Tuesday, February 10, 2015

Wall Street Double Talk and Double Opportunity of Falling Oil Price

By Tony Sagami

The stock market has developed a new type of love-hate relationship with the price of oil. In the past, falling oil prices were treated as an economic positive because they freed up more money for Americans to spend on other things, such as dining out or clothing. However, the steep plunge in oil prices has triggered a reverse psychology reaction on Wall Street: falling oil prices are bad because they signal a slowing global economy.

An even bigger head scratcher is the convoluted reaction that rising oil prices are good for the economy. Go figure.

Wall Street’s collective reaction, silly or not, is important because oil prices are what is currently driving the ups and downs of the stock market. And if you can divine the future direction of oil prices… you’ll find yourself on the right side of the stock market roller coaster.

What do I see when I connect the dots? That oil prices will fall even further.

Connecting the Dots #1: Helmerich & Payne. Helmerich & Payne is the largest lessor of oil rig drilling platforms in the US and recently announced that it would lay off up to 2,000 workers and chop its rig construction pace from four to two new oil rigs a month.


Moreover, Helmerich & Payne said that its active rig count has slid from 297 at the end of Q3 2014 to less than 200 today. “The rig count reduction thus far has been more swift than many expected,” said CEO John Lindsay.

And the price that H&P is receiving on that smaller amount of working rigs is falling. The daily revenue per rig is expected to average $27,000 to $27,500 this quarter, well below the $29,457 it received last quarter.

Connecting the Dots #2: Oil Pros Take Flight. For the week ending January 27, noncommercial traders increased their bets for oil prices to fall even more by adding 22,771 short contracts.


NOTE: Investors who use futures as hedges are called “commercial traders” while those who trade for speculation are called “noncommercial traders.”

The professional traders in the commodities pits make mistakes like the rest of us… but they’re right enough to make a living at it, so it’s dangerous to bet against them.

Connecting the Dots #3: Baker Hughes. In the last week of January, U.S. oil producers shut down 94 drilling rigs, which is the largest one week shutdown in 28 years!


That leaves 1,233 active rigs in North America—a three-year low.


Connecting the Dots #4: Supply Glut. The US Department of Energy reported that crude-oil stockpiles reached 406.7 million barrels in January, the highest level since the government started keeping records in 1982.


Higher supplies wouldn’t be an issue if demand were keeping pace, but thanks to improved drilling technology (fracking), the US is now awash in oil.

Connecting the Dots #5: USW Strike. Adding to the oil-patch pain, the strike of 3,800 members of the United Steelworkers union from nine refineries and chemical plants that process roughly 10% of US gasoline, diesel, heating oil, and jet fuel.

There are many ways to profit from falling oil prices, such as airlines and trucking stocks, but the most profitable is by betting against the companies that supply oil drilling equipment.

The Philadelphia Oil Services Index (OSX) is a price-weighted index composed of 15 companies that provide oil drilling and production services, oil field equipment, and support services.


If you’re confident that oil prices are headed lower, you can buy put options on the OSX index. And if you’re right… you’ll make a bundle. For example, my Rational Bear subscribers made over 200% in a few short weeks.

I’m not suggesting that you rush out and make big bets on oil prices tomorrow morning. As always, timing is everything, so wait for my next signal; but I am very confident that the profits of oil services companies are headed for the toilet.

Tony Sagami
Tony Sagami

30-year market expert Tony Sagami leads the Yield Shark and Rational Bear advisories at Mauldin Economics. To learn more about Yield Shark and how it helps you maximize dividend income, click here.

To learn more about Rational Bear and how you can use it to benefit from falling stocks and sectors, click here.



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Saturday, February 7, 2015

Weekly Crude Oil and Gold Futures Recap with Mike Seery

It's time for our weekly commodity futures recap with our trading partner Mike Seery. He has been Senior Analyst for close to 15 years and has extensive knowledge of all of the commodity and option markets. And frequently appears on multiple business networks including Bloomberg news, Fox Business, CNBC Worldwide, CNN Business, and Bloomberg TV. He is also a guest on First Business, which is a national and internationally syndicated business show.

Crude oil futures in the March contract finished up around $1.50 a barrel closing around 52.00 after settling last Friday at 48.24 experiencing one of the best rallies we’ve seen it many months as prices are trading far above their 20 day moving average as I have not been able to say that in 6 months but still below their 100 day moving average which stands at $64 a barrel as I am neutral this market as I was recommending anybody who was short to place your stop at the 10 day high which was 49.20 as that stop was very beneficial as prices have rallied over $3 since that level was hit.

Volatility in crude oil is absolutely astronomical with prices moving 5/7% on a daily basis so please avoid this market as the volatility and the risk is out of control at the current time so wait for better chart structure to develop allowing you to place tighter stops minimizing risk and that could take some time as I don’t see the volatility slowing down anytime soon.

The U.S dollar was up 120 points today but had no effect on crude oil prices as crude is now trading right near a 4 week high, however the chart structure is terrible as the 10 day low is about a $9,000 risk from today’s price levels as that is too much risk in my opinion, however keep a close eye on this market because in a couple of days that could change as a trader I’m strictly a trend follower and if this market starts going up I will be bullish and if the market starts to go down breaking $44 I will be bearish but right now I can’t stress enough to look at other markets and avoid this market like the plague.
Trend: Mixed
Chart structure: Awful

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Gold futures in the April contract are down $27 on Friday afternoon in New York due to the fact of a very strong U.S monthly unemployment report pushing prices to a 3 week low as I’ve been recommending a long position in gold when prices broke above 1,245 and if you took that trade it’s time to exit today as prices are at a 3 week low as prices now are trading below their 20 but above their 100 day moving average telling you that the trend is mixed. Gold futures settled in the April contract at 1,279 while currently trading at 1,236 down about $43 for the trading week as the Dow Jones was up over 800 points this week as money is flowing out of the precious metals and into equities once again.

Silver futures are also down $.50 as the U.S dollar is up a whopping 100 points this Friday putting pressure on many of the commodities once again as extreme volatility is happening throughout the commodity and stock sectors sosit on the sidelines in this market as I’m disappointed that we gave back our profits and actually ended up losing slightly on this trade but that’s what happens sometimes when you trade a system as you must stick to the rules as this market fizzled out very quickly.

Gold prices have rallied from 1,130 which was around the contract low all the way above 1,300 which happened just a couple weeks ago and now has sold off about $70 as the trend is mixed and I do not like choppy markets as we probably will be sitting on the sidelines in the gold market for at least 4 to 6 weeks waiting for better chart structure to develop because the risk is too high as there is no trend as choppy markets are extremely difficult to trade.
Trend: Mixed
Chart structure: Poor

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Thursday, February 5, 2015

Procter & Gamble, the Strong Dollar, and Pepto Bismol

By Tony Sagami


Applied Materials. Boeing. Coach. Ford. Intel. McDonald’s. Nike. Pfizer.

What do those household name companies have in common? Not much, other than that a huge part of the sales come from outside the US.

Really, really huge.

Collectively, the 500 companies in the S&P 500 get 46% of their sales and roughly 50% of their profits from outside the US. They are truly multinational giants.

Expanding your customer base is always a good thing, but doing business overseas is not without peril, and one of the under appreciated perils is the impact of currency movements. A stronger dollar can hurt companies that do a large share of their business overseas because sales in other countries translate back into fewer dollars.

Just ask Procter & Gamble, which reported their Q4 results last week.


P&G sold $20.16 billion of toothpaste, laundry detergent, diapers, toilet paper, and razor blades last quarter, but that was a 4% decline from the same period a year ago.

