Robin Griffiths: What's Keeping the U.S. Market Afloat and Other Issues

To continue from the last post, here's an earlier interview (dated Sept '10) before the broadcast at King World News that I posted earlier. Though this is 4 months delayed news, you can still learn quite a bit from Robins Griffith.

In it, Robin Griffiths touches on several issues. 

On the Best Sept and What's Keeping the U.S. Equity Market Afloat

00:30 : One of the things keeping markets afloat "is something called Permanent Open Market Operation ... (POMO) ... what happens is the Fed buys treasuries off the banks pushing the money into the banks. The bank pushes the money into the market. They do about US$6billion a day when they do this."

00:50 : "That amount of money turns the algorithms up. Then all the algorithmic trading hits the market. Real life human investment managers are not doing this buying. They know that after the rally that we've had, we're back to where we were first in 1998."

01:07 : "Equities are for losers and if you're priced in dollars, you're down 30% over that period." 

01:12 : "So real life equity market [investors] still don't want to buy the S&P. Is still being affectively goosed up by what we used to call the Plunge Protection Team. Well they can keep doing this for a bit longer but I'd only be completely wrong if they do it so much that they take out the April high. According to me, that April high will not break and we are going to inevitably go down."

The U.S. Economy, the Recession and What's In Store

01:40 : "Last week we heard the president say in clear words that although we had ... an economic institution saying the recession was over 9 months ago he accepted that for many Americans the recession is still an ongoing reality. And secondly all of those Keynesian stimulus didn't work. We're changing the entire game plan and what's going to happen is the Fed is going to be printing money and pumping it into the economy to try and let it down slowly.

On Bonds and Bubbles

02:12 : On 30yr bonds, "the yield is going to go down. Now if you buy the 30yr treasury bonds as the yield goes down, you make money."

02:23 : "There's an old saying that goes don't fight the Fed. Well now the Fed is going to guarantee that your bonds go up."

02:42: "They've backed up. They had to back up. If you missed when the yield was approaching 4%, you aren't going to double your money as it approaches 2%. But even now you should be buying bonds and not equities. And it's not a bubble."

02:57 : "It will be a bubble when your viewers all write in and say we've all got bonds what do we do now?"

03:03 : "And the bubbles never burst when wise heads in media tell you its a bubble that's going to burst. It burst when they've given up on that and tell you ah this time it's different. So you should in fact be in bonds and not in Western equities."

On the Bovespa and Emerging Markets

03:29 : "These are the markets you should have been in. Where the American market has gone virtually nowhere for the last decade, the [Brazilian] Bovespa has been up 1000%."

03:37 : "Including China and India ... these are where you should be putting your money."

03:50 : "This is the real deal where people have been working hard to take themselves out of poverty, succeeding, and we can back them and we can invest in them. These are equity markets that are real bull markets and that are making all time highs where the ... Western markets aren't going to do that."

04:13: "The Bovespa "is rising at a rate of a 1000% per decade."

Check out the video below for the complete interview, most of which I've already transcribed here. =)

That said, this is the current chart of the S&P500:

I've marked the resistance back in April'10 and we can clearly see that stock prices have gone way beyond that. So was Mr. Griffiths "completely wrong" as he put it in his interview?

That remains to be seen. 

I'm of the opinion that although he may have been wrong in his prediction about the stock market not breaking its April high, if his explanation on why the equity market is propped up is correct and with all the printing of currency, then this still is bad news for the future with the debasement of purchasing power. And to me, the way to protect that it is in physical assets. However, I'm not suggesting you to go all in into physical assets -- no no -- as the future is so unpredictable and we can never be certain who is right and who isn't until the event is over. However, it is recommended that one has about 5 - 10% of his/her portfolio in precious metals and to rebalance every yearly or two. 

Having said that, this video below shows that some of the most well-renowned investors are still piling into gold - Jim Rogers being the most famous. It also explains why gold is still a viable investment asset and why it is still demanded in today's society. As Gold Core Limited is a company, they may have a bias to promote the metal. As such, it is best viewed with an open mind and like attempting a jigsaw puzzle, you have to piece the different parts together to make your own conclusion.

