Contrarian Profits
How to play the dangerous dollar
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Baltimore – (TFN): The dollar is a dangerous entity these days. Never has there been such a globally important currency with as much political and financial manipulation.
The distortions from reality are mind-boggling, yet all of us depend on the status of the simple fiat for our financial wellbeing.
The person with the most skin in the dollar game is, no doubt, President Obama. The nation’s economy hinges on the fate of the greenback and the White House knows it. That is why it is doing anything it can to slow the slide.
Even if it is entirely psychological.
Today, reports are flowing from Washington that show Obama may have plans to use up to $210 billion in TARP money to lower the nation’s ever-increasing deficit.
It is creative accounting at best and a $210 billion bribe at worst.
While the average Oprah-watching, Crocs-wearing American won’t take a second out of their do-nothing day to read below the feel-good headline, there is a handful of us that are actually paying attention.
With this idea of “paying down our debts,” it is vital to remember the Treasury didn’t pull the $700 billion in TARP funds out of some cavernous account.
We borrowed that cash. And now Obama wants to use the borrowed money to pay back our debts, minus a year’s worth of interest of course. It’s like taking out a loan to pay off your mortgage.
The timing of these rumors is more than suspicious.
Just yesterday, China slapped the currency markets in the rear by once again raising the notion of dumping the dollar and making a sudden change in its exchange-rate policy.
Ironically enough, less than 24 hours later, Obama has a $210 billion check in his hand ready to “repay” our debt.
It is money from one hand, around the back, and into the other.
But it gets better.
Obama is not the only one trying to mask Uncle Sam’s debt problems. Just about every exporting country in the world is desperate to keep the dollar strong.
They have to. Their economies depend on it.
Rumor has it countries like Russia and South Korea have been buying dollars on the open market over the past few weeks, in an effort to keep the greenback’s slide from gaining even more momentum.
The governments would rather risk devaluing their reserves than allow their economies to suffer from the effects of a weak dollar.
Looking forward, the question is how long can the manipulation last? How long can the dollar remain artificially inflated? And how long until the markets naturally take care of the situation?
While we may not know the exact answer to any of those questions, it does not take an economics scholar to realize the outcome will be horrific, at least for those of us with dollars in our pockets.
*** The solution? Buy gold. According to the top dog at Canada’s behemoth gold miner, Barrick, we have every reason to believe we surpassed “peak gold.”
That means all the easy gold has already been stripped from the ground and supplies are only going to shrink from here.
According to the CEO, Aaron Regent, global gold production peaked in 2000 and is expected to continue declining into the foreseeable future. So far, mine production is down by nearly 10%.
The news of increasing supply constraints comes at a time when demand is already surging. For those of you that were under the bleachers during Econ 101, it means prices will continue to rise.
There has been a lot of discussion about a sudden collapse in gold prices as many investors believe the current boom is merely a fear-induced bubble. Two or three months ago, I would have bought the story. But not now.
The dollar is simply too weak and foreign reserves are accumulating gold too quickly for prices to fall sharply.
China’s immense buying alone is enough to limit near-term fallout. The country has already doubled its gold reserves and Beijing continues to be a major buyer.
Just one more reason for bulls to send prices higher.
*** Just so you can’t say I don’t let you in on anything for free, I’m going to toss a freebie your way.
With gold prices reaching into record territory, it is a perfect week for Van Eck to release its Market Vectors Junior Gold Miners ETF (NYSE:GDXJ). The freshly created fund gives investors a stake in 38 small- to mid-sized gold miners.
For investors looking for a simple way to take advantage of the gold bull with some additional leverage, this is the ETF to do it.
Thanks to the speculative nature of junior miners, expect shares to beat the market when gold prices are surging and underperform when the bears return. For now, there is plenty of upside potential.
Original source for this article: Contrarian Profits