Worse yet, profits plunged by 31% to $1.06 per share, which was not only well below the $1.13 per share Wall Street was expecting but also a horrible 31% year over year drop. That’s bad.

What’s behind those terrible numbers? The U.S. dollar.

“The October-December 2014 quarter was a challenging one with unprecedented currency devaluations,” said CEO A.G. Lafley.

The US Dollar Index was up 13% in 2014 and is now near a 9-year high. That strong dollar is a big millstone around the neck of US exporters, whose products are now more expensive for foreign buyers as well as negatively affecting profits once those foreign sales are converted back into US dollars.


Worse yet, Lafley said the environment will “remain challenging” in 2015.

The US dollar is now at a 9 year high and threatening to go higher. Much, much higher. By historical standards, the US dollar is still cheap and expected to go higher by many observers, including Procter & Gamble.

P&G warned Wall Street that its 2015 sales will fall by another 5% and its 2015 profits will shrink by another 12%.

Think about those two numbers: 5% lower sales and 12% lower profits.

The strong dollar is a big problem for P&G because it gets roughly two thirds of its revenues from outside the US, so it’s more affected by the strong US dollar than most companies, but P&G is far from alone when it comes to currency woes.

The line of companies that have warned that the strong dollar is hurting their profits is getting longer and longer. Microsoft, Pfizer, McDonald’s, Caterpillar, United Technologies, Emerson Electric, 3M, and even Walmart have warned that the rising dollar is depressing their profits.

What does this mean to you? That a LOT more companies are going to report lower than expected sales and profits in 2015 and those that do will see their stock get hammered, just like P&G.

The problem is that Wall Street is blind to this profit-crushing trend.

In 2014, the S&P 500 companies collectively earned $117.02, and the median forecast of Wall Street strategists for 2015 S&P 500 earnings is $126, which is an optimistic 7.6% growth in earnings.

Unless you think that Procter & Gamble is an isolated island of trouble (and it’s not), you should be very worried that Wall Street is grossly underestimating the profit crushing impact of the strong dollar as well as grossly overestimating corporate America’s earnings growth.


That massive disconnect between reality and the Wall Street dream world is going to translate into some very tough times for stock market investors. If you haven’t added some defense to your portfolio… you may need lots and lots of a popular Procter & Gamble product: Pepto Bismol.

Tony Sagami
Tony Sagami

30 year market expert Tony Sagami leads the Yield Shark and Rational Bear advisories at Mauldin Economics. To learn more about Yield Shark and how it helps you maximize dividend income, click Here. To learn more about Rational Bear and how you can use it to benefit from falling stocks and sectors, Click Here.



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Tuesday, February 3, 2015

2015 Outlook: What You Really Need to Know

By Jeff Clark, Senior Precious Metals Analyst

In the January issue of BIG GOLD, I interviewed 17 analysts, economists, and authors on what they expect for gold in 2015. Some of those included what we affectionately call our Casey Brain Trust—Doug Casey, Olivier Garret, Bud Conrad, David Galland, Marin Katusa, Louis James, and Terry Coxon. The issue was so popular that we decided to reprint this portion.

I think you’ll find some very insightful and useful reading here (click on a link to read his bio)…..

Doug Casey, Chairman

Jeff: The Fed and other central banks have kept the economy and markets propped up longer than you thought they could. Has the Fed succeeded in staving off crisis?

Doug: I’m genuinely surprised things have held together over the last year. The trillions of currency units created since 2007 have mostly inflated financial assets, creating bubbles everywhere. There’s an excellent chance that the bubble will burst this year. I don’t know whether it will result in a catastrophic deflation, extreme inflation, or both in sequence. I’m only sure it will result in chaos and extreme unpleasantness.

Jeff: Are we still going to get rich from gold stocks? Or should we face reality and start exiting?

Doug: The fact so many people are discouraged with gold and mining stocks is just another indicator that we’re at the bottom. Gold and silver are now, once more, superb speculations. And I think we’ll see some 10-to-1 shots in gold stocks—if not this year, then 2016. I can afford to wait with those kinds of returns in prospect.

Olivier Garret, CEO

Jeff: The crash in the general markets we warned about didn’t materialize. Have those risks dissipated, or should we still expect to see a major correction?

Olivier: Last October the risk of a very severe market correction was indeed very serious; hence our call to subscribers to batten down the hatches, tighten their portfolios, and have cash and gold on hand. We warned of further downturn across all commodities, including oil. We also highlighted the dollar would be strong and that an excellent short term speculation was to be long 10 to 30 year Treasuries, as they would be considered a safe haven.

Let’s look at where we are today. Clearly, the S&P did not extend its correction after its initial dip in mid-October. In light of the possibility of a perfect storm coming, the Fed announced that it may not end QE in early 2015 as anticipated if the economy failed to continue to pick up. Then the Bank of Japan announced its version of QE infinity, followed by the largest Japanese pension fund’s decision to invest in equities worldwide.

The bulls were reassured and came back with a vengeance; the crash was averted. That said, fundamentals are still very weak, and market growth is concentrated within the largest-cap stocks. Mid- and small-caps are hurting, and many economic indicators are still concerning.

Jeff: What about lower energy prices—aren’t these good for the economy?

Olivier: In theory, yes. In practice, there is another crisis brewing. Most of the development of new shale resources in the US has been financed by debt based on oil prices of $80 and above. This easy debt was immediately securitized, just like home mortgages were in 2003-2006, and we have a monstrous bubble about to pop with oil around $55. The potential risk of another derivative crisis is as high or higher than in 2007.

Jeff: Does that mean the inevitable is imminent?

Maybe, maybe not. We know central bankers will do whatever it takes to provide liquidity to the markets. That said, I do not believe central bankers are wizards endowed with supernatural powers that enable them to stem all crises. Bernanke told us in 2007 and 2008 that there was no real estate crisis and that he had everything under control—will Janet Yellen be better?

My view is that our subscribers should be prepared for the worst and hope for the best. Sacrifice a bit of performance for safety, and use money you can afford to lose to speculate on opportunities that could bring outsized upside. I believe subscribers should continue to hold cash (in dollars), gold (the ultimate hedge against crisis), and stocks in best-of-breed companies that are unlikely to collapse during a financial meltdown.

For speculations, I still believe that we should be invested in the best gold producers, in well-managed explorers with good management and first-class resources, in long-term Treasuries, and top-quality tech companies.

Jeff: As a former turnaround professional, what would signal to you that the gold market is about to turn around?

Olivier: Two things: market capitulation, and valuations for the best companies not seen in decades. The cure for low prices is low prices.

Cyclical markets do turn around, and I would rather buy low and hold on until the market turns around than buy in the later stage of a bull market. At this point, the gold market presents amazing value for the patient investor. In my opinion, that is all that matters. The gold market may take longer than I want to turn around, but I know I am near an all time low.

Bud Conrad, Chief Economist

Jeff: What role do big banks and government currently play in gold’s behavior? Is this role here to stay?

Bud: I’ve looked at the huge demand for gold from China, Russia, India, and private investors and been surprised the price has eroded over the last three years. My explanation is that the “paper gold futures market” sets the price of gold, with very little physical gold being traded. There are two parts of futures market trading: one is the minute by minute trading of only paper contracts that dominate 99% of the trading, in which every long position is matched by a short position. That is why the futures market is called “paper gold.”

Almost all trades are unwound and rolled over to another contract. Only a few thousand contracts are held into the second process, called the “delivery process.” Just a handful of big banks dominate that delivery process, so they are in a position to affect the market. There is surprisingly little physical gold used in the delivery process compared to the 200,000 ongoing paper trading of the contracts not yet in delivery every day, where no physical gold is used.

