Economic Volatility
Is Economic Volatility Coming?
Source: Karen Roche and JT Long of The Gold Report (5/9/12).
One special session at the April 27–29 Casey Research Recovery Reality Check Summit wasn’t on the agenda—a private panel for The Gold Report readers with three of the premier summit speakers: Global Resource Investments Founder and Chairman Rick Rule, Casey Research Senior Editor Louis James and Casey Energy Opportunities Senior Editor Marin Katusa. You won’t pin them down to a timeframe, but they’re looking forward to a buyer’s market, as equity prices fall and volatility increases. As Rule puts it, “When the luster is off the sector, it’s off all parts of the sector, so in bad markets the best companies are cheap. When the best come cheap, you have to play.”
Casey Research Summit Special Report: Reality Check or Checkmate?
The Gold Report: When we talked last fall after the When Money Dies summit, Rick, you were looking forward to the volatility preceding the decline of paper currencies as an opportunity to take advantage of the liquidity crisis.
Rick Rule: The volatility I anticipated didn’t happen because the amount of quantitative easing—I would call it counterfeiting—was extraordinary. That cash coming into the system acted as a soporific, so the volatility I had hoped for did not in fact come to pass. People whose portfolios declined probably felt they experienced volatility, but I think it was the weight of the chronically overvalued junior resources sector. Probably 80% of the sector is nonviable and in a state of permanent decline, with the market occasionally punctuated by up moves driven by performance among the best companies.
TGR: So, you were disappointed.
RR: I was very disappointed. I expected a Volatility S&P 500 (^VIX) in the range of 30. For somebody who makes a living basically as a pawnbroker, there are no better circumstances than extraordinary volatility. I didn’t get to practice my trade.
TGR: Do you think it will change in the second half of 2012? Continue reading
What Is Contrarian Speculation?
Rick Rule’s Primer on Contrarian Speculation
In an interview with Louis James, Rick Rule provides an excellent summary of what contrarian speculation investment is and makes a powerful case that the current metals climate means gold stocks are the play to make.
[If you weren't present at this timely summit, you can still learn the details of Rick's current investment strategy, plus much, much more. Get the actionable advice and economic perspectives and insights of 31 financial luminaries to make sure you don't miss the opportunities ahead.]
Louis James: Ladies and gentlemen, welcome. Thank you very much for tuning in. We are at the Casey Research Summit – the reality check on the recovery of the economy. One of our luminary speakers who is always at our events, Rick Rule, is with us here now. We’d like you to give us the quick tour of your talk today and we’ll go from there.
Rick Rule: Sure. My role here wasn’t to do economics; that’s not what I am. I am a speculator, and so I talked about where we are in the context of where people are with their own portfolios – in particular portfolios that are junior-resource centric – which is what I think most of your audience was interested in.
Louis: Right.
Rick: And my point was that there were some good forces in the market: lots of cash on the sidelines; some good work being done; and basically a good market for resources as a consequence both of population growth and demographic growth at the bottom of the economic pyramid, and in terms of historical supply constraints. And there were some bad factors in the market: excessive debt in the system; way too much government interference; very large social takes on a global basis, beginning to impact extractive industries. And there were some truly ugly factors – the ugly factors in particular being poor corporate as opposed to share market performance, and the unfortunate truth that probably 80% of the junior resource stocks on a global basis are valueless. So the sector itself is in perma-decline. Although the performance – as you know from being affiliated with Casey – of the top 10% of the sector can be extraordinary. It often serves merely to focus attention on the worst companies in the sector. And then I went on to say: “This is the set of circumstances that exists, now what can we do with this?” Continue reading
Is it a Good Time to Buy REITS?
Buy Rental Property or a REIT?
Although many individuals prefer rental units as additional income, one of the last things you probably want to do in your retirement is to find renters and deal with the drama that comes from having them rent for you. You have to find tenants with reliable income, continue to provide maintenance and other support for them, and worry about potential problems with non-payment or other issues.