Check it out:

Cheers,
~K

Robin Griffiths on U.S. Dollar Printing, Commodities, Gold, Silver and His 2011 Outlook

Quote of the Week:
"The downward trend in the dollar is awesomely powerful. It's vital to get yourself out of the dollar long-term on any significant rally. Continuing to own a currency that is going to be printed virtually into oblivion ... is crazy."

"I think not owning gold is a form of insanity, it may even show unhealthy masochistic tendencies, which might need medical attention."

~ Robin Griffiths

Background:

Robin Griffiths is Cazanove Capital Management Private Wealth's Technical Strategist. He has 44 years of investment experience and is considered one of the top strategists in the world. Cazenove as a group now manages £15 billion on behalf of their client base and is one of the oldest and most respected names in the financial community, tracing its origins back to the 17th century. Robin developed his own system, analyzing stocks and market trends. Robin is followed globally because of his groundbreaking work on world stock markets, bonds, currencies and commodities.

Here's the complete video to hear his take on the dollar printing and his view on the highs commodities have been making recently that led to the quotes above.

In another interview too, Mr. Griffiths was extremely bearish on the outlook of 2011.

Here's the article:

Cazenove's Robin Griffiths: The October Dip Will Be Nothing Compared To The 2011 Crash

Source: The Business Insider -- Click here for link
Date: Oct 2010

Cazenova Capital Management's Robin Griffith sounded incredibly bearish on a radio interview with King World News. 

He even thinks the September Effect will be validated -- because the real negative historical trend lasts from mid-September to mid-October.

The collapse in the next few weeks will be similar to the collapse from April to July, Griffith says, putting his target for the S&P500 at 940.

If you think that's low, wait till the Alt-A mortgage rate reset in March. "The dip this year is modest. The dip that occurs next year is the one that risks taking major indices right back to where they were in March '09," Griffith says.

The Cazenove strategist has a bearish election prediction too. The market-friendly Republicans will win, but the loss will be so "catastrophic" for the Democrats, it will make Obama an immediate lame duck, hurting the economy.

Oh yeah, and he thinks the plunge protection team was the only thing keeping the rally going in September. 

Broadcast at King World News

Related to the article above, listen to this broadcast of his interview at King World News, dated 02nd Oct 2010, for the complete interview.

The line that caught my ears, "Silver might even be a 10-bagger from here." aka ~$200 per ounce. 

Current price/oz: US$29.25.

UOB current price/oz: S$37.37

Although that may be an exaggerated amount, even a 5-, 4-, or 3-bagger would be a huge delight.

Question of the Day: What are you waiting for?

Cheers,
~K

7 Reasons to Expect a Bear Market in 2011

While it seems that a lot of analysts and people are bullish about the new year, here's an article that states the contrary. 

Cheers,
~K


Taken from an article written by Mr. Claus Vogt of Money and Markets, entitled "The Contrarian View"

7 Reasons to Expect a Bear Market in 2011

1) The stock market is highly overvalued. It follows then that stock investments are nearly guaranteed to deliver poor, long-term returns.

2) The rally since August 2010 isn’t based on sound and sustainable economic factors, but on unsound and fragile faith in the Fed’s ability to inflate asset prices.

3) Longer term interest rates have risen considerably since the Fed’s first announcement of QE2. In the past, bull markets were usually on borrowed time during a rising yield environment — even when fundamentals were much sounder than today.

4) Stocks are extremely overbought when momentum indicators and the number of stocks reaching new 52-week highs stay below their cyclical highs, thereby not confirming the current run up.

5) There is a debt crisis brewing, not just in Europe, but also in Japan and the U.S. The U.S. municipal bond market is already under pressure.

6) The financial sector’s problems have not been solved, but only papered over with money printing and a suspension of mark-to-market (fair-value) disclosure.

7) In China a huge bubble economy has developed. Since Beijing has already implemented a turn in monetary policy, this bubble is prone to pop in 2011, posing a major threat for a still very fragile global economy.