Big players can place huge orders to move the “paper price” for a short term, but eventually 99% of these paper positions are unwound before delivery, so their effect in the longer term is canceled. The delivery process is the only time where physical gold is actually sold (delivered) or purchased (stopped). The gold price can be influenced in one direction in this process by bringing gold to the market from their own account (or the reverse).

Big banks gain a big benefit from the Fed driving their borrowing rate to zero with the QE policy. Banks lend that money at higher rates and have become very profitable. If gold were soaring, then the Fed would be less inclined to keep rates low, as it would be concerned that the dollar is purchasing less and inflation is returning. So banks are happy to have the gold price contained so the Fed is more likely to keep rates low.


The above chart shows that in the delivery process for the December 2014 contract, only three banks—JP Morgan, Bank of Nova Scotia, and HSBC—handled most of the transactions. Big banks can act as either traders for other customers or as trading for the banks themselves in their in-house account. In the December contract, 90% of the gold was purchased by HSBC and JP Morgan for themselves, and Bank of Nova Scotia provided over half of the gold from its in house account. With so few players, the delivery market is prone to being dominated and price being set.

Jeff: So if the big players influence the market, why should we own gold?

Bud: I see the regulators issuing big fines to banks who have been caught manipulating foreign exchange, LIBOR, and even the London Gold Fix (which is being changed) as evidence that the methods used to influence the futures market will be curtailed by the regulators. So gold will become the recognized alternative to paper money issued in excessive amounts to fix whatever problems the governments want.

I also see the collapse of the petrodollar as leaving all currencies in limbo, which will lead to big swings in the currency wars, where ultimately gold will be the winner. Governments themselves are recognizing the value of gold, as I’m sure Russia does after the ruble collapsed in half since last summer.

David Galland, Partner

Jeff: What personal benefits have you achieved from living in Argentina?

David: Most important, my stress levels have fallen significantly. Even though I wouldn’t consider myself a high stress type, I used to be on meds for moderately high blood pressure and for acid reflux… both of which I take as signs of stress. After a few months back in Cafayate, I am med-free.

Second, living in the Argentine outback provides perspective on what actually matters in life. Life in Cafayate is very laid back, with time for siestas, leisurely meals, and any number of enjoyable activities with agreeable company. There is none of the ceaseless dosing of bad news that permeates Western cultures. After a week of unplugging, you realize that most of what passes as important or urgent back in the US is really just a charade.

Finally, my personal sense of freedom soars, as life in rural Argentina is very much live and let live.
In sharp contrast, returning to the USA for even a short visit reveals the national moniker “land of the free” as blatant hypocrisy. There are laws against pretty much everything, and worse, a no-strikes willingness to enforce them. That a person can get mugged by a group of police over selling loose cigarettes tells you pretty much everything you need to know.

Jeff: Gold and gold stocks have been hammered. What would you say to those precious metals investors sitting on losses?

David: I doubt anything anyone can say will prove a panacea for the pain some have suffered, but I do have some thoughts. Like many of our readers, I have taken big losses as well, but because I have long believed in moderation in most things, especially the juniors, I have taken those losses only on smallish positions.

Specifically, about 20% of our family portfolio is in resource investments, with about half in the stocks and the rest held as an insurance position in the physical metals, diversified internationally. So a 70% loss on 10% of our portfolio, while painful, is not the end of the world.

I guess my primary message would be to continue to view the sector for what it is: physical metals for insurance, and moderate positions in the stocks—big and small—as speculative investments.

I remain convinced the massive government manipulations that extend into all the major markets must eventually begin to fail, at which time investors will come back into the resource sector in droves. When the worm begins to turn, I anticipate the physical metals will recover first—and $1,200 gold is starting to look like a fairly solid foundation. The BIG GOLD companies, which I’m starting to personally get interested in, will rally soon thereafter.

When the producers decisively break through resistance levels on the upside, it will be time to refocus on the best juniors.

But regardless, per my first comment, while these stocks can offer life-changing returns, being highly selective and moderate in the size of your positions is the right approach. Then you can sit tight and wait for the market to prove you right.

Marin Katusa, Chief Energy Investment Strategist

Jeff: I loved your book The Colder War. And I liked your concluding recommendation to buy gold. Are events playing out as you expected? And does the fall in the oil price change the game at all?

Marin: First off, thank you. A lot of personal time was spent completing the book. And yes, most of the events are playing out as expected in the book. I expect this trend to continue over the next decade, as the Colder War will take many years to play out.

As I stated to all our energy subscribers and to attendees at the last Casey Conference in San Antonio, we expected a significant drop in oil prices, but it has happened a lot faster than I expected. I think we will continue to see volatility in oil; we’ll probably get a rally to the mid-$60s for WTI, but I think it will hit $45 before January 1, 2016.

This definitely makes Putin’s strategy harder to implement—but we are in the Colder War, not the Colder Battle, and wars are made of many battles. Putin’s strategy is still being implemented, and it will play out over many years.

Jeff: You’re calling for the end of the petrodollar system. This is very bullish for gold, but won’t that process take many years? Or should investors buy gold now?

Marin: The process is well underway, and yes, as I point out in the book, the demise of the petrodollar will take many years—but it will happen.

Each investor must evaluate his position and situation, but I don’t believe anyone knows when the bottom in gold will happen, and I see gold as insurance. You never know exactly when you need health insurance, but speaking from personal experience, it’s good to have, and good to have as much as you can afford, because when you need it, trust me, you won’t regret it.

Resources are in the “valley of darkness” right now—but this is part of the cycle. The key is portfolio survival. If you can get to the other side, the riches will be much greater than you can fathom. I’m speaking from personal experience. I’ve been through this before, and while it was stressful, what happened on the other side blew away my own expectations. We are in a cyclical business, and this bottom trend has been nasty—longer and lower than most have expected—but I am excited, because this is what I have been waiting for and what will take my net worth to a new level.

I see no difference in the outcome for yourself, Louis James, and all of those who follow you and survive to the other side. I believe there will be significant upside in gold stocks, especially certain junior gold explorers and developers. Subscribers are in good hands with you and Louis in that regard, and I always read my BIG GOLD and International Speculator when I get the email, regardless of where I am—the most recent being in an airport in Mexico. Keep up the great work, Jeff; even though it’s a difficult market, you’re doing the right things. It will pay off—maybe not on our desired schedules, but it will pay off.

Louis James, Chief Metals & Mining Investment Strategist

Jeff: The junior resource sector tends to progress in cycles. Is the current down cycle about over, or should investors expect the recovery to drag out for several more years?

L: That’s essentially a market timing question—literally the million-dollar question we all wish we could answer definitively. That’s not an option, and I’m sure your readers know better than to listen to anyone who claims to be able to time the market with any precision or reliability.

That said, I don’t want to dodge the question; for what it’s worth, Doug Casey and I both feel that gold has likely bottomed. Yes, it’s true that I felt that December 2013 was the bottom—but it’s also true that most of our stocks are up since then. So, gold may have put in a double bottom, but our stocks outperformed the metal and the market.

Either way, if we’re right, the next big move should be upward, and that’s as good for BIG GOLD readers as it is for International Speculator readers.

I should also add that precious metals are not just “resources”—gold is money, not a regular commodity like pork bellies or corn. It’s the world’s most tested and trusted means of preserving wealth. So even though resource commodities tend to move as a group in cycles, gold and silver can be expected to act differently during times of crisis.

And 2015 looks fraught with crises to me… I am cautiously quite bullish for this year.

Jeff: Where will gold speculators get the biggest bang for their buck in 2015?

L: If you mean when, statistically the first and fourth quarters of the year tend to be the strongest for gold, making now a good time to buy.