Buy REITS?
Traditionally, one of the best retirement investment options is a real estate investment trust (REIT). According to Wikipedia:
A REIT or “real estate investment trust” is a tax designation for a corporate entity investing in real estate. The purpose of this designation is to reduce or eliminate corporate tax. In return, REITs are required to distribute 90% of their taxable income into the hands of investors. The REIT structure was designed to provide a real estate investment structure similar to the structure mutual funds provide for investment in stocks.
As opposed to buying rental homes or properties, REITs offer a lot of diversification and are very liquid. It’s easy to sell REIT shares on the stock market and they are usually very stable. On the other hand, houses can be difficult to liquidate and people are finicky, leaving landlords with a lot of potential risk. Continue reading
Is an Economic Deluge Nigh?
By David Galland, Casey Research
If history has taught one certain lesson, it is that the less fettered an economy, the better humankind is able to do what it does best: run from trouble and run toward opportunity. In this way mistakes are quickly resolved and progress assured.
Conversely, the deeper the muck of regulation, mandates, taxes, subsidies and other bureaucratic meddling, the slower we humans are in following our natural instincts until the point that progress is slowed or even stopped.
It is said that history doesn’t repeat itself, but it often rhymes. In the current circumstances, it appears that enough time has passed that current generations have completely forgotten the critical connection between the ability of humans to freely pursue their aspirations and economic progress.
You can see this ignorance in the popular demand for even more, not less, meddling in the affairs of humankind. Should this trend continue – and for reasons I will touch on momentarily, I firmly believe it will – then the aspirations of the productive minority will soon be dampened by ever higher taxes and other attempts to “level the playing field” and the global economy, already in tatters, will fall off the edge. Continue reading
Investing in a Mutual Fund
Mutual Funds
Even in the wake of the Great Recession, the mutual fund has proven itself a worthy investment for the average person. In fact, many people are actually looking towards mutual funds as their hedged bet into the world of variable investments.
In order to fully understand how to invest in a mutual fund, you must first understand exactly what a mutual fund is.
What Is A Mutual Fund?
A mutual fund is a basket of investments that is chosen by a management team for the profitability of the investors. This is why many financial investors actually say that when you are investing in a mutual fund, you are investing in the reputation of the managers as well as the reputation of the underlying businesses.
Mutual funds usually have some kind of theme that combines the investments in the basket. For instance, all of the investments may be related to the precious metals market. In this case, the title of the mutual fund would be something like “Bank X Precious Metals Growth Fund.” Although the title of the mutual fund can give insight as to the underlying investments, they may only represent the top percentage of holdings. We recommend that you check into the actual underlying investments that are currently being held in the mutual fund to be sure that it is actually investing in what you think it is.
How Mutual Funds Work
The main idea behind a mutual fund is to allow an investor to instantly diversify their investments with a single purchase. The managers will spread out the total money collected from the investors into companies that are related to the theme of the mutual fund. Because of this, mutual funds are usually thought of as a relatively safe investment that is made for those of a lower risk tolerance. However, the rewards that accompany a mutual fund are usually not comparable to those of individual securities and short-term. They may be in the long-term depending on many variables.
Mutual funds have a scale of risk that is associated with a general view of the mutual fund market. If a mutual fund is marked as a “growth fund,” this means that investors should invest in this fund with the hopes of growing their investments over a certain time period. However, Continue reading
Jobs Crisis Among Recent College Graduates
Education Trends
The ongoing unemployment crisis in this country has plagued Americans of all backgrounds and vocations looking to find a decently paying job in their field. But one demographic that has been hit particularly hard by unemployment is one that you might not expect. The Atlantic magazine reports that unemployment has been unusually rampant among recent college graduates. Specifically, they cite a report from the Associated Press that nearly 53% of recent college grads are either underemployed or out of a job altogether. Those are sobering statistics for current college students looking to graduate in the immediate future.