3 Signs the U.S. Market is Approaching Danger Zone

A recent article by Claus Vogt of Money and Markets highlights three danger signs that a crash in the U.S. market may be approaching. I'll summarize below.

Danger Sign 1:

A Major New Debt Crisis Striking Thousands of Local Governments Throughout the United States

To highlight a section from the article, Mr. V states that,

"In prior debt crises, a major central government or bank came to the rescue. This time:

• The Federal Reserve has neither the authority nor the will to come to the rescue; and
• The U.S. Congress is even less inclined to open the Pandora's box that a city or state bailout would involve.

... This one is striking at the very heart of the U.S. economy!

Result: A big threat to the U.S. GDP growth in the second quarter AND to the U.S. credit markets at the same time."

Danger Sign 2:

A Major Divergence in the Stock Market

A key indicator pointed out is "the number of stocks hitting 52-week highs.

• During a healthy, durable bull market, as the major indices move to new highs, there should be an increase in the number of stocks making new highs, as growing number of issues participate. And for the rally to continue, stocks must repeatedly hit new cyclical highs. But ... 
• At the tail end of the bull market, this picture starts to change. The breadth of the move weakens. More and more stocks enter topping formations or start to roll over. And the number of stocks making 52-week highs levels off or actually declines.

...Although the broad indices are still making new highs, fewer stocks are doing so. In other words...

The whole rally depends on a shrinking number of stocks!"

The "negative divergence" is obvious from the evidence presented in the two charts below:

To quote, "As you can see the current move to new index highs is not confirmed by the number of 52-week highs...

The indicator's high for the current cycle was way back in April 2010. So the market is actually showing multiple divergences: A succession of higher highs in the index and ... at the same time ... a succession of lower highs in this indicator...

...the number of 52-week highs is a time honoured indicator. Historically, it has given important warning signs well before a major bear market commenced. Just look at 2007 and you'll see an example of a negative divergence similar to the one we're experiencing now!" 

Danger Sign 3:

Great Overvaluation

This line says it all. 

"The U.S. stock market is severely overvalued ... possibly by 50% or more!"

Put the three signs together and it's wise to invest with caution in the year ahead. What's that latin saying again? Oh yes...

Caveat Emptor,

~K

P.S. If you're interested in the complete article, it can be found here.

Facebook's Expected IPO

By now I'm sure most of us have heard about the expected IPO of Facebook by latest 2012. I too was interested as my opinion is that Facebook is probably going to be to social networking sites what Google is to search engines. 

Why do I think so? Because firstly, I never liked social networking sites but for some reason I sold out and am now on Facebook as well. It's like back in the days of Altavista and Lycos search engines. I used to keep using Altavista despite Google's appearance. And for some reason I just decided to switch over. Google even became a word as in "Don't know the answer? Try googling it." And now, Facebook seems to be used in that context too. "Oh yeah I uploaded my pics. You can facebook 'em if you wanna take a look." or "Yeah, I'll be facebooking later. I'll add you then." That's a second sign of the importance this social networking site is becoming.

If I had known about investing back then in the days of multiple search engines, that would have been a big signal to invest my money in Google. That said, I think Facebook may grow like Google eventually for the reasons above. However, would the IPO price be a good price to buy in? For that I like to refer you to this article below written by Ed Pawalec of the Tycoon Report which I found most informative.

Enjoy!

~K

Another Brick in the Wall: Fool's Gold or Value Play?

by Ed Pawalec

News of Goldman Sach's investment in Facebook has been all over the news, so I thought I would play with the numbers a little to see if an impending IPO would end up being a scam or a value play when the company does go public.

The exact financials are vague at best at this point, and can only be guessed at by reports in the financial press, but we can have some fun with this anyway.

The value of the company according to a variety of reports is in the $50 billion range, which some have said is ridiculous. In fact, The Wall Street Journal quoted one former Goldman partner who was offered a piece of the action as saying, "Google's trading at 7 times sales. I'm not going to buy Facebook at 25 to 50 times." Interesting.