As to what to buy, it depends on whether you want to maximize potential gains or minimize risk. The most conservative move is to stick with bullion, which is not a speculation at all, but a sort of forex deal in search of safety. For more leverage with the least amount of added risk, there’s the best of the larger, more stable producers that you recommend in BIG GOLD. For greater wealth-creation potential, as opposed to wealth preservation, there are the junior stocks I follow in the International Speculator.

As to where in the world to invest, I’d say it’s easier to get in on the ground floor investing in an exploration or development company working in less well-known countries—you always pay more of a premium for North American projects where the rule of law is well established. That’s obviously riskier too, but that doesn’t mean you have to go to a kleptocratic regime with a history of nationalization. There are stable places off most investors’ radars, like Ireland and Scandinavia. Africa plays may be oversold in the wake of the Ebola outbreak, but that story isn’t done yet, so even I am waiting before going long there again.

Terry Coxon, Senior Economist

Jeff: In spite of profligate money printing over the past six years, there’s been minimal inflation. Should we give up on this notion that money printing causes inflation?

Terry: No, you shouldn’t. As Milton Friedman put it, the lags between changes in the money supply and changes in prices are “long and variable.” I’m surprised we haven’t yet seen the inflationary effects of a better than 60% increase in the M1 money supply. But the Federal Reserve has essentially guaranteed that those effects are coming, since they are committed to keep printing until price inflation shows up. And when it does appear, the delayed effects of all the money creation that has occurred to date will start to take hold. There won’t be “just a little” inflation.

Jeff: What do you watch to tell you the next gold bull market is about to get underway?

Terry: Beats me. I won’t know it is happening until it’s already started. But because high inflation rates are already baked in the cake, so is another strong period for gold. That’s a reason to own gold now, and the reason is compelling if you believe, as I do, that there’s little downside. At this point, given the metal’s weak performance since 2011, virtually everyone who lacks a clear understanding of the reason for owning it has already sold. So it’s safe to buy.

 10 other analysts were also interviewed, plus Jeff recommended a new stock pick. Tomorrow’s BIG GOLD issue has another new stock recommendation—an exciting company that has the biggest high-grade deposit in the world. Now is the time to buy, before gold enters the next bull market!

Check it Out Here

The article 2015 Outlook: What You Really Need to Know was originally published at caseyresearch.com.


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Monday, February 2, 2015

Marin Katusa: 199 Days of Hell

By Marin Katusa, Chief Energy Investment Strategist

Just after I signed the publishing agreement for my first book, The Colder War, I realized how much research I was going to end up doing, specifically in areas that I never thought would be so integral to my subject area: energy and mining. Along the way, I came across some fascinating events that were completely out of my area of expertise but gave me a better sense for the unintended consequences in an historical perspective of the events that led to where we are today.

One epic event that really stood out for me, which I will discuss today, is the bloodiest battle of all time, to my knowledge. Over 2 million soldiers and civilians died in this one battle that lasted 199 days from start to finish. (If you know of one particular battle—not a war—that had more deaths, I would love to hear about it)

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What was the catalyst for the bloodiest and most horrible battle of all time? Oil. Before I get into why it was, I want to present the events that led up to this epic battle.

In 1939, Hitler and Stalin signed the German-Soviet Nonaggression Pact. Hitler focused on Western Europe and on defeating France by the mid 1940s, he became rattled by Soviet expansion in the East, which by this time included the occupation of the Baltic states (now Estonia, Latvia, and Lithuania) by the Soviets.

The Day That Changed the World


A critical, often forgotten event (especially by the French) occurred on June 22, 1940. That was the day the French surrendered to the Nazis and signed the armistice. Four days later, the Soviet Union made a decision that ended up becoming one of the critical turning points of WW II.

Initially, the Soviets planned on annexing parts of Romania via full-scale invasion. Sound familiar? I’ll touch on Crimea later in my missive, but for now, stick with me—this gets very interesting.

However, the military masters of the Soviet Union recognized that with the fall of France, out went the French guarantee of security at Romania’s borders.

So rather than actually invading Romania, the Soviets sent an ultimatum to Romania: withdraw from our territories of interest—which were Northern Bukovina and Northern and Southern Bessarabia—and avoid military conflict with the Soviet Union. If not, the Red Army will invade.

Germany via the 1939 German-Soviet Nonaggression Pact recognized the Soviet Union’s interest in Bessarabia; thus Hitler became paranoid about the Soviet Union’s expansion from the east to Central Europe. But more specifically, Hitler feared the proximity of the Russians to the Romanian oil fields, which the Nazis depended on.

By early August 1940, these territories that Romania withdrew from made up the Moldavian Soviet Socialist Republic, and they were quickly folded into the Soviet Union.

By late 1940, Hitler made the decision that I believe was a critical turning point of WW II. Initially, Hitler planned on invading the Soviet Union in May 1941, but Yugoslavia and Greece got in his way, and his plans were delayed by five weeks until the Nazis defeated those armies in the Balkans.

The Russian winter came early in 1941, but Hitler believed that the Nazi Germany army was much superior to the Red Army (and they were more superior at the time) and that the Soviets would be defeated before November 1941.

The Nazis sent 3 million soldiers. Stalin met the Nazi offensive with over 5 million Soviet soldiers. I don’t know of a larger invasion in the history of mankind.

To put this battle in perspective, it’s the equivalent of battle lines spanning from Florida to New York (over 1,100 miles). Also, over 90% of all Nazi casualties in WW II were due to their invasion of the Soviet Union.
By late July 1941, the Nazis fought their way within 200 miles of Moscow; by this time, they had progressed over 400 miles into the Soviet Union in less than a month.

Initially, the Germans made incredible progress. However, heavy rains in early July hampered their speed as the terrain became a mud bath, and by this point, Stalin ordered a scorched earth policy, where the Soviet troops destroyed all infrastructure, burned all crops, and dismantled and evacuated all factories and equipment via rail to the east upon the Nazi advance.

As winter set in, the progress of the Nazis came to a standstill. On December 7, 1941, Japan bombed Pearl Harbor and subsequently, the United States joined the Allies and entered WW II.

Hitler was well aware that the biggest priority of the Americans upon entering WW II was to defeat the Nazis. He knew he had to bring a quick defeat to the Soviet Union and drastic measures had to be taken.
Hitler believed that rather than attacking Moscow (the heavily fortified capital of the Soviet Union), Germany should go after the Soviet oil fields in the Caucasus. For Hitler, the victory would result in a triple positive for Germany:
  1. Cut off the flow of oil to the Soviet resistance;
  1. Divert the oil produced from the oil fields in Caucasus for the Nazi cause and for future battles against the Americans; and
  1. Cut off Soviet access to the breadbasket areas of Ukraine.
To execute Hitler’s plan, the Nazis would have to control a key industrial city, which happened to be named after Soviet leader Joseph Stalin: Stalingrad (today known as Volgograd). The Nazis invaded, and Stalin threw everything the Red Army had at this battle, even refusing to allow the civilian population to be evacuated. He believed the soldiers would fight to their death if civilians were in the city.

He was right. Stalin’s ruthless orders worked. The Red Army, including civilians who worked in factories made up of men and women of all ages, put up a ferocious resistance doing whatever possible. The Germans had superior weapons, training, and land and air support. To put things in perspective, the average Soviet soldier, upon arriving to Stalingrad, had less than one day’s life expectancy.

The battle eventually evolved into concrete guerilla warfare within the city ruins. The Nazis captured 90% of the city by September 1942 and by this time, they took over 3 million Soviet prisoners of war, most of which never returned alive.

