German Chancellor Merkel Won’t Let Ukraine Get in the Way of Business

By Marin Katusa, Chief Energy Investment Strategist

The Ukraine crisis has moderated for now, but it should have awakened the world to the new “great game” being played in Eastern Europe. Vladimir Putin is positioning Russia to control the global energy trade, knowing that he holds the trump card: Europe’s dependence on Russian oil and gas.

This epic struggle between the US and Russia could change the very nature of the Euro-American trans Atlantic alliance, because Europe is going to have to choose sides.

The numbers in Putin’s OIL = POWER equation are only going to keep getting bigger as Russia’s control and output of energy continues to grow and as Europe’s supply from other sources dwindles—as I outline in my new book, The Colder War. Finland and Hungary get almost all their oil from Russia; Poland more than 75%; Sweden, the Czech Republic, and Belgium about 50%; Germany and the Netherlands, upward of 40%.

Cutting back on energy imports from Russia as a means of pressuring Moscow is hardly in the EU’s best interest.

Germany, the union’s de facto leader, has simply invested too much in its relationship with Putin to sever ties—which is why Chancellor Angela Merkel has blocked any serious sanctions against Russia, or NATO bases in Eastern Europe.

In fact, Germany is moving to normalize its relations with Russia, which means marginalizing the Ukrainian showdown. Ukraine is but a very small part of Moscow’s and Berlin’s plans for the 21^st century. Though the U.S. desperately wants Germany to lean Westward, it has instead been pivoting East. It’s constructing an alliance that will ultimately elbow the US out of Eastern and Central Europe and consign it to the status of peripheral player. (The concept of the “pivot “ in geopolitics was advanced by the celebrated early 20^th century English geographer Halford Mackinder with regard to Russia’s potential to dominate Europe and Asia because it forms a geographical bridge between the two.

Mackinder’s “Heartland Theory” argued that whoever controlled Eurasia would control the world. Such a far flung empire might come into being if Germany were to ally itself with Russia. It’s a doctrine that influenced geopolitical strategists through both World Wars and the Cold War. It was even embraced by the Nazis before Russia became an enemy. And it may still be relevant today—despite the historical animosities between the two countries. After all, the mutually beneficial alliance of a resource-hungry Germany with a resource-rich Russia is a logical one.)

Considering the deepening ties between Russia and Germany in recent years, the real motive for the US’s stoking of unrest in Ukraine may not have been to pull Ukraine out of Russia’s sphere of influence and into the West’s orbit—it may have been primarily intended to drive a wedge between Germany and Russia.

The US almost certainly views the growing trade between them—3,000 German companies have invested heavily in Russia—as a major geopolitical threat to NATO’s health. The much-publicized spying on German politicians by the US and the British—and Germany’s reciprocal surveillance—shows the level of mutual distrust that exists.

If sowing discord between Russia and Germany was America’s goal, the implementation of sanctions might look like mission accomplished. Appearances can be deceptive, though.

Behind the scenes, Germany and Russia maintain a cordial dialogue, made all the easier because Vladimir Putin and Angela Merkel get along well on a personal level. They’re so fluent in each other’s languages that they correct their interpreters. They often confer about the possibility of creating a stable, prosperous and secure Eurasian supercontinent.

Despite the sanctions, German and Russian businessmen are still busy forging closer ties. At a shindig in September for German businesses in the North-East and Russian companies from St. Petersburg, Gerhard Schröder—former German prime minister and president, and friend of Putin—urged his audience to continue to build their energy and raw-material partnership.

Schröder’s close personal relationship with Putin is no secret. He considers the Russian president to be a man of utmost trustworthiness, and his Social Democratic Party has always been wedded to Ostpolitik (German for “new Eastern policy”), which asserts that his country’s strategic interest is to bind Russia into an energy alliance with the EU.

Schröder would have us believe that they never talk politics. Yet in his capacity as chair of the shareholders’ committee of Gazprom’s Nord Stream—the pipeline laid on the Baltic seabed which links Germany directly to Russian gas—he continues to advocate for a German-Russian “agreement.”

That’s a viewpoint Merkel shares. In spite of her public criticism of Putin’s policy toward Ukraine, Merkel has gone out of her way to play down any thought of a new Cold War. She’s on the record as wanting Germany’s “close partnership” with Russia to continue—and she’s convinced it will in the not-so-distant future.

Though Merkel has rejected lifting sanctions against Russia and continues to publicly call on Putin to exert a moderating influence on pro-Russian Ukrainian separatists, it looks like Germany is seeking a reasonable way out. That makes sense, given the disproportionate economic price Germany is paying to keep up appearances of being a loyal US ally.

Politicians in Germany are alert to the potential damage an alienated Russia could inflict on German interests. Corporate Germany is getting the jitters as well, and there are a growing number of dissenting voices in that sector. And anti-American sentiment in Germany—which is reflected in the polls—is putting added pressure on Berlin to pursue a softer line rather than slavishly following Washington’s lead in this geopolitical conflict.
With the eurozone threatened by a triple dip recession, expect Germany and the EU to act in their own interests. Germany has too much invested in Russia to let Ukraine spoil its plans.

