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Weekend Edition

I caught someone making sense on CNBC
Saturday, December 17, 2011

 I wish I had a pen and paper handy earlier this week. I caught someone making sense on CNBC and didn't get a chance to write down her name.
 
The analyst, an older woman with grey hair, said the IPO market is really slow this year, despite some headlines here and there about companies like Zynga, the online games maker that's going public soon.
 
That made perfect sense to me. I just recommended a stock in my Extreme Value newsletter that went public in July and was recently trading at a dirt-cheap valuation, around seven times earnings. The market has this one all wrong. The stock is totally mispriced. It's growing sales and profits at triple-digit rates and providing a product that's in desperately short supply to an industry undergoing a once-in-a-century boom.
 
It's already up about 10% in a few weeks. I think shares will double or triple in the next year... Sales will continue to soar as the company remains in hyper-growth mode.
 
Management is smart, too. It used the IPO proceeds to pay down debt, so it's got plenty of cash and zero debt. The company is no fly-by-nighter, either. It's been in the same business since 1997. It's got a great reputation and has multiyear contracts with some of the biggest names in its industry. It's hard to see how it won't make a ton of money.
 
 Another trading expert on CBNC this week said he wouldn't be surprised if gold fell to $1,100 an ounce. A trader I know says, "Sell all the rallies in gold."
 
If you're speculating on the gold price, those sorts of insights are pretty important to you. It's like that with stocks, too. If you spend most of your time trying to trade short-term share price movements, obsessing over price quotes and their potential direction in the next few days is important. Lots of people make money doing that sort of thing. Heck, my colleague Jeff Clark has been on the hottest gold trading streak I think I've ever seen. I bet he could tell you what to make of all this...
 
 But Jeff and I are different. I take a longer-term view. I'm only interested in gold as a long-term holding. Gold (and silver) is how I save money. I buy Krugerrand coins on a fairly regular basis.
 
Once I buy my gold or silver, I don't view its value in terms of U.S. dollar price quotes. To me, that money has exited the dollar-based, central-bank-manipulated financial system. It's mine, and its value is safe... no longer under the control of some weird academic banker who thinks the Great Depression was caused by the failure to print enough money.
 
So... really... what do I care that gold was down 5% on Wednesday? Does it mean the Fed will stop printing U.S. dollars like crazy? Does it mean the U.S. government no longer has $15 trillion of debt it'll never repay? I don't think so. It just means a bunch of people are really scared, and they're going to their warm, fuzzy place, which is the U.S. dollar. The dollar might make them feel good. But it won't preserve the value of their savings. I can't imagine selling gold out of fear. The more scared I get, the more gold I want.
 
 But let's look at the other side of this... perhaps it doesn't matter to you that Dan Ferris doesn't care about gold dropping 5% in one day. Good for him. He sounds like a nut on this topic half the time, anyway.
 
So yes, gold fell from nearly $1,640 an ounce to less than $1,572 an ounce. Gold stocks were hammered. We all took a hit. But look on the bright side. At least you aren't John Paulson...
 
Paulson, the billionaire fund manager famous for shorting the subprime crisis, turned 56 this week. But we doubt the noted gold bull had time to celebrate...
 
Paulson was already suffering the worst year of his career (with some of his funds down more than 40%). His one bright spot was his dedicated Gold Fund. His other funds also have gold-denominated shares (meaning you own the fund in terms of gold, not dollars), which alleviated some of the losses.
 
But as the largest owner of gold exchange-traded fund GLD, his year got worse this week. GLD fell 10% from the end of last month. And all eight of the gold stocks Paulson owns fell with the precious metal... The declines equal a $672.1 million loss for Paulson, assuming his positions stayed constant since September 30.
 
 Foreign-owned banks operating in the U.S. suffered the largest drop in deposits in history over the past six months... According to the Federal Reserve, cash on deposit at foreign-owned banks (think Deutsche Bank) fell 25% ($291 billion) to $879 billion from the end of May to the beginning of December. That's the first time deposits have fallen for six consecutive months since 2002.
 
In total, foreign-owned banks' share of U.S. deposits has fallen from a high of 16.8% in May 2008 to 10.4% in the week ended November 30. And where is all the money going? To JPMorgan Chase. JPMorgan saw deposits increase by $96.9 billion in the third quarter. (Wells Fargo was second with a $57.8 billion increase.) It's ironic that JPMorgan is ramping up its European lending (from $14 billion on June 30 to $15.9 billion as of November 17), while depositor money is fleeing the area.
 
 On the topic of Europe, this week, International Monetary Fund (IMF) chief Christine Lagarde warned the European debt crisis is "escalating," and the crisis will require action from countries outside the European Union (what a subtle plea to the Federal Reserve). Russia said it's considering providing up to $20 billion to the IMF. But we all know who will eventually provide the capital... Fed Chairman "Helicopter Ben" Bernanke... though he's denied this in closed-door meetings with senators...
 
 Senator Bob Corker, a Republican from Tennessee, said Bernanke made it "very clear" in the private meeting that the Fed would not rescue any European financial institutions. Lindsey Graham, a South Carolina Republican, said "[Bernanke] doesn't have the intention or the authority" to bail out countries or banks. We disagree... We find taking the opposite side of anything a government official says is usually a winning bet.
 
Regards,
 
Dan Ferris




This Week's Winners
S&P 500 Symbol Change
Vulcan Materials VMC +19.0%
Novellus Systems NVLS +11.1%
Monster Worldwide MWW +7.4%

Countries Symbol Change
Malaysia EWM -1.0%
Israel ISL -1.2%
Japan EWJ -1.2%

Sectors Symbol Change
Airlines FAA +2.6%
Utilities XLU +1.4%
Real Estate IYR +1.2%

S&P 500 Symbol Change
WPX Energy Inc WPX +1388.4%
Vulcan Materials VMC +19.0%
Tripadvisor Inc TRIP +6.7%
Countries Symbol Change
Malaysia EWM -1.0%
Israel ISL -1.2%
Japan EWJ -1.2%

Sectors Symbol Change
Airlines FAA +2.6%
Utilities XLU +1.4%
Real Estate IYR +1.2%

Commodities Change
Feeder Cattle +1.9%
Aluminium +0.0%
Sugar +0.0%

Date Range:12/8/2011 to 12/15/2011
This Week's Losers
S&P 500 Symbol Change
First Solar FSLR -30.4%
Best Buy BBY -14.8%
Alpha Natural Resources ANR -14.7%

Countries Symbol Change
India IIF -7.0%
Austria EWO -5.4%
Spain EWP -5.2%

Sectors Symbol Change
Gold Mining GDX -9.8%
Oil Services PXJ -7.4%
Clean Energy PBW -6.4%

S&P 500 Symbol Change
First Solar FSLR -30.4%
Joy Global Inc JOY -15.0%
Best Buy BBY -14.8%
Countries Symbol Change
India IIF -7.0%
Austria EWO -5.4%
Spain EWP -5.2%

Sectors Symbol Change
Gold Mining GDX -9.8%
Oil Services PXJ -7.4%
Clean Energy PBW -6.4%

Commodities Change
Natural Gas -10.8%
Silver -9.1%
Gold -8.2%

Date Range:12/8/2011 to 12/15/2011
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