The Soviets’ luck changed on November 19, 1942, when they decided to launch Operation Uranus, which many at the time within the Red Army believed would be their last chance to defeat the Nazis. With 90% of Stalingrad under Nazi command, the Soviet plan was to swing multiple army troops around the Nazis and surround them. It worked.

Up to this point, Hitler publicly made announcements that the Germans would never leave Stalingrad. For most of the German soldiers, this proved to be true. Rather than having the German troops attempt a breakout (and going against Hitler’s promise of Germany never leaving Stalingrad), they were ordered to fight, even though they were running low on ammunition and starvation had set in within the German camp.

On January 31, 1943, German Field Marshal Friedrich Paulus surrendered to the Soviets. After the Nazi defeat in Stalingrad by the Soviets, it was only a matter of time before Germany lost the war. Hitler never got access to the oil fields, and over 2 million soldiers died.

Déjà Vu and the Butterfly Effect


Let’s reflect back to the events that followed. Hitler became paranoid about the Soviet expansion after the signed 1939 German-Soviet Nonaggression Pact.

Remind you of anything?

We see NATO today supplying military troops and land and air force in the Baltics for similar fears about Russian expansion. NATO sees Crimea today as a reminder of the Baltics’ situation in 1940. Ukraine is not in a civil war—let’s make that very clear. A civil war is defined as two or more groups fighting for control of the government. What’s going on in eastern Ukraine is not a civil war, but rather a war of secession; the two breakaway provinces don’t want to go to Kiev. Furthermore, NATO will not stand for a secession.

Putin is facing sanctions from the West and military force by NATO… not to mention that oil has dropped in half from over $100/bbl to under $50 a barrel in the last 12 months. Hitler’s decision, based on actions that essentially involved a small territory (now known as Moldova) sandwiched between Romania and Ukraine, resulted in the bloodiest battle of all time.

But behind the scenes there is always tension and momentum building and waiting for a catalyst to release the pressure that has built up. We have seen this many times in the past where an insignificant event on the global stage puts in motion events with shocking results. But there is always more behind the story than a “simple” catalyst or unconnected events.

The Arab Spring eventually brought to the global front a built-up dissatisfaction of many youths and lower-income people of human rights violations, dictatorships, absolute monarchy, extreme poverty, and many other factors. The catalyst for the protests in Tunisia was the self-immolation of Mohamed Bouazizi in 2010.
I recall a specific event I experienced in Kuwait in December 2010, where a Pakistani taxi driver shared with me his story of anger and contempt with the government of Kuwait. I asked him to be my driver for the week, mainly because he spoke English and had been in Kuwait for 10 years and knew his way around, but I also enjoyed his company.

But I got much more than I expected. He took me around Kuwait, where I saw the good, the bad, and the ugly. Every city in the world has those areas you will never see advertised in the travel guidebooks.

Kuwait—a “dry country,” meaning you cannot buy alcohol—wasn’t that difficult to find alcohol in if you really wanted it. Yet at what seemed to me to be every hour on the hour, I heard prayers blasting through the air. My taxi driver wasn’t an extremist; he was Muslim—and no different than any Catholic, Jew, or atheist—working his cab 12-15 hours a day, wanting a better life for his family. He was a good guy, caught up in the momentum that was building, which led to the Arab Spring.

The spread of the Arab Spring was muted by high oil prices. That is fact, though not a popular one. How did Saudi Arabia prevent protests in its kingdom? The House of Saud promised tens of billions of dollars in social programs.

How will the oil producing nations, such as members of OPEC, Russia, Canada, and Mexico, fare at $45 oil in 2015? How will the African petro-states function? How will the investors, who are exposed to billions of dollars of debt in the US energy sector (below is the payment schedule of all public companies’ debt payments due over the next 11 years), going to fare if oil stays below $50 in 2015?


History doesn’t repeat, but human nature has a repeatable pattern. The growth for energy will only increase in the future, even with energy efficiency improvements.

The fact is, the world will consume more oil in five years than it does today… even though I get many emails a day from uninformed individuals telling me why fossil fuels are awful (and yes, to the 100+ people who have emailed stating that Tesla cars will kill the need for oil—keep on dreaming. And by the way, your Tesla is on average powered over 50% by coal and natural gas—so you all are absolute hypocrites).

The world still needs uranium to power its nuclear base-load power, such as the US, which is currently the world’s largest consumer of uranium, using about 25% of the world’s uranium. China won’t be far behind, and it’s catching up quickly.

You Need to Be Brave When Everyone Is Fearful


Investing isn’t easy. If you want to do well in cyclical sectors, such as energy or mining, you must be able to buy when the sector is unloved and beaten down. Unfortunately, from a psychology standpoint, it’s easier to buy when it feels good.

Here is a list of rules of speculation I like to follow:
  1. Never put more than 10% of your speculative portfolio into any one stock. True success in speculation is only achieved with risk mitigation and letting your winners ride. While putting all your eggs in one basket theoretically can pay off in a big way, it rarely does so in reality. If your speculative portfolio is worth $50,000, don’t put more than $5,000 into any one junior.
  1. If, for whatever reason, an investment causes you stress to the point that you cannot sleep or are overly distracted from your daily life, sell enough stock to alleviate the situation. Life is too short. Have fun. If your stress level becomes intolerable, you’re either overinvested or speculating just isn’t for you. That’s okay; you’ve found out more about yourself. Speculation is a journey where the reward is money and the experience, but it’s not for everyone. If your wife, husband, family, or partner is hating you because you lost the family’s vacation money, look back to Rule 1.
  1. Know what you own and why you own it. The Casey Energy Report posts all relevant news about the companies in our portfolio every Monday and Thursday after market close.
  1. Use trailing stops and stop losses. For liquid stocks, they’re important, in my opinion. We work to create for you a balanced portfolio of high-risk speculations along with mid risk and lower risk yield plays, and we lock in gains along the way.

    The current market is exciting but carries a significant level of volatility. We want to be able to capture the upside and hold on to it, which is best accomplished by locking in gains with trailing stops (we did this very well earlier in 2014). Then we can sit patiently on the sidelines and await a general correction that allows us to get back into our favorite stocks, which we are currently doing.

    There’s a big difference between a trailing stop and stop loss. A stop loss limits losses. It’s the price you set to sell your stock in case the trade goes south on you. A standard stop loss is a sell order that’s automatically triggered if the security falls 20% (or whatever you put in for your stop-loss percentage) below your purchase price. For example, if you bought a stock for $10 and you put in a 20% stop loss, it would be $8, at which point you would lose $2. Unfortunately, stop losses (and trailing stops) don’t work for illiquid juniors, so be careful. That’s why Rule 3 above is so important.

    A trailing stop locks in your gains. Let’s say you paid $10 for a stock, and it goes to $14. If you’d be happy to sell at $13 and pocket $3 per share in profit, then that’s where you set your trailing stop, in case the price retreats to that level. Of course, if the stock continues to push higher, you can always move your stop along with it, to capture even more profit.

    Many of our trailing stops were hit in early to mid-2014, a good indicator that we’ve been right to be careful amid this market’s volatility.
  1. Give your speculation some time to play out, as with trends like the European Energy Renaissance. Such speculations demand that the investor wait for the market to catch on to the potential. This one specific rule—be patient—is probably the most difficult of all to stick to. A speculator is his or her own worst enemy.
  1. Risk mitigation. Reduce your risk while preserving profit by using the Casey Free Ride formula when the opportunity arises. It’s prudent speculation.
Getting Your Casey Free Ride
Number of shares to sell =
Purchase price of stock
x Number of shares bought
Stock price when you want to sell
  1. Know that you’ll make mistakes, and that will result in losing money on that trade. Not every trade will be a winner. But if one or two of the junior high-risk speculations work out, they will make the whole journey more than worthwhile. I’m speaking from personal experience.
This is just a short list of many of the rules to speculation.