As you can see, there’s no greater force controlling the global energy trade today than Russia and Vladimir Putin. But if you understand his role in geopolitics as Marin Katusa does, you’ll know how he’s influencing the flow of the capital in the energy sector—and which companies and projects will benefit and which will lose out.

Of course, the situation is fluid, which is why Marin launched a brand new advisory dedicated to helping investors get out in front of the latest chess moves in this struggle and make a bundle in the process.
It’s called The Colder War Letter. And it’s the perfect complement to Marin’s New York Times best-seller, The Colder War, and the best way to navigate and profit in the fast changing new reality of the energy sector. When you sign up now, you’ll also receive a FREE copy of Marin’s book. Click here for all the details.

The article German Chancellor Merkel Won’t Let Ukraine Get in the Way of Business was originally published at casey research

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We’re Ready to Profit in the Coming Correction....Are You?

By Laurynas Vegys, Research Analyst

Sometimes I see an important economic or geopolitical event in screaming headlines and think: “That’s bullish for gold.” Or: “That’s bad news for copper.” But then metals prices move in the opposite direction from the one I was expecting. Doug Casey always tells us not to worry about the short term fluctuations, but it’s still frustrating, and I find myself wondering why the price moved the way it did.


As investors we’re all affected by surges and sell offs in the investments that we own, so I want to understand. Take gold, for example. Oftentimes we find that it seems to tease us with a nice run up, only to give a big chunk of the gains back the next week. And so it goes, up and down…..

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The truth is, and it really is this simple, but so obvious that people forget, that there are always rallies and corrections. The timing is rarely predictable, but big market swings within the longer term megatrends we’re speculating on are normal in our sector.

Since 2001, the gold price had 20 surges of 12% or greater, including the one that kick-started 2014. Even with last year’s seemingly endless “devil’s decline,” we got one surge. If we were to lower the threshold to 8%, there’d be a dozen more and an average of three per year, including two this year.

Here at Casey Research, we actually look forward to corrections. Why? We know we’ll pay less for our purchases—they’re great for new subscribers who missed the ground floor opportunities years ago.

This confidence, of course, is the product of decades of cumulative experience and due diligence. We’re as certain as any investor can ever be that today’s data and the facts of history back our speculations on the likely outcomes of government actions, including the future direction of the gold price.

When you keep your eye firmly on the ball of the major trends that guide us, you can see rallies and corrections for what they are: roller-coaster rides that give us opportunities to buy and take profits. This volatility is the engine of “buy low, sell high.” Understanding this empowers the contrarian psychology necessary to buy when prices on valuable assets tank, and to sell when they soar.

There have been plenty of opportunities to buy during the corrections in the current secular gold bull market. The following chart shows every correction of 6% or more since 2001.

As you can see, there have been 28 such corrections over the past 13 years—two per year, on average. Note that the corrections only outnumber surges because we used a lower threshold (6%). At the 12% threshold we used for surges, there wouldn’t be enough to show the somewhat periodic pattern we can see above. It’s also worth noting that our recent corrections fall well short of the sharp sell off in the crash of 2008.

Of course, there are periods when the gold price is flat, but the point is that these kinds of surges and corrections are common.

Now the question becomes: what exactly drives these fluctuations (and the price of gold in general)?
In tackling this, we need to recognize the fact that not all “drivers” are created equal. Some transient events, such as military conflicts, political crises, quarterly GDP reports, etc., trigger short-lived upswings or downturns (like some of those illustrated in the charts above). Others relate to the underlying trends that determine the direction of prices long term. Hint: the latter are much more predictable and reliable. Major financial, economic, and political trends don’t occur in a vacuum, so when they seem to become apparent overnight, it’s the people watching the fundamentals who tend to be least surprised.

Here are some of the essential trends we are tracking…...

The Demise of the US Dollar

Gold is priced around the world in United States dollars, so a stronger US dollar tends to push gold lower and a weaker US dollar usually drives gold higher. With the Fed’s money-printing machine (“quantitative easing”) having been left on full throttle for years, a weaker dollar ahead is a virtual certainty.

At the same time, the U.S. dollar’s status as reserve currency of the world is being pushed ever closer to the brink by the likes of Russia and China. Both have been making moves that threaten to dethrone the already precarious USD. In fact, a yuan-ruble swap facility that excludes the greenback as well as a joint ratings agency have already been set up between China and Russia.

The end of the USD’s reign as reserve currency of the world won’t end overnight, but the process has been set in motion. Its days are all but numbered.

The consequences are not favorable for the US and those living there, but they can be mitigated, or even turned into opportunities to profit, for those who see what’s coming. Specifically, this big league trend is extremely bullish for real, tangible assets, especially gold.

Out-of-Control Government Debt and Deficits

Readers who’ve been with us for a while know that another major trend destined for some sort of cataclysmic endgame can be seen in government fiscal policy: profligate spending, debt crises, currency crises, and ultimately currency regime change. This covers more than the demise of the USD as reserve currency of the world (as mentioned above); it also covers a loss of viability of the euro, and hyperinflationary outcomes for smaller currencies around the world as well.

It’s worth noting that government debt was practically nonexistent, by modern standards, halfway through the 20th century. It has seen a dramatic increase with the expansion of government spending, worldwide. The U.S. government has never been as deep in debt as it is today, with the exception of the periods of World War II and its immediate aftermath, having recently surpassed a 100% debt to GDP ratio.