The valuation is based on the portion of the company to be purchased in a joint investment by Goldman Sachs ($450 million) and Digital Sky ($50 million) for $500 million. However, Goldman is also reported to have been putting together an additional $1.5 billion through a Partner Private Opportunity Fund, so how they come up with $50 billion is a little unclear. Nevertheless, I'll go with the $50 billion number.

Now, Mark Zuckerberg (Facebook's founder and CEO) is trying not to go public, which requires these investments to be bundled into Special Purpose Vehicles (SPV) so as not to go a foul of the SEC's 500 investor rule. Essentially, this requires any company that has 500 or more shareholders and $10 million in assets to file their financials with SEC, thus making it public information. This rule is rumoured to have been the motivation for Google to go public in 2004. If you have to report publicly anyway, why not do an IPO?

According to the rule, a company that exceeds that threshold must begin reporting within 120 days of the close of the fiscal year in which it reaches 500 shareholders. Since the current offering from Goldman, which could put Facebook over the 500 shareholder mark, is occurring in 2011, and Facebook's fiscal year ends on December 31, the expectation is for an IPO no later than April of 2012.

This might be avoided if the SEC accepts Goldman's SPV as a single investor. The SPV is, in its simplest terms, a group of investors clumped together as a single entity, which then invests in Facebook and is counted as only one investor. We will see how that works out. 

Enough with the background, lets jump into the numbers.


Who says a dollar isn't worth what it used to be?

For 2009, Facebook is said to have earned $200 million on revenues of $777 million -- a tidy 25% margin. For the first 9 months of 2010, reports are that the company is up $355 million on revenues of $1.2 billion -- an even better 29.5% margin. For all of 2010, estimates are for $500 million in earnings, which would suggest revenues of $1.6 billion.

Based on a $50 billion estimated market capitalization, that puts a PE ratio of 100 on Facebook. Seems a little rich by most standards. That being said, stocks frequently trade based on how fast they can grow their earnings and, assuming we can take the $500 million expected for 2010 at face value, Facebook grew earnings at 150% year over year. Maybe 100 times isn't too ridiculous if you make the assumption that they can maintain that growth rate.

Internet World Stats numbers Facebook subscribers at 517 million plus (as of Aug 30, 2010) compared to recent estimates of 600 million. I have to admit, either number is impressive. But, if you think about it: $500 million net income divided by 600 million subscribers means that each subscriber is worth $.83 to Mark Zuckerberg and his investors -- just under a buck per year.

Zillions of man hours wasted on Facebook each year so some 26 year old nerd from Harvard can make $.83 on each user.

Think about that.


Critical Mass

But you have to give the guy credit for finding 600 million people he could squeeze $.83 out of.

Hold on a minute! How many people are on the planet?

Well, recent estimates are in the neighbourhood of 6.8 billion. By 2020 there will be about 7.7 billion people, and most of these would need to be worth at least $.83 for Facebook to be fairly valued at $50 billion today. But you can't have Facebook without the internet, and not everybody in the world is wired ... at least not yet.

Unsurprisingly, the growth in the number of internet users has dropped considerably over the years ...

With the number of users doubling every year during the heyday in the late 1990's, things had to cool down. Over the last five years, growth has steadied to a strong 13-15% annual rate. Again, according to World Internet Stats, nearly 2 billion people have internet access. Almost 29% of the world is wired for the web and 26% of them use Facebook, each worth $.83. 

Now if internet access continues to grow at a 13% rate for the foreseeable future, sometime during 2021 every person on earth will be connected to the web. Yes, you will be able to check your Facebook page from anyplace in sub Saharan Africa, as long as there are people, by 2021 ... maybe not. 

Since Facebook is just about 7 years old, its growth rate has been exponential. For argument's sake, however, let's just say that it can grow subscribers at a 25% annual rate. By early 2023, everyone on earth, who has already had the internet for two years, will now be available for friending on Facebook. 