With oil at $45 per barrel, could there be massive changes that many aren’t expecting?

Definitely.

If you’ve been a subscriber of mine, you know how cautious I’ve been since early to mid-2014 on the price of oil.

What’s Next in the Energy Sector?


In the past four months, I’ve personally invested more cash than I have in the last four years. Could I be wrong? You bet I could, but this is not my first downturn.

I also believe in not owning too many positions, as I don’t have many positions either personally nor in the Casey Energy Report. I follow a very disciplined approach, and my style isn’t for everyone. I’ll be the first to acknowledge that fact.

If you’re looking for a newsletter that recommends a stock every month on the month and has 50 stocks in its portfolio, I’m not your guy.

But if you’re looking for in-depth research, experience, and exposure to my vast network in the resource sector, then you may want to pay attention to what I’m doing.

There’s blood in the streets in the energy sector—and I love that!

Now if you believe that to be successful in the resource sector one must be a contrarian to be rich, as I do, now is the time to become engaged.

Come see what I am doing with my own money. You’ll get access to every Casey Energy Report newsletter I’ve written in the last decade, and my current recommendations with specific price and timing guidance. It’s all available right here.

I can’t make the trade for you, but I can help you help yourself. I’m making big bets—are you ready to step up and join me?

The article 199 Days of Hell was originally published at caseyresearch.com.


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Saturday, January 31, 2015

Weekly Crude Oil and Gold Futures Recap with Mike Seery

It's time for our weekly commodity futures recap with our trading partner Mike Seery. He has been Senior Analyst for close to 15 years and has extensive knowledge of all of the commodity and option markets. And frequently appears on multiple business networks including Bloomberg news, Fox Business, CNBC Worldwide, CNN Business, and Bloomberg TV. He is also a guest on First Business, which is a national and internationally syndicated business show.

Crude oil futures in the March contract were up $3 a barrel having one of its best days in months trading at 47.50 a barrel and trading above its 20 day moving average for the 1st time in months while still below its 100 day moving average and looks like a possible bottom could be in place. If you’re still short this market I strongly suggest you place stop loss at the 10 day high which currently stands at 49.20 risking $1.80 from today’s price levels.

Crude oil futures settled last Friday at 45.59 currently trading at 47.50 up about $2 as prices actually hit new lows in yesterday’s trade as there are rumors about the new Saudi Arabian King stirring up some controversy possibly cutting production, however I truly believe that we just saw massive short covering but stick to the rules and keep your stop at the proper level and if you are stopped out move on and look at another market that is trending.

All markets come to an end that’s just the fact as I’ve seen many people reenter the market several times after having a successful run only to give back all their profits so if you are stopped out move on as there are many other markets to look at the current time as this was one of the best trends in recent memory but sometimes the best thing to do is to do nothing.
Trend: Lower
Chart Structure: Excellent

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Gold futures in the April contract are currently trading at 1,277 up around $21 an ounce with extreme volatility after selling off more than $30 in Thursday’s trade while settling last Friday at 1,293 going out this Friday afternoon around 1,276 finishing down $17 in a wild trading week. Gold futures topped out slightly above $1,300 as profit taking ensued as prices are still trading above their 20 and 100 day moving average and I’m still recommending a bullish position and if you took that original trade place your stop loss below the 10 day low which now yesterday’s low at 1,252 risking around $24 from today’s price levels or $2,400 risk per contract plus slippage and commission.

As I’ve talked about in many previous blogs I do think gold is now being used as a currency due to the fact that the Euro currency and many foreign currencies are absolutely falling out of bed as interest rates in many countries have gone negative so who wants to place money into a bank and lose money as investors now prefer gold which has no dividend but still it’s better than a negative return. Volatility in many of the commodity markets is very high at the current time especially the precious metals and I expect that to continue despite the fact that the U.S dollar hit an 11 year high continuing its secular bull market in my opinion as I do think 100 is on its way in the next several months as the United States economy is doing much better than any economy worldwide.

Gold futures have rallied from a contract low of 1,130 all the way up to about 1,310 in the last several months as money is finally starting to come out of the S&P 500 sending money flows back into the precious metals also sending high volatility which I think is here to stay especially with all of the worldwide problems
Trend: Higher
Chart Structure: Solid

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Mike Seerys Trading 101...."When Do You Enter A Trade"

What are your rules to initiate a trade on the long or short side of the commodity market? I have been asked this question many times throughout my career and my opinion is simply to buy on a 20-25 day high breakout in price on a closing basis only or sell on a 20-25 day low breakout to the downside also on a closing basis. Many times the price will break the 25 day high and sell off later in the day only to have your trade be negative very quickly.

I would rather buy the commodity at a higher price on the close because that gives me more confidence that the market has truly broken out. However there are more ways to skin a cat and this is not the only answer because some other trading systems might rely on different breakout rules that have also been reliable.

Remember always keeping a 1%-2% risk loss on any given trade therefore minimizing risks because the entry system I use always goes with the trend because I have learned over the course of time the trend is truly your friend in the long run. I also look for tight chart structure meaning a tight trading range over a period of time with relatively low volatility. I try to stay away from a crazy market that hit a 25 day high in 2 trading sessions versus the 25 high that actually took 25 days to create.

Get more of Mikes calls for this week including silver, wheat, oats, coffee and more....Just Click Here!

Friday, January 30, 2015

Socialism Is Like a Nude Beach - Sounds Like a Great Idea Until You Get There

By Jared Dillian

I’ve been following the activities of Syriza for a long time. They started putting up big numbers in the polls in Greece three or four years ago. Syriza has a message that’s very popular with Greeks: Screw Germany. The word they use to describe what’s happened to Greece during the period of time since the debt crisis is “humiliation.”

To be fair, if you owe a lot of money to someone, it can be tempting to give them the finger. When Greece’s debt was restructured, it was done in such a fashion that none of the debt was really forgiven, but the maturities were extended far out in the future. Since Greece doesn’t grow (for structural, demographic, and cultural reasons), this is known as extend and pretend. Everyone knew, even back then, that the only hope Greece would have to avoid default would be whatever ability they had to refinance.

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Greece has been struggling under the yoke of this debt over the last few years, and the Greeks are sick of being serfs. So Europe gets the bird, although deep down, Greece doesn’t really want to drop out of the euro. They get a lot of benefits from being part of the Eurozone, namely purchasing power and low interest rates.

So naturally, having and eating their cake simultaneously is the goal.

But Alexis Tsipras (the head of Syriza) will threaten to not pay to get what he wants, and it will be interesting to see if Germany will call his bluff. The German people have a pretty low opinion of Greece these days, so if it’s politically palatable to eject Greece from the euro, Merkel might do it.

But Tsipras at least has a credible bargaining chip: He says he can deliver higher tax revenues through better enforcement, as Greeks are notorious tax cheats. If he can pull it off, then Greece may not default. That’s all a very nice story, but I don’t believe it for a second. There will be no increased tax revenue. It’s all talk.

I want to talk a little about Syriza and who they are, because the mainstream press likes to frame them as an “anti austerity” party. But they are much more than that. In reality, they are just one step away from full communism.

If you don’t believe me, take a look at the Syriza Wikipedia page. SYRIZA, which is an acronym of the Greek words for Coalition of the Radical Left, until recently, wasn’t really a party at all—just a collection of parties cobbled together under the auspices of screwing creditors.