Such an unmanageable debt load has made deficits even worse. Interest payments on debt compound, so in time, interest rates will come to dominate government spending. Neither the dollar nor the economy can survive such a massive imbalance so something is bound to break long before the government gets to the point where interest gobbles up 80%+ of the budget.

Gold Flowing from West to East

The most powerful trend specifically in gold during the past few years has been the tidal shift in the flow of gold from West to East. China and India are the names of the game with the former having officially overtaken the latter as the world’s largest buyer of gold in 2013. Last year alone, China imported over 1,000 tonnes of gold through Hong Kong and mined some 430 tonnes more.

China hasn’t updated its government holdings of gold since it announced it had 1,054 tonnes in 2009, but it’s plain to see that by now there is far more gold than that, whether in central bank vaults or private hands. Just adding together the known sources, China should have over 4,000 tonnes of monetary gold, and that’s a very conservative estimate. That would put China in second place in the world rankings of official gold holdings, trailing only the United States. The Chinese government supports this accumulation of gold, so this can be seen as a step toward making the Chinese renminbi a world currency, which would have a lot more behind it than U.S. T-bills.

India presents just as strong a bullish case, if only slightly tainted with Indian government’s relentless crusade to rein in the country’s current account deficit by maintaining the outrageously high (i.e., 10%) import duty on gold and silver. Of course, this just means more gold smuggling, which casts official Indian stats into question, as more and more of the industry moves into the black and grey markets. World Gold Council research estimates that 75% of Indian households would either continue or increase their gold buying in 2014. Even without gold-friendly policies in place, this figure is extremely bullish for gold and in line with the big picture we’re betting on.

So What?

Nobody can predict when the next rally will occur nor the depth of the next sell-off. I can promise you this: as an investor you’ll be much happier about those surges if you stick to buying during the corrections. But it has to be for the right reasons, i.e., buying when prices drop below reasonable (if not objective) valuation, and selling when they rise above it. Focusing on the above fundamental trends and not worrying about short-term triggers can help.

Profiting from these trends is what we dedicate ourselves to here. Under current market conditions, that means speculating on the best mining stocks that offer leverage to the price of gold.

Here’s what I suggest: test drive the International Speculator for 3 months with a full money back guarantee, and if it’s not everything you expected, just cancel for a prompt, courteous refund of every penny you paid. Click Here to get Started Now.

The article We’re Ready to Profit in the Coming Correction....Are You? was originally published at Casey Research

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WTI Crude Oil on the Move $112 Next Stop

The energy sector has surged during the last two months which can be seen by looking at the XLE Energy Select Sector Fund. If crude oil continues to climb to the $112 level, XLE will likely continue to rally for another few days or possibly week as energy stocks are considered a leveraged way to play energy price movements.

Another way to look at this info is through the USO United States Oil Fund. This tracks much closer to the price of oil. The only issue is that many ETFs that “try to track” an underlying commodity is in how the funds are built. They own multiple contracts further into the future which does not exactly provide us with the short term news/event driven price movements in the current front month contract as they should.

What does this mumbo jumbo mean? Well, it means funds like USO and the highly respected UNG, and VIX ETFs… (just joking about the highly respected part), fail to track the underlying commodity or index very well when it comes to short term price movements. This means, you can nail the timing of a trade, and the commodity or index will move in your favor, yet your fund loses money, or goes nowhere...

Let’s Focus on the Technicals Now….

 

WTI crude oil has formed a bullish ascending triangle pattern from March to May of this year. The breakout to the upside is bullish and should be traded that way until the chart says otherwise. This breakout and first pullback must hold, or I will consider it a failed breakout. So if price dips and closes 2 days below the breakout level, it will be a major negative for oil in my opinion.

The range of the ascending triangle provides us with a measured move to the upside which is $112. Typically the first pullback after a breakout can be bought. The first short term target to scalp some gains would be $109, and at that point moving your stop to breakeven is a wise decision. Trading is all about managing capital and risk, if you don’t, then the market will take advantage of your lack in discipline.

Looking further back on the chart, you can see the double bottom formation also known as a “W” formation. Once the high of the “W” formation is broken the trend should be considered neural or up.

Also note that the RSI (relative strength) has been trending higher for some time now. This means money is rotating into this commodity. This is in line with my interview this week with Kerry Lutz and my recent article talking about the next bull market in commodities and the TSX (Toronto Stock Exchange).

 

WTI Crude Oil Trading Conclusion:

 

In short, oil has some extra risk around it. The recent move has been partly fueled by news overseas. So at any time oil could get a lift or take a hit by news that hits the wires. I tent to trade news related events with much less capital than I normally do because of this risk.

Happy Trading,
Chris Vermeulen

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Gold Mini Contract Trade Entry Point with Stop

Gold futures in the April contract are trading above their 20 day but below their 100 day moving average which is pretty close at 1,275 going out this Friday afternoon in New York at 1,267 up about $10 after closing last Friday at 1,240 having one of its best trading weeks in quite some time. The next major resistance in gold is at 1,280 and if that level is broken we believe a bull market is underway as the gold market looks like it's finally bottomed entering new 2 month highs as the trend line has now been broken as prices are starting to climb higher.

