European Union, Global Investors…We’re All Fed up with Greece!

By George Leong, B. Comm

I hate to keep coming back to Greece, but it’s turning out to be a major Greek tragedy over there. The country cannot pay back its initial $130 billion or so emergency bailout and now needs another $150 billion to pay back loans and avoid a sovereign debt default. The reality is that Greece is tanking and falling into shambles, waiting for a white knight to appear and clean up the financial crisis. The country needs to follow strict austerity measures.
I recall being in Greece in 1995 and wondering why there were so many buildings in the construction phase sitting idly with no progress. The taxi driver told me that, in Greece, all construction halts if interest rates are high, waiting for rates to decline before continuing.
Greece is a beautiful country full of history, and one that’s significant in the development of mathematics and the arts. Yet now there appears to be a Greek tragedy in the works.
After much debate and compromise, Greece was extended a second bailout package if it delivered a tough austerity program. In my view, it was a done deal, as Greece did not have another option. Stock markets rallied on the news. The uncertainty in Greece was over.
American-born Greek Prime Minister George Papandreou then shocks the global markets earlier this week after announcing that the country will need to hold a national referendum to determine if its citizens want to accept the new debt crisis bailout terms from the European Union. Papandreou is clearly trying to save his own hide.
Perhaps he should come back stateside and run for President?
Again, I’m talking of survival here for Greece. What is there to talk about? As I said the other day; imagine being on the brink of losing everything, but someone says, “Don’t worry; I have money for your debt crisis, even if you may not be able to pay it back.” Would you say no?
The European Union obviously is fed up with Greece and wants a resolution to the debt crisis. The European Union has demanded that Greece must accept the austerity measures plan in order to receive funds; otherwise, it may need to leave the European Union and go it alone. Of course, if this happens, Greece would go into default, which could lead to a financial crisis throughout the eurozone and cause havoc. Opposition parties in Greece are calling for Greek Prime Minister George Papandreou to resign and for a coalition government to accept the European Union deal. Germany and France have indicated that they are tired of the Greek stalling and want the deal done now.
In my view, it’s silly that Greece believes it has any other options left and is risking a catastrophic debt crisis and default. The debt crisis is not limited to Greece. Italy is also struggling with its own massive debt crisis and austerity measures, while Portugal wants more flexibility in the terms of its debt bailout. The demands, it seems, will not halt and Europe likely has more problems waiting down the road.
My feeling is that the risk continues to be high, as you can read about in Stocks Facing Many Hurdles Ahead.
Longer-term I continue to favor small-cap stocks. You can read why in Small-caps in a Bear Market, But Have a Long-term View
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Debt Crises & Economic Fragility Around the World: Is There a Better Reason to Buy Gold Right Now?

By George Leong, B. Comm

I find it absolutely laughable how Prime Minister George Papandreou needs to hold a national referendum to determine if the country’s citizens want to accept another $150 billion or so in emergency capital in order to repay Greece’s initial bailout from its debt crisis. I mean, we are talking of survival here for Greece. What is there to discuss? Let me put it this way: can you imagine being on the brink of losing everything, but someone pops up and says, “Don’t worry; I have money for you, even if you may not be able to pay it back?”
What really is disturbing is that the vote may not happen until early 2012 despite the European Union members now telling Greece that there will be no changes to its budget cuts and it needs to happen or no money will be advanced and the country will default. The uncertainty will impact the stock market until there is a concrete and workable resolution.
In addition, the one-year Italian bond surged nearly 50% to yield 5.17%, as worries mount that the country could default. Yields relate to risk and rise to compensate for buying higher-risk debt. Bonds in Germany offer much less yield—a reflection of the lower relative risk.
My feeling is that gold continues to be the place you need to have capital given the market risk. After the failure to hold above $1,900, the metal has struggled to find direction on the charts and has traded with little sense of direction at around $1,600 to $1,700.
Besides Europe, don’t forget the crippling debt levels and deficits in America. The powerful U.S. economic engine continues to show breaks and is stalling at this most critical time for the country.
We are also seeing some economic fragility in the BRICS countries. Brazil, India, and China are seeing some stalling in their economies and stock markets.
Buying has been driven by a combination of speculative trading in physical gold, gold ETFs, and buying as a safe haven investment.
Lombardi Financial initially turned bullish in 2002-2003 and has remained so ever since. Although at times the bullion has had a rough ride, prices have turned around significantly after first breaking above $400.00. We believe the spot price of gold will take a run at $2,000 by 2012 should the global economies and risk continue.
The simple truth is that gold is a trustworthy and realistic investment instrument that should be in every investor’s portfolio. Gold’s traditional role as a safe haven has made it the underdog in the world markets. It is an investment that people turn to only when stock or bond markets aren’t performing well, or when monetary policies are running amok. Yet, there is a sense that gold may be increasingly seen as a credible and realistic investment vehicle and not just as a safe-haven instrument for parking capital.
In the current climate, gold represents the best bet, while silver continues to be a trading commodity based on the economic recovery and demand for electronics and industrial applications.
My advice to you is to buy a mixture of exploration-stage miners along with small to large producers. Under this scenario, you can play both the potential aggressive gains of exploration stocks and the steady returns of the large producers. The SPDR Gold Trust ETF (GLD) is worth a look.
I think Europe is a mess and you can read my comments in my recent article, Europe: It Needs to Get Its Act Together.
And with Black Friday in a few weeks, retailers are hoping for buyers, but it will not be easy. You can read about this in Former Retail Superstar Struggling in Weak Market.