While this is clearly something to look forward to, stay with me -- I do have a point. In this outlandish scenario, with the world population valued at $.83 a head, and if Facebook kicks all of its earnings back shareholders, it becomes a perpetuity. This means that the present value of the company can be determined simply by choosing a discount rate. Since we are talking about just over 10 years, the approximate 3.4% rate on the ten year note is as good as any. And the calculation goes:

(World Population in 2021 x $.83) / 3.4% =

(7,900,000,000 x .83) / .034 = $192.85 Billion

Before you deem this exercise silly, think about a more feasible scenario:

If by 2021, half the world is wired and half of them use Facebook, using this same crude calculation the numbers come to $48 billion, which happens to be darn close to the $50 billion number being bandied about these days. 

The point here is that Facebook is a unique company in that it actually has the potential to reach the entirety of the internet capable world and therefore, to its detriment, it does have a maximum value that can be calculated. I realize that the company could increase its per subscriber value and that the discount is somewhat arbitrary, but I found it interesting how doing some back of the cocktail napkin math came so close to the value ascribed by the pundits and analysts. 

In any event, at least now you have some idea what it would take to make this company worth $50 billion today.

Precious Metals Outlook 1H2011

James Turk is a very prominent precious metal figure. As the founder and chairman of Goldmoney, here's what he had to say about them going into 2011.

Note that his predictions are only for the first half of 2011.

1) Gold will reach $2000 per ounce ($64.30 per goldgram) in the first half of 2011.  Look for gold to exceed $1,800 by the end of Q1.  The low for the year will be made in January, probably in the first week.  Thereafter, look for gold to continue the hyperbolic uptrend it is already tracking. 

2) Silver will reach $50 per ounce, probably in Q1 2011.  It will then take a breather by moving sideways, trading in a range between $50-$38.  It will do so in order to consolidate its tremendous gains, which if my $50 target is reached will be a more than three-fold increase in price from the year’s low of $14.82 in 2010.

3) The gold/silver ratio will continue its downtrend.  It will break below 40 during Q1 as silver soars in a massive short squeeze.  The ratio is likely to reach 30 during 2011, and I do not expect it to climb back above 52.

4) This year will be a great one for the mining stocks, which have been out of favor all decade long.  The bear market in mining stocks began with the collapse in Bre-X back in 1997, and it ended with the collapse of Lehman Brothers, when the juniors were totally decimated and even the best mining stocks were selling at unbelievable values.  Consequently, I expect the XAU Index will exceed 300, and I expect most of that gain to occur in the first half of 2011.

5) I expect another “Lehman Brothers” event in the first half of 2011.  It might be a bank, but it could just as easily be a government.  However, if another Lehman-like event occurs, the response by gold and the mining stocks will be completely different than 2008; this time they will rise, not fall.  The event this time will be a ‘failure’, not a ‘collapse’ like Lehman.  The Lehman collapse resulted in a rush by countless overleveraged debtors to get liquid.  The failure I expect in 2011 will have a different result.  There will be a rush to safety, meaning the avoidance of counterparty risk.  The best way to avoid counterparty risk is to own gold and silver.  The second best way is to own the shares of top quality commodity producers.

How to Profit? What to Avoid?

So my recommendation for 2011 is the same as it was for this past year, and in fact is the same as it has been all decade.  Continue accumulating the precious metals, and if you are so inclined to take the investment risk, the mining stocks as well.  Focus on owning tangible assets that make sense – gold, silver, useful commodities and the shares of well-run companies that produce these things.  Avoid the dollar and other currencies.  Avoid all government paper, and if you own a corporate bond, make sure it is convertible into equity. 

Become self-reliant, and most importantly, do not rely on any government.  Learn from those who were not prepared for Katrina.  Even though they lived in a hurricane zone, they thought they could rely on the government to help them, but everyone who ended up in the Superdome looking for help suffered as a result.  A financial Katrina is coming, and I think it will hit in the first half of 2011.  It will be an unprecedented crisis because the US government is tapped out and the serial bailouts of governments and banks worldwide are coming to a head.