We have not been particularly bullish gold for quite some time but things have changed and this is the most bullish we have been as we love the chart pattern on the daily chart and think prices have bottomed so if you're looking to take a shot to the upside my suggestion would be to buy a mini contract at today's price placing a stop below the contract low of 1,180 risking around $2,600 as last Friday's monthly unemployment number was very disappointing once again sending investors into treasury bonds and gold and we do believe gold prices are headed higher.

Last year gold was down 32% & was the 1st down year in 12 years and we do think prices may have gotten too low as volatility has now entered the stock market which is pushing money back in the gold sector and we do think prices will hit 1,300 the next couple of weeks as we are in the start of a bull market once again.

Trend: Higher
Chart structure: Excellent

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Bear Market Cycle Bottom Forming in Gold and Gold Stocks Right Now!

Today our trading partner David Banister takes a look at the Bullish Percent Index chart relative to Gold’s cycle and Gold Stocks.

Essentially it tells you what percentage of Gold sector stocks are at or above a moving average, which normally would be 50 days. When 70% or more are above a 50 day moving average, sectors can be peaking out. If you look at our chart at the bottom, we have labeled various incidents with A, B, C, and D.

A. The precious metal as we all know peaked in the fall of 2011 at $1923 per ounce, and the Bullish percent index was at 80%! Usually at 30% or so, they are bottoming out in most cases.

B. We saw a rare case in the summer of 2013 where the Bullish percent index for Gold stocks was at 0%, yes that is not a miss-print.

C. Gold bottomed at 1181 in late June 2013, and then rallied up to 1434 and we saw Gold stocks rally 40-80% in individual cases and the Bullish percent index rallied up to 55%.

D. If we fast forward to December 2013, we have Gold pulling back in the final 5th wave down from the Bull cycle highs in August 2011 at $1923. The Bullish percent index is back to 10% and heading towards 0 or close once again. At the same time, the Gold miners index ETF (GDX) is at 5 year lows and even lower than June-July 2013 lows.

These types of indicators are coming to a pivot point where Gold is testing the summer 1181 lows and may go a bit lower to the 1090 ranges. At the same time, we see bottoming 5th wave patterns combining with public sentiment, bullish percent indexes, and 5 year lows in Gold stocks. This is how bottom in Bear cycles form and you are witnessing the makings of a huge bottom between now and early February 2014 if we are right.

The time to buy Gold and Gold stocks is now during the next 4 - 5 weeks just as we were recommending stocks in late February 2009 with public articles that nobody paid attention to. This is the time to start accumulating quality gold miner and also the precious metals themselves as the bear cycle winds down and the spring comes back to Gold and Silver in 2014.

Click here to join us at Market Trend Forecast for regular updates on Gold, Silver, and The SP 500 Index.

Silver, Gold & Miners ETF Trading Strategy – Part II

It’s been over a week since our trading partner Chris Vermeulens last gold & silver report which he took a lot of heat because of his bearish outlook. Last Friday’s closing price has this sector trading precariously close to a major sell off if it’s not already started.

On a percentage bases Chris feels precious metals mining stocks as whole will be selling at a sharp discount in another week or three. ETF funds like the GDX, GDXJ and SIL have the most downside potential. The amount of emails he received from followers of those who have been buying more precious metals and gold stocks as price continues to fall was mind blowing.

Precious metals continued to fall on Monday and Tuesday of this week and selling volume should spike as protective stops will be getting run and the individuals who are underwater with a large percentage of their portfolio in the precious metals sector could start getting margin calls and cause another washout, spike low similar to what we saw in 2008.

Here is Chris' updated ETF Trading Charts with Friday’s closing prices showing technical breakdowns across the board....Read "Silver, Gold & Miners ETF Trading Strategy – Part II"



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Silver, Gold & Miners About To Sell Off Again

A couple weeks ago I posted these same charts talking about the pending breakout (in either direction) with silver, gold and mining stocks. Fast forwarding to this week its clear this sector continues its struggle to rally. Key support levels are now being tested and if these levels fail prepare for a sharp correction with mining stocks showing the most downside potential of roughly 25% for the GDX ETF trading fund.

Let’s take a quick look at what is going on.

Gold Trading Chart:
The chart of gold shows price being wedge into the apex of the down sloping resistance trend line and the rising support trendline. Gold was trading below this level but has since bounced. But if gold closes the week below this line in the sand the price could start to fall quickly and test the $1200 per ounce within a week or two.




Silver Trading Chart:
Silver is under performing gold and trading below its support level currently. If silver does not recover by Friday’s closing bell then things could get ugly for a few weeks as investors start to exit their positions. That being said, I need to point out that silver is more of a wild card when using trend lines like this. Both gold and gold miners should be confirming this breakdown in silver if it is the real deal.




Gold Mining Stocks ETF:
The chart of gold miners I like the most. I like it because it’s pointing to lower prices, roughly 25% lower if the breakdown takes place. Gold mining stocks could be a fantastic long term investment if we see the $17.50 level reached on this GDX etf.



Last week I talked about ETF trading strategies and the big picture on gold, silver, miners and bonds. They look to be nearing a major bottom and once they do bottom it should be a great buying opportunity for specific stocks or the entire sector.