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Is There a Better Reason to Buy Gold Right Now?

Market Risk: Why Upside Moves Will Not Be Easy

By George Leong, B. Comm

October was one of the best months for the stock market in history in spite of the market risk. Everyone was buying and it didn’t matter if it was technology, industrial, or some new never-heard-before-technology. Everything went up, which is why we are now facing some selling pressure.
Up we go, down we go. Traders are currently jittery following the strong October. The month ended on a ghoulish note on Halloween. November looks like it will also begin sour, with a jump in market risk.
European stocks got hammered. The FTSE 100 moved down over three percent, while other key European bourses plummeted as much as five percent. The selling was driven by a major surprise when the Greek Prime Minister said the country’s new bailout plan resulting from the debt crisis would have to pass a national referendum—adding more market risk and unknowns to the European and global situations. The reality is that there are revolts on the streets of Athens, as people are fighting to safeguard their previous benefits and lifestyles. I mean, why would you not fight to protect a cushy job with early retirement?
But, as I have said on numerous times in the past, Greece is not the only country in trouble. The other members of PIGS also add to the market risk. Speculation is swirling that Italy may be vulnerable to default. The country is undergoing their own austerity strategy, but I expect some surprises to pop up and this will prop up the market risk.
There is also the renewed concern towards the slowing in Asia, as China’s factory activity declined to its lowest level since February 2009. The economic weakness in Europe is negatively impacting exports in China and other Asian countries and adds to market risk.
Going back to the U.S., the key stock indices have each breached their respective 200-day moving average (MA), while the S&P 500 has moved back into the red for the year.
The downside break is worrisome and could point to more weakness to surface on the charts, especially if the non-farm jobs reading this Friday are poor, as many expect them to be.
On the plus side, based on the seasonal trends, market risk may decline, as the months from November to April have resulted in the biggest gains for the DOW and S&P 500 in the past, according to the Stock Trader’s Almanac.
Technology has been better, with stocks advancing in eight months from November to June.
So, while there are the market risk and volatility, if you trade the historical patterns, ride the gains, but make sure you also take some money off the table.
I continue to recommend using put options or buying short-based exchange-traded funds (ETFs) as an offset to the weakness. It’s easy and cost-effective as a hedge.
Just take a look at the various indices that closely reflect your holdings or put options on individual stocks that you have a large position in. Index Puts include the SPY (S&P 500), QQQ (NASDAQ), or IWM (Russell 2000).
Take a look at what I had previously said about the global economy stalling in Stocks Facing Many Hurdles Ahead.
An area that has been under some pressure, but which I really like longer-term, is China’s travel sector; you can read about it in China’s Travel Market: Why It’s an Attractive Chance for Investment.

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The Only Way the Stock Market Breakout Will Hold

By Mitchell Clark, B.Com

I continue to be dumbfounded by the actions of Greek politicians. Just when more certainty was returning to currency and stock markets, they screw it up again. Make no mistake; today’s stock market woes are largely due to the European debt crisis. I’m totally unimpressed by how this is being handled.
The stock market did a great job breaking out of its correction trading range. The question is, can the breakout hold? If Greece would get its act together, then this is a stock market that wants to go higher.
Everyone knows that corporate earnings tend to be managed by companies and Wall Street analysts. But corporate earnings have been decidedly strong this quarter and all throughout the year. I’m certain the stock market would be a lot higher today if it wasn’t for Europe’s sovereign debt crisis.
We’ve seen very solid corporate earnings from the technology sector, basic materials, healthcare, and industrial goods. Stock market investors revised their corporate earnings expectations lower going into 2012 and this is setting up the stock market for a new advance, providing that the debt crisis or some other shock doesn’t take place. It’s a tricky time to be a stock market investor—with the age of austerity comes a great unknown. There will be growth in the future, but will it be like it was before? It’s tough to imagine Main Street corporate earnings taking off without a new up cycle in the real estate market.
The current stock market is well set up for a decent rally. Valuations are reasonable, visibility for corporate earnings is mostly solid and there is lots of cash sitting on the sidelines. The key going forward will be renewed certainty on the European debt crisis and renewed spending from consumers. With confidence comes hope and with new hope for the future comes renewed consumer spending.
One thing that’s seems quite unlikely, however, is a speedy return to normal economic growth rates. We’re still coming off a major period of debt-fueled excess and both Main Street and Wall Street (banks in particular) are trying to establish a new normal for operations (see All Global Investment Risks Point to a Steady Dollar & Mediocrity in Stocks & Metals). I have to say that, if it weren’t for emerging markets, interest rates being low, and a weaker U.S. dollar, corporate earnings would not be so robust. Policy-wise, the Federal Reserve is making progress domestically. It’s Europe that’s holding things back.
The stock market was due for a little rest after such a strong breakout, but the Greek news was a real surprise. The expectation for the fourth quarter is for another round of solid corporate earnings and, accordingly, the breakout should hold. Any return below 1,200 on the S&P 500 Index would not be good technically. The stock market is muddling through the tough times. It’s time now for Greece to get its act together.