As a result, government policies that have led to monetary debasement for decades are going to accelerate in 2011.  Be ready for it.  If governments continue to follow the wrong policies and make the wrong decisions when confronting some critical moments in the months immediately ahead, then the sky is the limit for gold and silver as national currencies hyperinflate and approach a total collapse.  Consequently, everyone needs physical gold and physical silver now more than ever. 

To read the complete report, which is rather lengthy, refer to The Outlook for 2011.

Just for laughs, I found a cartoon that illustrates the imminent disaster Mr. Turk is talking about.

Now that you're all cheered up, check out these recent videos/radio interviews for more views by James Turk.

On the US economy and gold

Posted on 6th of Dec 2010

On the looming hyperinflation

Posted on 13th of Nov 2010

On the gold/silver ratio with David Morgan

Posted on 11th of Nov 2010

On Silver Heading to $50 by 2012

Posted on 27th of Jun 2010

Going back to the predictions and as a last point related to the highlighted sentence in red, this is something to really think about. Should the financial disaster occur, this may provide another fantastic buying opportunity. As such, it may be time to start hoarding and accumulating cash again. Else when the chance arrives, you may find yourself sitting on the sides lamenting another missed opportunity.

Food for thought,
~K

Jim Rogers Speaks on 2011 Outlook

Happy Friday everyone. =)

Couple of videos of Jim Rogers doing an interview with editor-at-large Chrystia Freeland on Reuters on the 7th of Dec as part of the 2011 Reuters Investment Outlook Summit which I found very interesting and wished to share.

Enjoy!
~K


Part 1



Part 2



Part 3



Part 4

Quantitative Easing Explained Hilariously

Confused about QE2? Don't be. This video will help clear any doubts.

Humour always helps learning.

~K

P.S. Special thanks to Hendra for sharing the video in the forum.

STI Bounces Up

Stochastics signal lines crossed today as expected in Thurday's post, STI - Heading for the Next Leg?,  and the STI has bounced up higher than yesterday's close. This bodes well that price is likely to find its way back to the 50day moving average by next week, before heading higher still.

Anyone looking into investing into the STI ETF can consider nibbling into the security. However at a high of 3800 in 2008 before the crash, the current 3200 leaves about another 15% upside. This is if it heads back to its previous high. Should it exceed this, my estimate is that it'd have a maximum of 20% upside to go. Pure guesswork that but that said, PE ratios would be expensive by then too. So it'll be more likely for stocks to come back down instead of rising further. Of course I know that the euphoria  (euphemism for madness) of the crowd could drive it higher still, so I'm not wagering the house on this.

However, as the blue chips have all climbed considerably since the downturn, the best returns now lie in the penny stocks for they normally rise last in a bull market. Here's where the gems are and also where the most volatility lies though so be warned. Have a good buy and more importantly, sell plan. Investigate your company properly. Do some thorough research to prevent yourself being scared out of the stock. This recent correction is a good time to start shopping for some quality buys.

Best of luck everybody!

~K

STI falls 1.15 point, or less than 0.1%, to 3,158.08 at closing
Friday, 26 November 2010

© 2010 - The Edge Singapore

STI - Heading for the Next Leg?

Success is how high you bounce when you hit bottom. ~ General George S. Patterson

Seems that most stocks on the SGX are bouncing off their 50day moving average. The STI is displaying similar traits. Although overshooting a little, it looks like the bounce back up is coming soon. Furthermore, Stochastics already seemed to be turning up as well from oversold territory and likely to intersect. 

A comparison to other countries show that most of them are displaying similar bouncing characteristics. For example:

US

S&P 500

Dow Jones

Nasdaq

Hong Kong

Hang Seng

China

Shanghai Stock Exchange

My take: With the upturn of all these countries, it does look like stocks here are likely to turn upwards soon, possibly by next week, and thereafter head higher. So if you're looking to buy stocks, you had better do so soon when the next entry price presents itself before the correction's over.

Good luck!

~K

STI gains 0.7% to 3,159.23 at closing
Thursday, 25 November 2010

© 2010 - The Edge Singapore