The next few weeks are going to be crucial for precious metals and we will keep an eye on them as this bottom unfolds.  

Get more reports like this here: www.Gold & Oil Guy.com

Chris Vermeulen


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America’s Addiction to Foreign Uranium

America’s Addiction to Foreign Uranium

Posted courtesy of our trading partners at Casey Research.........

What most Americans don't realize is that dependence on foreign oil isn't the main obstacle to US energy autonomy. If you think America's energy supply issues begin and end with the Middle East, think again. One of the most critical sources of foreign energy is due to dry up this year, and the results could mean spiking electricity prices across the country.


In 2011, the US used 4,128 billion kilowatt hours (kWh) of electricity. Nuclear power provided 790.2 billion kWh, or 19% of the total electrical output in the US. Few people know that one in five US households is powered by nuclear energy, and that the price of that nuclear power has been artificially stabilized. Unfortunately for us, the vast majority of the fuel used for powering our homes must be imported.
In the chart below, you see where most of our uranium comes from:

The overwhelming majority of that Russian uranium comes from a 20-year-old agreement called "Megatons to Megawatts" that allows weapons-grade, highly enriched uranium (HEU) to be converted to reactor-grade, low enriched uranium (LEU).

By December 2012, "Megatons to Megawatts" had produced 13,603 metric tons of LEU for US consumption and provided the fuel for nearly half of the US electricity generated from nuclear power.
In December 2013, that agreement expires, and Russia will be free to put its uranium out on the open market and demand higher prices. With 17 nuclear reactors in China and 20 in India – not to mention Japan, France, Germany, and others all vying for nuclear fuel – competitive bids are poised to drive prices higher, and early investors stand to make spectacular gains.

If this information is news to you, you are not alone. While the mainstream media focus on the US's "Middle Eastern energy dependence," the real story remains unnoticed. That's why Casey Research invited the field's top experts – including former US Secretary of Energy Spencer Abraham and Chairman Emeritus of the UK Atomic Energy Authority Lady Barbara Judge – for a frank discussion of what we think is America's greatest energy challenge.

Join us on Tuesday, May 21 at 2 p.m. EDT for the premiere of The Myth of American Energy Independence: Is Nuclear the Ultimate Contrarian Investment? to learn how the end of "Megatons to "Megawatts" will affect the US energy sector and how you can position yourself for outsized profits. Attendance is free – click here to register.



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The Collapse in the Junior Mining Stock Sector

To say the precious metals market is in turmoil would be an understatement. Gold has dropped 3% in the last year, while gold stocks have been completely decimated, even strong firms with outstanding projects are down 50% or more.

It's not surprising many investors are wondering if the bull market in precious metals is over… yet conditions like we're seeing now in the mining sector are exactly what contrarian investors look for.

To help clarify today's investing environment in precious metals stocks for you, Casey Research called together a panel of experts in mining and natural resources for an urgent summit: Downturn Millionaires.

We videotaped this event on location (at La Estancia de Cafayate in Argentina, with video feeds to panelists in the junior resource capital of Vancouver) and will air it on the Internet at 2 p.m. Eastern time on April 8.

This event is free to the public. All you have to do is register....Just click here.

Among the topics covered in depth:

* Does the bull market in gold and silver still have legs?

* What investors with positions in junior resource stocks can do today to reduce losses and reposition their portfolios.

* Is the gold stock sector doomed, or has the disconnect between the price action of the juniors in the face of rampant central bank money printing created a once in a generation contrarian opportunity to profit?

* A critical, extremely timely overview of the state of the global economy.

Here's the "Downturn Millionaires" all star guest line up and registration form to sign up now for the Downturn Millionaires webcast.


The 2 Energy Sectors You Should Invest in This Year

What Does 8% Inflation Really Mean?

From Dennis Miller at Casey Research......

 

Eight percent is not good news. In my latest article I shared some reader feedback from our inflation survey, and in case you missed it, the Money Forever Reader Poll Inflation Rate is 8%. But what does that number really mean for us – seniors and savers trying to protect our buying power? It's time to read the tea leaves and find out.

 

Up to Your Ass in Alligators

You may remember the old poster that read, "When you are up to your ass in alligators, it's tough to remember the goal was to drain the swamp." You may have felt overwhelmed during the last few years, as the investment options for your retirement portfolio changed. You might read about the benefits of gold and silver one day, then CDs, dividend-paying stocks, and annuities the next. It's pretty easy to feel overwhelmed, particularly when you cannot afford to put too much of your life savings at risk.



One of our readers really drove home the challenges we all face:

"Anyone who has been living on SS [Social Security] checks since 2000 will tell you the same thing. They cannot live on those checks alone, and [have] depended on the interest they receive from their savings accounts or CDs. They cannot do this any longer. They now need to withdraw principal or redeem some CDs just to make ends meet. … [We are] on fixed incomes with no hope of getting a raise. These people understand the effects of inflation more than any other group. These people live with fear every day, understanding they have little control over their financial future, while watching their life savings slowly vanish every year."

