Gold Silver Ratio
Although both silver and gold have rallied over the last year, on a percentage basis the rally in silver has been a lot sharper. The result of silver’s leadership in the metals rally was that the ratio of the price of gold versus silver dropped dramatically over the last year. With gold still at its $1,490s resistance, and with silver just sliding slightly under its $35, the gold/silver ratio has is still at a bull market low. At 42, meaning that it takes about 42 and change ounces of silver to “buy” an ounce of gold metal, the gold/silver ratio is at its lowest weekly close in 28 years as shown in the chart just below.
From 2000 to 2010, it basically took an average of 60 ounces of silver to buy one ounce of gold, but then in late 2010, silver gained an increased luster relative to gold. When silver made its recent high just over a week ago, the ratio of gold to silver shrunk from close to 70 a year ago all the way down to 37!
Now, even after the recent drubbing in silver, it still only takes about 42 ounces of silver to buy one ounce of gold, which is still extremely low by historical standards. All this seems to imply that short term, unless some new demand for silver materializes from a previously non-existent source, either silver is still overvalued or gold is undervalued. Then there is a longer term view that gold silver ratio will go to 6 as of hundreds of years ago.
Good read on how gold/silver ratio is misleading here.
Interesting Thoughts About Dollar Cost Averaging
I am not going to discuss the basics of Dollar Cost Averaging, I believe readers can find out about the concept quite easily on the Internet. Just going to display some interesting facts and graphs.
Market Outlook for Q2 2011
These 3 months of the year, markets have contended with the ouster of Egyptian President Hosni Mubarak, battles between forces loyal to Libyan leader Muammar Qaddafi and rebels, protests in Saudi Arabia, Bahrain and Yemen, oil above $100 a barrel, record-high food costs and a magnitude 9.0 earthquake in Japan that killed more than 8,000 people and crippled a nuclear power plant.
Let’s touch on the events, country and situation one by one.
China
China’s inflation accelerated to a 4.9 percent annual pace in January, exceeding the government’s aims to limit consumer-price gains to 4 percent for 2011 for a fourth month. Banks extended 1.04 trillion yuan ($158 billion) of new loans, more than double December’s level.
China government targets inflation as top priority to cut risk of social unrest while encouraging private investment and allowing for stronger Chinese currency.
The front loading of interest rate increase by the Chinese government means in the first half of the year we will see substantial interest rate increase and increase in capital requirements of banks.
Reserve ratios stood at 19 percent for the biggest banks before today’s move, already the highest in more than two decades. 8th February, the People’s Bank of China (PBoC) announced that the one-year deposit rate and the one-year lending rate will rise by 25 basis points (bps) to 3% and 6.06% respectively.
Chinese banks, set to post record profits, are trading at their cheapest level in two years and may stay depressed in 2011 as investors bet faster inflation and capital requirements will erode earnings. Shares lost allure over the last three months. The nation’s five biggest lenders, with a combined $771 billion market value, trade at an average of 8.5 times forecast profits, compared with 10.4 times at the world’s 20 largest banks, according to Bloomberg. India’s five largest banks trade at an average of 19 times.
The Toxic Asset Is Back
Commercial Mortgage Backed Securities “CMBS”, which was plummeted as a toxic financial asset, is taking a small step back into the market and this time with some relevancy and support. Borrowers with smaller properties and in areas outside the biggest cities are benefitting from the increase in demand for the securities increases from investors seeking higher yields.
The rebound in commercial-mortgage backed securities is making refinancing easier for property owners that have been passed over by institutions that usually hold real estate debt on their books, aiding a recovery in commercial property values. Randy Waesche, an investor in several New Orleans-area hotels, was running out of time to retire debt he took on to build a Marriott hotel in downtown New Orleans when Citigroup offered him a workable solution.
Institutions that keep mortgages on their balance sheets, including insurance companies and non-U.S. banks, focus on top-tier buildings in large metropolitan areas. CMBS issuers fare better in secondary and tertiary markets because they can get the higher rates they need to cover the costs of packaging and selling loans.
Primary markets include metropolitan areas such as New York and San Francisco that are mostly located on the U.S. coasts, while secondary and tertiary markets are comprised of smaller cities and towns. Some of these markets didn’t experience as much of a downturn because they didn’t experience as much of an upturn during the boom years. What people are really looking for is stability. You can find good, stable properties in secondary and tertiary markets.
How To Predict The Markets
Traders and investors have been dreaming of predicting the markets since the beginning of formation of trading markets. How nice will it be to know exactly how the market is going to move tomorrow, next week, next month. In fact, the whole concept of Technical Analysis is to analyze the chart representing human behaviour and predict the future movements.