Here’s a list of the parties that coalesced under the umbrella of Syriza:
  • Active Citizens
     
  • Anticapitalist Political Group
     
  • Citizens’ Association of Riga
     
  • Communist Organization of Greece (KOE):
     
  • Communist Platform of Syriza: Greek section of the International Marxist Tendency
     
  • Democratic Social Movement (DIKKI)
     
  • Ecosocialists of Greece
     
  • Internationalist Workers’ Left (DEA)
     
  • Movement for the United in Action Left (KEDA)
     
  • New Fighter
     
  • Radical Left Group Roza
     
  • Radicals
     
  • Red
     
  • Renewing Communist Ecological Left (AKOA)
     
  • Synaspismós
     
  • Union of the Democratic Centre
     
  • Unitary Movement
     
  • And a number of independent leftist activists
Sounds like some nice folks you’d have over for dinner and a game of Trivial Pursuit.

In addition to debt forgiveness, Syriza wants a bunch of other stuff, including forgiveness of bank debt for people who are unable to meet their obligations. It’s no coincidence that the Greek stock market was down 13% when the snap election was announced, led by the banks.

In the entire post-World War II period, you’d be hard pressed to find a farther-left national government in Europe than what Greece has now.

In the interest of full disclosure, I think it’s important to point out that I’m a very free-market kind of guy, and if something is bad for markets, I oppose it. I think the Greek Syriza experiment will turn out very badly, and the Greeks will end up with a sharply lower standard of living, however that comes about.

If it comes about by exiting the euro, an immediate consequence will be that they can count on a very weak drachma and high interest rates, possibly followed by high inflation. There will be food and energy shortages. There will be pretty much everything you had in Cuba and Venezuela, just in a less extreme form. Economic misery will abound. And just as a reminder, it is very hard for such places to be governed democratically.

Every once in a while finance gives us these gifts—little controlled experiments where you can watch how two competing economic philosophies play out. East and West Germany. North and South Korea. Even among the 50 US states. As you go around the world, you can see what works and what doesn’t.

Many people think the Scandinavian countries are socialist, but they aren’t—they are very capitalist economies with high levels of redistribution. Sweden was socialist from 1968-1993, but not today. Don’t confuse that with what is going on in Greece. Greece’s economy already is dysfunctional, and it’s going to get worse. We are going to see what happens to this little Marxist archipelago, formerly a member in good standing of the European Economic Community.

But I am getting ahead of myself. As of today, they’re still a member.

The trades here are very easy. It’s hard to have a stock market in a country where property rights barely exist. It’s hard to have bank loans or bonds where debt can be arbitrarily forgiven by the government. The nonexistence of capital markets is bad, contrary to what some folks think.

I don’t usually say things like this, but any Greek stock above zero is a potential short. Politics, like stocks, has a habit of trending—for a very long time.

P.S. Thanks to David Burge (@iowahawkblog) for the inspiration for this week’s title.
Jared Dillian
Jared Dillian



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Thursday, January 29, 2015

Income Inequality? American Savers Treated Like Dogs

By Tony Sagami

One of the hot political topics these days is income inequality, but one of the groups of Americans that’s the most mistreated by Washington DC is the millions of Americans who have responsibly saved for their retirement.


When I entered the investment business as a stock broker at Merrill Lynch in the 1980s, savers could routinely get 7-9% on their money with riskless CDs and short term Treasury bonds.


In fact, I sold multimillions of dollars’ worth of 16 year zero coupon Treasury bonds at the time. Zero coupon bonds are debt instruments that don’t pay interest (a coupon) but are instead traded at a deep discount, rendering profit at maturity when the bond is redeemed for its full face value.

At the time, long term interest rates were at 8%, so the zero coupon Treasury bonds that I sold cost $250 each but matured at $1,000 in 16 years. A government-guaranteed quadruple!

Ah, those were the good old days for savers, largely thanks to the inflation fighting tenacity of Paul Volcker, chairman of the Federal Reserve under Presidents Jimmy Carter and Ronald Reagan from August 1979 to August 1987.


Monetary policies couldn’t be more different under Alan “Mr. Magoo” Greenspan, “Helicopter” Ben Bernanke, and Janet Yellen. This trio of hear see speak no evil bureaucrats have never met an interest rate cut that they didn’t like and have pushed interest rates to zero.

The yield on the 30 year Treasury bond hit an all time record low last week at 2.45%. Yup, an all time low that our country hasn’t seen in more than 300 years!


These low yields have made it increasingly difficult to earn a decent level of income from traditional fixed-income vehicles like money markets, CDs, and bonds.


Unless you’re content with near-zero return on your savings, you’ve got to adapt to the new era of ZIRP (zero interest rate policy). However, you cannot just dive into the income arena and buy the highest paying investments you can find. Most are fraught with hidden risks and dangers.

So to fully understand how to truly and dramatically boost your investment income, you absolutely must look at your investments in a new light, fully understanding the new risks as well as the new opportunities. There are really two challenges that all of us will face as we transition from employment to retirement: longer life expectancies; and lower investment yields.

Risk #1: Improved health care and nutrition have dramatically boosted life expectancies for both men and women. We will all enjoy a longer, healthier life, which means more time to enjoy retirement and spend with friends/family, but it also means that whatever money we’ve accumulated will have to work harder as well as longer.


Today, a 65 year-old man can expect to live until age 82, almost four years longer than 25 years ago; the life expectancy for a 65 year old woman is also up—from 82 years in the early 1980s to 85 today.

The steady increase in life expectancy is definitely something to celebrate, but it also means we’ll need even bigger nest eggs.

Risk #2: Don’t forget about inflation. Prices for daily necessities are higher than they were just a few years ago and constantly erode the purchasing power of your savings.


The way I see it, your comfort in retirement has never been more threatened than it is today, and it doesn’t matter if you’re 20 or 70.

The rules are different, and you only have two choices:

#1. spend your retirement as a Walmart greeter (if you’re lucky enough to get a job!); or

#2. adapt to the new rules of income investing.

Today, the new rules of successful income investing consist of putting together a collection of income focused assets, such as dividend paying stocks, bonds, ETFs, and real estate, that generate the highest possible annual income at the lowest possible risk.

Even in an environment of near zero interest rates and global uncertainty, there are many ways an investor can generate a healthy income while remaining in control. Income stocks should form the core of your income portfolio.

Income stocks are usually found in solid industries with established companies that generate reliable cash flow. Such companies have little need to reinvest their profits to help grow the business or fund research and development of new products, and are therefore able to pay sizeable dividends back to their investors.
What do I look for when evaluating income stocks?

Macro picture. While it’s a subjective call, we want to invest in companies that have the big-picture macroeconomic wind at their backs and have long-term sustainable business models that can thrive in the current economic environment.

Competitive advantage. Does the company have a competitive advantage within its own industry? Investing in industry leaders is generally more productive than investing in the laggards.

Management. The company’s management should have a track record of returning value to shareholders.

Growth strategy. What’s the company’s growth strategy? Is it a viable growth strategy given our forward view of the economy and markets?

A dividend payout ratio of 80% or less, with the rest going back into the company’s business for future growth. If a business pays out too much of its profit, it can hurt the firm’s competitive position.

A dividend yield of at least 3%. That means if a company has a $10 stock price, it pays annual cash dividends of at least $0.30 a year per share.

• The company should have generated positive cash flow in at least the last year. Income investing is about protecting your money, not hitting the ball out of the park with risky stock picks.

A high return on equity, or ROE. A company that earns high returns on equity is usually a better-than-average business, which means that the dividend checks will keep flowing into our mailboxes.

This doesn’t mean that you should rush out and buy a bunch of dividend-paying stocks tomorrow morning. As always, timing is everything, and many—if not most—dividend stocks are vulnerably overpriced.