Of the readers who responded to our poll, 1.6% think the inflation rate is 2% or less. On the flip side, the remaining 98.4% must think the government is lying (or in need of a new statistician).
My dear friend Toots, whom I often quote, wrote, "Did we prove once again the world is not flat?" Perhaps, but there's more to it. Certainly, I've made that point before, but that doesn't negate the need to highlight these phony government numbers. We shouldn't accept falsehoods with a nod and a wink; that's how they become immutable "facts" of life in many people's minds.

Some folks want to debate the methodology used by Shadow Government Statistics, but that misses the point. The bottom line is: 98.4% of us agree that the real inflation rate is higher than the rate reported by the BLS. That is the reality of our readers – at the grocery store, the gas pump, and today at the flower shop (gentlemen, don't forget roses for your sweetheart). Anyone living on a fixed income already knows this.
The real issue is that we are getting squeezed! At least, 98.4% of us think so. There's no need to dwell on whether it's 6%, 7% or 8%, etc. What really matters is how this affects your life. If the price of my favorite snack doubled, and the price of broccoli dropped 50%, my costs are rising. The price of broccoli could drop 99%, and I still wouldn't buy it.

While planning for retirement, most of us planned for a 2% inflation rate and anticipated earning 6% on our portfolio. That was a nice retirement plan while it lasted, but it won't do much good for anyone now.
Another old-line "rule" was: a retiree could safely use 4% of his portfolio every year to supplement Social Security, and still be fine for the rest of his life. Where did the math come from? If your portfolio grew 6% every year and you took out 4%, the remaining 2% covered any loss to inflation. It was really that simple, and it worked just fine for me in my early retirement years.

We have all heard the old rule, "Live off the interest and never touch the principal." That is exactly what we were doing, while also protecting that principal from inflation.

Now comes the scary part. If the real rate of inflation is anywhere near the Money Forever Reader Poll Inflation Rate of 8%, how much can we take out of our portfolio every year without losing buying power? The math is still simple, but with a frightening answer: nothing, unless you earn more than 8%.

The problem is easy to understand, but the solution is tough to implement. If we want that same 4% to supplement our Social Security checks, we need to earn 12% on our portfolio every year – 8% for inflation and 4% for income. And this does not even factor in taxes. Those of us with a traditional IRA who are over 70 1/2 years old are required to take a minimum distribution, which can come with a nice tax bill.

Imagine that you have a $1 million portfolio, and your goal is to keep up with the Money Forever Reader Poll Inflation Rate and earn 4% income to supplement your Social Security checks. That's $120,000. To maintain a somewhat conservative posture, we recommend 30-33% of your portfolio be in cash, which pays little if any interest; let's assume cash pays 0% for the moment. That means you must earn 17.1% on the remaining $700,000 to reach your goal of $120,000.

That return can come in the form of an income check, dividends, and stock appreciation. Whatever the source, that's a pretty tall order. And it's particularly daunting when you consider that anyone close to retirement age should make minimal high-risk investments. We can't bet it all on a speculative stock, hoping to catch the next Internet startup success story.

Finding the Strength to Strangle the Nemean Lion

The Money Forever team is on the lookout for solid companies that not only pay dividends, but also have a history of regular dividend increases. In the last quarter, three of the stocks in the Money Forever portfolio increased their dividends. It is highly unlikely that most of us will live long enough to see our dividends equal 50% of our investment (which is what Warren Buffett receives from Coca-Cola, according to what I've read). However, if a company is currently paying 4%, it won't take too long to see an 8% yield. Once our dividend yield is at or above the inflation rate, we can factor in appreciation and start gaining ground on the inflation monster once again.

While dividend-paying stocks will get us on the right track, there's still more work ahead. Dividends alone are not enough; we also need stock appreciation. If you subscribe to our premium publications, it may be a good time to review our special report, Money Every Month, where we discuss this in great detail. As of today, over half of the stocks in our portfolio have double-digit gains. While we are proud of what we have accomplished to date, we also understand that the current market could change any minute. We have to remain vigilant. Stocks with a long history of increasing their dividends plus a good history of appreciation are hot tickets. Perhaps this is part of the reason why the stock market is doing so well in a tough economy.

Alternative sources of income can also help. Two of our recent Money Forever premium issues focused on annuities and reverse mortgages. Under the right circumstances, as we outline in our reports, these can be valuable alternatives for filling your cash-flow gap. Nevertheless, please consider all of the risks and cautionary tales included in our reports before purchasing an annuity or signing a reverse mortgage. One seemingly simple mistake – like neglecting to put your spouse on a reverse mortgage – can be devastating.

So can it be done? Can we really build a portfolio that will stand up against the current rate of inflation? Sure; but we have to stay on top of our investments and continue to educate ourselves. "Set it and forget it" won't work.

From the Stadium to the Golf Course

For many of us, cutting back on expenses is very difficult. It can feel like part of our retirement dream is going up in smoke. We have friends who planned to take summer and winter cruises every year after they retired. They thought they had the money to do it, but now they have to cut back. They do not enjoy their driving trip to the local state park nearly as much as they do a cruise.

One of the respondents to our survey mentioned that he cut back on golf from three days to two days a week. Our good friend Phil addressed his golf situation in a unique manner. For several years he had volunteered during spring training for a major league baseball team. Then the local golf course advertised for part-time help. He inquired; the job sounded like fun, and he negotiated complimentary greens fees as part of his package. For him it is the best of both worlds. Now he has a little extra income, his golf expenses are radically reduced, and he still is able to golf regularly, something he really enjoys. And yes, the baseball team is going to have to recruit another free laborer. Somehow, I think they'll manage!