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It’s Still a Bear Market, But Not in Gold Stocks

By Mitchell Clark, B.Com

The top stocks in this market are large-cap, higher-dividend-paying companies with strong international operations. For speculators, gold stocks remain some of the best stocks in this stock market. The big companies have the cash and the economies of scale (to withstand the shocks to fundamentals and the stock market) and gold stocks have some of the best potential for capital gains, because these are the companies that are generating the most growth. The days of Internet stock market high flyers and software monopolies are over. You can trade the stock market, the futures market or you can invest in the real economy. And I’m not talking mom and pop shops on Main Street—I’m talking about the only real thing that counts in today’s global economy, and that’s natural resources.

The commodity price cycle and gold stocks have been experiencing the same price correction as the stock market. But, any reasonable economic analysis suggests that, with so much debt in the world and governments trying to grow their economies with reduced interest rates and printing money, the next major reckoning is about to be unleashed. We’re already seeing core inflation rates going up around the world and, as economies recover; there will be growing scarcity in a basket of raw materials. This is why gold stocks are poised for another major upward price trend—the fundamentals for the spot price of gold are actually getting better (see Precious Metals Sector Deal-making Padding Investor Wallets).

You might not think about it, but the stock market is still in a long-term bear market. I don’t care what the definition of a bear market is; the stock market is still below its value in early 2000—that to me is a bear market. But what have come alive during the last 11 years are commodities and specifically the prices of gold and gold stocks. With all the risks around the world, including the European debt crisis, I don’t see the price of gold as being expensive at all. In fact, it isn’t as adjusted for inflation.

This is why I’m so bullish on precious metals, gold stocks in particular, and agriculture. All the debt and increasing money supplies will come back to haunt the global economy in the form of inflation. What economic growth we can generate now might just evaporate under the auspices of central banks trying to contain the very inflation that they created. That’s why gold stocks are sitting pretty. They already have the cash, the fundamentals and the growing demand for their commodity. It’s a new upward price cycle that’s about to begin.

Gold stocks are like any other stock market sector—they trade as a group. Most investors tend to associate their gold investments apart from their main stock market portfolio. I can’t predict where the spot price of gold is going to go, but all the global policy action that’s been going on since the subprime mortgage meltdown leads me believe that gold stocks will be the stock market’s major outperforming sector over the next several years.

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Penny Stocks, Stock Market Advice, Economic Analysis, Investing In Real Estate and Gold

Debt Crisis in Europe Highlights Continued Strong Fundamentals for Gold

It’s pretty difficult to get enthusiastic about the stock market with sentiment so focused on the sovereign debt situation inGreece. Even in the face of solid earnings expectations for the third quarter, investors are looking into the future and seeing slow economic growth, translating into slower earnings. It’s the perfect storm for equities and it makes choices for equity investors very limited.

The one sector that continues to stand out in my mind as offering the best risk-versus-reward scenario is precious metals, especially gold and silver. Both these commodities are experiencing a well-deserved correction and the fundamentals for higher spot prices remain intact. With investment risk very high in the equity market and so much uncertainty surrounding European banks and the euro currency, gold is going to be a key asset over the next several years.

And, even without all the turmoil surrounding sovereign debt in Europe, the fundamentals for gold are strong in the face of a huge increase in the U.S. money supply, inflationary pressures, and central bank demand for gold bars.

And don’t tell me that inflation isn’t an issue. The last time I checked, prices for things weren’t going down. Inflation jumped to three percent in the month of September in the 17 countries that use the euro currency, which was the highest inflation rate since October of 2008. And this is happening in a slow growth environment. I understand reduced expectations for global economic growth, but with the world awash in debt and countries stimulating their economies with increased money supplies, inflation is a very real threat and potential wealth destroyer over the next several years.

In any case, gold investments are one of the few asset classes that should outperform over the medium term and gold stocks should be on every investor’s radar screen.

The stock market is going through a tumultuous time right now, and has been doing so since the end of July. The S&P 500 Index just recently broke through its 25-day moving average and does not look healthy from a technical perspective. I wouldn’t be surprised at all if the Index hits 1,050 or even 1,000.

The saving grace over the near term should be third-quarter earnings, but any good news from corporations will be usurped by the debt crisis in Europe. Accordingly, equity investors will be well served by keeping a close eye on the spot price of gold and the opportunity for a new entry point. If everything comes apart in Europe, cash, gold and the U.S. dollar will be the marketplace’s only friends.
Strong Fundamentals for Gold Stock