But make no mistake; interest rates aren’t rising anytime soon, and the solid, all weather income stocks (like the ones in my Yield Shark service) will help you build and enjoy a prosperous retirement. In fact, you can click here to see the details on one of the strongest income stocks I’ve profiled in Yield Shark in months.

Tony Sagami
Tony Sagami

30 year market expert Tony Sagami leads the Yield Shark and Rational Bear advisories at Mauldin Economics. To learn more about Yield Shark and how it helps you maximize dividend income, click here.

To learn more about Rational Bear and how you can use it to benefit from falling stocks and sectors, click here.



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Wednesday, January 28, 2015

Free Video Series: Enjoy all of John Carters Options Videos.....Before it's to Late

In 2014 our trading partner John Carter of Simpler Options changed the way traders look at trading options with his free and easy to understand videos and webinars that taught all of us how to put his methods to work.

In February John is preparing to do it all again by bringing us a new series and most likely all of his current videos will be taken offline. So we want to make sure you get to watch them all while you can.

Just click on the titles to access videos......

    My Favorite ways to Trade Options on ETF’s

    What the Market Makers Don’t Want You to Know

    High Frequency Trading….the effect the Rise of the Machines has on ...
    What's Behind the BIG Trade, How to Grow a Small Account into a Big...

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See you in the markets!
Ray C. Parrish

Tuesday, January 27, 2015

How to Find the Best Offshore Banks

By Nick Giambruno

It’s hard to think of a topic where following the conventional wisdom can be more dangerous. And that topic is banking. It’s generally accepted as an absolute truth by the public and most financial experts that putting your money in a domestic bank is a safe and responsible thing to do. After all, if anything were to go wrong, your deposits are insured by the government.

As a result, most people put more thought into which shoes they should purchase than which bank should be entrusted with their life savings.

It’s a classic moral hazard—a situation in which a person is more likely to take risks because the costs won’t be borne by that person. In the case of banking, that’s how a lot of people think, but it isn’t necessarily true that individuals bear no costs of their banking decisions. The prudent thing to do is ignore the conventional wisdom and look at the facts to form your opinions. Choosing the right custodian for your life savings makes a difference—and it deserves some serious thought.

A False Sense of Security


In the US, the Federal Deposit Insurance Corporation (FDIC) insures bank deposits. In the case of a bank failure, the FDIC pays depositors up to $250,000. The FDIC has a reserve of around $30 billion for this purpose.

Now, $30 billion might sound like a lot of money. But considering that the FDIC insures around $9 trillion in deposits, the $30 billion in reserve amounts to just a drop in the bucket. It’s actually less than half a penny for every dollar it supposedly insures.

In fact, there are over 36 banks in the US that have deposits larger than the FDIC’s reserve. It wouldn’t take much for the FDIC itself to go bust. One large bank failure is all it would take. And with many of the big banks leveraged to the hilt, that isn’t as remote a possibility as many would believe.

Oddly, this doesn’t shake the confidence the public and most financial experts place in the US banking system.

Also, it’s already an established precedent that whenever a government deems it necessary, deposit guarantees can be disregarded on whim. We saw this in the early days of the financial crisis in Cyprus. The Cypriot government initially sought (but was ultimately rebuffed) to dip its hands into bank accounts under the guaranteed amount. Similarly, Spain has imposed a blanket taxation on all bank deposits. I’d bet this is only the beginning. We haven’t even made it through the coming attractions.

Taken together, this shows that the confidence in the banking system—merely because of the existence of a bankrupt government promise—is dangerously misplaced.

Follow conventional wisdom at your own peril.

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Fortunately, in this day and age the decision on where to bank doesn’t have to be constrained by geography. Banking outside of your home country—where much sounder governments, banking systems, and banks can be found—is in most ways just as easy as banking with Bank of America.

The Solution


Obtaining a bank account outside of your home country is a key component of any international diversification strategy.

It protects you from capital controls, lightning government seizures, bail ins, other forms of confiscation, and any number of other dirty tricks a bankrupt government might try.

Offshore banks offer another benefit: they are usually much safer and more conservatively run than banks in your home country… at least if you live in the US and many parts of Europe. It’s hard to see how you’d be worse off for placing some of your cash where it’s treated best. In the event that your home government does something desperate or your domestic bank makes a losing bet, it could turn out to be a very prudent move.

When Doug Casey and I were in Cyprus, we met with a number of astute Cypriots who saw the writing on the wall. They got their money outside of the country before the bail in and capital controls, and they were spared. It would be wise to learn from their example.

But you shouldn’t just blindly move your savings to any foreign bank. You want to consider only the best.
For me, being able to find the safest and best offshore banks comes naturally. In the past, I worked as a banking analyst for an investment bank in Beirut, Lebanon. While there, I rigorously assessed countless banks around the world. This experience and the analytical tools I developed have been very helpful in evaluating the best offshore banks worthy of holding deposits.

A basic rundown (but not inclusive) of factors I look for when analyzing an offshore bank include:
  • The economic fundamentals and political risk of the jurisdictions the bank operates in.
  • The quality of the bank’s assets—namely its loan book and investments. This helps you determine what the bank is doing with your money. I look for banks that are conservatively run and don’t gamble with your deposits. Banks that make leveraged bets with things like mortgage-backed securities or Greek government bonds are obviously to be avoided. Having a sound loan book with a low nonperforming ratio is crucial.
  • Liquidity—a relatively safer bank will keep more cash on hand rather than invest it in risky assets or loan it out, all else equal. That way it can meet customer withdrawals without having to potentially sell off assets for a loss—which could affect its ability to give you back your deposits.
  • Capitalization—this is a measure of its financial strength of the bank. It also shows you if the bank is using excessive leverage, which can increase the risk of insolvency. A bank’s capitalization is like its margin of error: the higher the better.
Another important factor is whether an offshore bank has a presence in your home jurisdiction. To obtain more political diversification benefits, it’s better that it does not.

For example, assume you are a Chinese citizen and want to diversify. It wouldn’t make much sense to open an account with the New York City branch of the Bank of China. It would be much better from a diversification standpoint for the Chinese citizen to open an account with a sound regional or local bank that doesn’t have a presence or connection to mainland China—and thus cannot have its arm easily twisted by the Chinese government.

The Best Offshore Banks


Each year, a prominent financial magazine publishes a study on the world’s safest banks. Below are its top 10 safest banks in the world (notice that none of them is in the US).

Naturally, things can change quickly though. New options emerge, while others disappear. This is why it’s so important to have the most up-to-date and accurate information possible. That’s where International Man comes in. Be sure to get the free IM Communiqué to keep up with the latest on the best offshore banking options.


Now, as an American citizen, it’s very unlikely that you could just show up to one of these banks and open an account as a nonresident of that country. That is, unless you plan on making a seven figure or high six figure deposit. Then you might have a chance, but even then it’s not guaranteed.

This dynamic is thanks to FATCA and all the red tape that the US government imposes on foreign banks who have US clients. For foreign banks, the logical business decision is to show Americans the unwelcome mat. The costs simply do not justify the benefits.

This is unfortunately true for many banks the world over. The net effect is to drastically reduce the number of choices that Americans have when banking offshore. It’s a sort of de facto capital control.

There are of course exceptions. Some solid offshore banks still accept Americans, and some even open accounts remotely. This means you could obtain huge diversification benefits without having to leave your living room.

In our comprehensive Going Global publication, we discuss our favorite banks and jurisdictions for offshore banking, crucially including those that still accept Americans as clients. It’s a list that is constantly dwindling, which highlights the need to act sooner rather than later.

The article was originally published at internationalman.com.


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