I'm realizing we all have to come to grips with the reality described by our reader at the beginning of today's article. While it may be difficult for all of us, we are old enough to know that putting things off only makes problems get worse faster. It's like our own personal fiscal cliff, but we can't keep running the printing press and ignoring the real problem.

My oldest daughter, also a baby boomer, went to a class on personal financial management about ten years ago. I asked her what she thought the biggest lesson was. Her response surprised me:

"The first thing to deal with is your expectations. If you want a lot of stuff, and currently do not have the income to pay for it, you must find ways to increase your income. If that is not possible, then you must learn to adjust your lifestyle and be happy with what you have, living within your means. Dad, they stressed that part of being truly happy is the realization that your neighbor may have more or less than you do and it makes no difference. Personal financial management is as much an adjustment of your attitude as it is an adjustment of your spending habits."

In retrospect, that class had a major effect on her life. She is a grandmother now, and she and her husband have a truly happy family. I believe it was philosopher William James who said, "Human beings can alter their lives by altering their attitudes." That sentiment certainly rings true.

OK, you get the point, but you may not like it. Neither do I, and neither do the millions of our peers in the same predicament. So what should we do? To start with, everything I just mentioned, which is quite a task. Become an active investor, learn, and adjust to the new market. We must protect our nest eggs and look for solid income opportunities. We must look at our spending habits and see where we can cut back. Every dollar we save takes a little pressure off our portfolio and the need for it to produce income.

Also, don't discount finding other sources of income. Write the book you've been dreaming about – turn your hobbies into a profit. I have a buddy who worked in the auto industry. Dealers often sell a car they do not have in inventory if there is one at a nearby dealer they can trade for. He set up a business helping dealers move vehicles around. He loves it because he stays active, and he says he had to learn zero new skills. His comment was, "Where else can I get a part-time job where I get paid to drive around listening to a ball game?"

You, dear readers, drove home the point for me with your feedback to our survey. If we need 12% or so to protect our nest eggs, then we all have to accept that challenge. If we have a really good year, we can grow our nest eggs and increase our buying power. If we fall short, we must keep erosion to a minimum.

The last time I ran a retirement planning computer program, it said I would be fine as long as I passed away before age 125. In a bad year that may slip to 115. We are all in this together, and I'm committed to making sure Miller's Money Forever lives up to its name.

One final thought…

My overriding point is that we have to take control of our retirement finances. Like I said earlier, the days of "set it and forget it" are gone. The upside here is that we can actually secure our retirement. Together with thousands of subscribers we're doing just that. One way to start is with our free Money Every Month plan outlining how to invest so you’re getting income every month.  Click here to find out more about this plan.
 

The 2 Energy Sectors You Should Invest in This Year

The “Secret” – and More Profitable – Sector of Natural Gas Stocks: Why NOW Is The Time to Buy Them

From guest analyst Keith Schaefer

This is what I call the “shopping season” for natural gas stocks. And even though I’m a longer term bear on natural gas, there is one part of the natural gas market that is not well known, I think mis-understood, and potentially mis-priced. As a result, I think it could make me money this year, and I think now is the time for me to be buying this little subset.

The reason for these purchases NOW is that every year, summer is the weakest time of the year for natural gas and sets up an annual trade for natural gas stocks, buy in June-August, sell in December-January when North American heating demand should have natural gas trading at its year highs.

Last year gas stocks languished badly through the summer, forcing fire sales on assets and it took every bit of goodwill the bankers and producers (in Canada) had for each other for some of these companies not to go bankrupt. But September 2009 saw a large seasonal jump in natural gas prices, they roughly doubled from $2.50/mmcf to $5 in January 2010, despite fundamentals remaining poor. And there was a great 4 month trading rally.

However, natural gas prices in the US and Canada actually turned up last week, enough to get the market excited. I see that the market wants this trade to work so desperately. I am not bullish intermediate or even long term on natural gas, so I expect that if there is a rally in gas, it will just be a traders rally. But like I said, last year gave investors a fantastic seasonal rally in natural gas stocks, as long as you sold in January, the seasonal high.

As a trader, natural gas does have some positive things going for it besides seasonality:

1. Technically, it had a minor breakout this week. The 28 week moving average for natural gas this week was $4.52. This is just my sense but as the price neared that level, more speculative fever came into the market that it would break through this level, and when it did, natural gas got a pop. And the Canadian market followed suit in sympathy.
2. The market is clearly willing to bid natural gas up on weekly injections that are only a bit smaller than last year.
3. It’s possible that at some point in the coming weeks the cumulative amount of gas going into storage will slip below last year, and the market could take that as a bullish point to move up the gas price. US gas is only about 2% above last year’s storage levels at this time. (See chart below).
4. And US gas prices will certainly get an emotional boost whenever the first hurricane is named.
5. Coal prices are trending higher, making natural gas more competitive in some areas.
6. US gas demand is up year over year and crude inventories are declining.
7. The blowout of a US gas rig in Marcellus shale could bring in new drilling regulations increasing the cost and time to get wells into production.