Graduated
When the Associated Press says that recent college students are underemployed, they mean that college students are taking jobs that they’re either overqualified for or those that don’t utilize the full range of their skills. A political science major may be working at a coffee shop, or advertising major may have chosen a job in retail over unemployment. But some graduates can’t or won’t find employment in lower skilled jobs—the Associated Press reports that nearly 750,000 graduates have no job prospects. In other words, a lot of young people are making hard choices about the immediate future of their careers. Continue reading
European debt crisis
European Debt Crisis:
Portugal’s Bailout, One Year Later — Were You Prepared in Advance?
Many analysts had opinions before the bailout, but no one was talking about the most important indicator
Make no mistake: The stakes for financial and economic survival in Europe are high. Seemingly everyone — from investment bloggers to financial television hosts — has something to say about the European debt crisis.
But with so many divergent opinions to choose from, which ones should you trust? Continue reading
US Financial System: Is It Finally Stable?
US Financial System: Is It Finally Stable?
Bernanke comments raise questions about banks
Four years after we brushed up against “financial Armageddon,” did you think you’d be reading this?
Federal Reserve Chairman Ben Bernanke said…banks need to have more capital at hand in order to ensure the financial system is stable. Bernanke said regulators were taking steps to force financial institutions to hold higher capital buffers…
- Reuters, April 9
It appears our financial system is still not as stable as it needs to be. But guess who relaxed the banking system’s “capital buffers” in the first place? Continue reading
So Long, US Dollar As World’s Reserve Currency
So Long, US Dollar
By Marin Katusa, Casey Research
There’s a major shift under way, one the US mainstream media has left largely untouched even though it will send the United States into an economic maelstrom and dramatically reduce the country’s importance in the world: the demise of the US dollar as the world’s reserve currency.
For decades the US dollar has been absolutely dominant in international trade, especially in the oil markets. This role has created immense demand for US dollars, and that international demand constitutes a huge part of the dollar’s valuation. Not only did the global-currency role add massive value to the dollar, it also created an almost endless pool of demand for US Treasuries as countries around the world sought to maintain stores of petrodollars. The availability of all this credit, denominated in a dollar supported by nothing less than the entirety of global trade, enabled the American federal government to borrow without limit and spend with abandon.
The dominance of the dollar gave the United States incredible power and influence around the world… but the times they are a-changing. As the world’s emerging economies gain ever more prominence, the US is losing hold of its position as the world’s superpower. Many on the long list of nations that dislike America are pondering ways to reduce American influence in their affairs. Ditching the dollar is a very good start. Continue reading
Invest in Structured Bonds?
By Tim McMahon, editor
What Are Structured Bonds?
First let’s look at what makes up a bond. A bond is a form of debt where a company borrows money from investors and has a certain expiration date called a “Maturity Date”. The interest rate that the company pays is called the “coupon rate.” One advantage of a bond over a stock is that a bond is a debt so bondholders are “creditors”.
In the event of corporate bankruptcy bondholders go to the head of the line while shareholders as owners go to the back of the line and only get whatever is left over (if anything) once all the creditors (including bond holders) are satisfied.
In an effort to lower the interest rate they had to pay to investors companies started offering “convertible bonds.” Thus a convertible bond has all the security benefits of a bond with some of the upside potential of stocks.
A convertible bond has the option to be able to be converted into stock if the price of the stock rises high enough. In this way, investors were not only lenders to the company but could also participate in the growth of the company as shareholders. In exchange for this added potential gain the bondholders were given a lower interest rate, i.e. the “Coupon rate” is lower on a convertible bond than on a similar standard bond.
Structured bonds are based on the idea of convertible bonds. In an effort to add even more flexibility and additional features including higher yields, lower risk or a variety of other features, investment banks started ‘slicing and dicing’ traditional bonds in a variety of ways creating derivatives called structured bonds.
Two Forms of Structured Bonds
There are two basic forms of structured bonds Continue reading