Now it maybe more possible than ever, as reported in New York Times. Being able to crunch what is called big data gives someone a huge advantage. Wall Street, quant traders and hedge fund have been exploring this for years. Data includes news, commentaries, blog posts, social networking sites and tweets (on Twitter). Analysis includes which market or counter is commented upon, adjectives used, words representing sentiments, even emoticons!
Mainstream Users
There are no lack of mainstream users of this form of market analysis. Alpha Equity Management, a $185 million equities fund in Hartford, uses Thomson Reuters software to measure sentiment over weeks and pumps that information directly into his fund’s trading systems. Bloomberg monitors news articles and Twitter feeds and alerts its customers if a lot of people are suddenly sending Twitter messages about, say, I.B.M.
India’s New Year
Last year I had some clients in Indian equity, always a consideration and comparison to China. India had a pretty good 2010 and China equity faltered. India’s main stock index, the Sensex, gained 17% last year, and the country’s market cap as a percentage of world market cap increased more than any other country except Canada.
This year seems different. After a small gain of 0.25% on the first day of the year, the Sensex has gone down for all except one day since for a year-to-date decline of 7.90%. The chart below from Bespoke Invest shows the index made a lower high on its most recent rally, and tested its late November intraday low.
I have been noticing this since I read the article on 11th Janurary. The November lows didn’t hold, the technicals will turn decidedly bearish.
Adapted from “India Struggles Out of the Gate” published on Tuesday, January 11, 2011 in bespokeinvest.com
Forecast Of China By Major Brokerages
China’s stocks may slump for a second year as the central bank raises interest rates to tame inflation, according to Zhang Kun, the strategist at Guotai Junan Securities Co. who correctly predicted last year’s drop.
According to Zhang, whose Shanghai- based firm Guotai Junan is the nation’s second-largest brokerage by revenue, said. “Inflation is the biggest risk. The government will keep tightening.”
Guotai Junan is alone among China’s major brokerages in predicting declines for 2011. China International Capital Corp., the only other major Chinese brokerage to correctly forecast the index’s drop in 2010, also expects an advance this year.
The Shanghai Composite fell 14 percent in 2010 to 2808.08, making it the worst performer among benchmark indexes in the world’s 10 biggest markets. Premier Wen Jiabao’s government ordered banks to set aside more reserves six times and boosted rates twice since October to tame inflation and curb asset bubbles after record gains in lending and property prices.
The central bank will keep increasing borrowing costs to cap inflation at around 4 percent this year after it reached a 28-month high of 5.1 percent in November, Zhang said. Last March, he said the Shanghai gauge, which had already dropped 9.2 percent, would fall a further 17 percent to 2,500 in the first half as the government boosted measures to cool economic growth. The index slid 27 percent in the first six months of 2010.
Predicting 11% Gain in S&P 500
“The benchmark gauge for American equities will rise 11 percent to 1,379 in 2011, bringing the increase since 2008 to 53 percent, the best return since 1997 to 2000, according to the average of 11 strategists in a Bloomberg News survey. Goldman Sachs Group Inc.’s David Kostin, the most accurate U.S. strategist this year, said sales growth will spur a 17 percent rally in the S&P 500 through the end of 2011. ”
I was quite suprised by this Bloomberg in a report.
I had mentioned about the term “New Normal” coined by Pacific Investment Management Co. (PIMCO) where the world economy grows at a slower rate than the decades that preceded this crisis years.
A rise of 11 percent in Standard & Poor’s 500 Index will bring the increase since 2008 to 53 percent, though not as impressive as Emerging Markets growth of approximate 80 percent till date. However, an 11 percent rise is a very attractive draw to finally enter the US market at a time Emerging Markets is showing signs that explosive growth has gone to a sustainable pace.
Everything Can Be Structured Into A Money Making Product.
The global financial crisis have presented us with such crazy happenings driven by greed. More is to come, the following is from an actual New York Times article and not FHM or Happy Potter novel. Investors Put Money on Lawsuits to Get Payouts.
“Large banks, hedge funds and private investors hungry for new and lucrative opportunities are bankrolling other people’s lawsuits, pumping hundreds of millions of dollars into medical malpractice claims, divorce battles and class actions against corporations — all in the hope of sharing in the potential winnings.”
This insane practice, thankfully, cannot be found here. Or at least not to any extent of common knowledge. Will you as an investor, want to own payout of your wealthy neighbors’ ugly divorce battle in a loan structure? After all, this thing looks like its gonna hurt the plaintiff good, which is profitable for my clients!
Who’s Managing Your Money?
I liked this diagram by Tommy Sikes, an advisor in North Carolina at TS Financial. It illustrates the madness that sometimes goes on in the industry.
Financial Advisor Magazine has the results of a study by Cerulli Associates which tells us that in the US, advice business has hit a wall and is not replenishing the ranks with young talent.