So I’m going to establish some small starter positions in producers in one particular subsector of the natural gas market – that is potentially mispriced by the market. All boe (barrels of oil equivalent) are not created equal.

Now, as usual with the stocks in my portfolio, these companies also have large undeveloped land packages, and are low cost producers. I’m not making any big bets yet, but subscribers will see where I’m going and can decide their own comfort level and timing.

In my next article, I’m going to tell you what this little known sector is, and why these particular natural gas companies are so much more profitable than their peers.

Read all of Keith Schaefer post at the "Oil and Gas Investments Bulletin"



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ExxonMobil CEO: Recovery Requires Stable Policies

The best way for government to kick start the economy is to provide a level playing field for competition and create stable policies that will enable long term investments, Rex Tillerson, chairman and chief executive officer of Exxon Mobil Corporation, said today. "Leaders in government and in business agree that we face an urgent need to revitalize our economy and spur job creation," Tillerson said in a speech to the Houston World Affairs Council, where he accepted the Jesse H. and Mary Gibbs Jones International Citizen of the Year Award.

"To achieve these goals, we must unleash the extraordinary power of private citizens to seize new opportunities in free markets. Industry can achieve this by taking risks, investing in the future, hiring new workers, expanding operations and making our economy more competitive. But we can only achieve this when government creates a level playing field for competition and upholds a stable policy framework conducive to long term investments."

Tillerson said America's businesses, both small and large, need to be able to plan for the future in order to make investments that will create badly needed jobs for the nearly one in 10 Americans who are unemployed and millions more who are underemployed or no longer seeking work. "Every business leader faces challenges in assessing the future, but in tough economic times government can help by keeping a steady hand on the rudder. If the private sector knows that government will stay the course and resist the temptation to over-regulate, it can invest with confidence." According to recent studies, the oil and natural gas industry contributes more than $1 trillion a year to the U.S. economy and directly and indirectly supports more than 9 million jobs.

"These economic contributions are even more important in light of the global economic downturn and the slow job creation of the nascent recovery," said Tillerson. "I believe our industry can, and must, be part of our national efforts to achieve more robust economic growth." Tillerson said much focus has been placed on the role small businesses play in job creation, but studies show that large corporations are also critical engines of job creation and employment. "As big businesses flourish, small businesses are created as the direct suppliers, contractors and providers of other services essential to the success of the larger businesses. With the right public policies, the energy industry and companies like ExxonMobil can lead the way back with our disciplined investments in new projects, new technologies, and new jobs."

Tillerson said that when government creates an environment where businesses can be creative, take risks, and grow, the private sector will repay that trust by creating millions of new jobs but also through unequaled acts of private charity and corporate citizenship. ExxonMobil's 80,000 employees are proud of their contributions in providing for social development, environmental protection and the company's most visible contribution, supporting economic growth and development by providing reliable energy, well paying jobs, tax revenues, technological innovation, and shareholder value. ExxonMobil's corporate citizenship efforts help communities achieve long term economic and social development, through programs focused on battling malaria, increasing economic opportunities for women and supporting improvements in science, technology, engineering and math education.

"We have a long record of going beyond our primary responsibility of delivering the energy that benefits our consumers, shareholders and business partners," said Tillerson. "As a company and as individuals, the men and women of ExxonMobil are dedicated to being good corporate citizens wherever we operate. We believe this ideal is so integral to our long term success that we have built it into our business model and our corporate governance. In other words, we believe our commitment to citizenship is fundamental to our year to year success as a company."

Just click here for your FREE trend analysis for ExxonMobil stock....ticker XOM

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President Obama - New Wildcatter or Bait 'n Switcher?

On the last day of March, President Obama went to Andrews Air Force Base in Maryland to stand in front of an F-18 jet fighter called the Green Hornet, which is scheduled to fly powered by biofuel later this year, and announce he was recommending lifting offshore drilling curbs. The symbolism of pushing for more offshore drilling while highlighting biofuel for military jets was not lost on all observers. The announcement, when fully dissected, showed the administration made concessions in areas where they were destined to lose court cases, but they may actually be slowing down future offshore drilling. Yes, President Obama says he wants to open the East Coast waters from Delaware south to central Florida for offshore exploration, but ultimately it all depends on Congress signing on to the plan.

The administration made concessions in areas where they were destined to lose court cases, but they may actually be slowing down future offshore drilling. The staging symbolism was highlighted by the president's comments. In talking about his decision to open new coastal regions to offshore exploration, he said, "The bottom line is this: given our energy needs, in order to sustain economic growth we are going to need to harness traditional sources of fuel even as we ramp up production of new sources of renewable, homegrown energy."

In reality, the offshore drilling announcement was designed to win a few Republican senate votes for the potential energy bill being drafted by Senators John Kerry (D-MA), Lindsay Graham (R-SC) and Joseph Lieberman (I-CT). The legislation they are writing is designed to attack carbon emissions through cap-and-trade on a sector by sector basis rather than economy wide. That means the utility industry will have one set of regulations implemented on a certain date while refiners would have a slightly different set of regulations and a different date and manufacturers would have yet another set of regulations and implementation date.....Read the entire article.





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