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  Quotations - Invest  
[Quote No.35963] Need Area: Money > Invest
"Lead is used as a sound absorber, x radiation shield, and to absorb vibrations. It is used in fishing weights, to coat the wicks of some candles, as a coolant (molten lead), as ballast, and for electrodes. Lead compounds are used in paints, insecticides, and storage batteries. The oxide is used to make leaded 'crystal' and flint glass. Alloys are used as solder, pewter, type metal, bullets, shot, antifriction lubricants, and plumbing." - chemistry.about.com

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[Quote No.35964] Need Area: Money > Invest
"In investment, the bond credit rating assesses the credit worthiness of a corporation's or government debt issues. It is analogous to credit ratings for individuals. The credit rating is a financial indicator to potential investors of debt securities such as bonds. These are assigned by credit rating agencies such as Moody's, Standard & Poor's, and Fitch Ratings to have letter designations (such as AAA, B, CC) which represent the quality of a bond. Bond ratings below BBB/Baa are considered to be not investment grade and are colloquially called junk bonds... Moody's assigns bond credit ratings of Aaa, Aa, A, Baa, Ba, B, Caa, Ca, C, with WR and NR as withdrawn and not rated.[2] Standard & Poor's and Fitch assign bond credit ratings of AAA, AA, A, BBB, BB, B, CCC, CC, C, D. Moody's, S&P and Fitch will all also assign intermediate ratings at levels between AA and CCC (e.g., BBB+, BBB and BBB-), and may also choose to offer guidance (termed a 'credit watch') as to whether it is likely to be upgraded (positive), downgraded (negative) or uncertain (neutral)... A bond [or fixed interest investment] is considered investment grade or IG if its credit rating is BBB- or higher by Standard & Poor's or Baa3 or higher by Moody's or BBB(low) or higher by DBRS. Generally they are bonds that are judged by the rating agency as likely enough to meet payment obligations that banks are allowed to invest in them. Ratings play a critical role in determining how much companies and other entities that issue debt, including sovereign governments, have to pay to access credit markets, i.e., the amount of interest they pay on their issued debt. The threshold between investment-grade and speculative-grade ratings has important market implications for issuers' borrowing costs. Bonds that are not rated as investment-grade bonds are known as high yield bonds or more derisively as junk bonds. The risks associated with investment-grade bonds (or investment-grade corporate debt) are considered noticeably higher than in the case of first-class government bonds. The difference between rates for first-class government bonds and investment-grade bonds is called investment-grade spread. It is an indicator for the market's belief in the stability of the economy. The higher these investment-grade spreads (or risk premiums) are, the weaker the economy is considered." - wikipedia.org
http://en.wikipedia.org/wiki/Bond_credit_rating
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[Quote No.35965] Need Area: Money > Invest
"Iron is vital to plant and animal life. In humans, it appears in the hemoglobin molecule. Iron metal is usually alloyed with other metals and carbon for commercial uses. Pig iron is an alloy containing about 3-5% carbon, with varying quantities of Si, S, P, and Mn. Pig iron is brittle, hard, and fairly fusible and is used to produce other iron alloys, including steel. Wrought iron contains only a few tenths of a percent of carbon and is malleable, tough, and less fusible than pig iron. Wrought iron typically has a fibrous structure. Carbon steel is an iron alloy with carbon and small amounts of S, Si, Mn, and P. Alloy steels are carbon steels that contain additives such as chromium, nickel, vanadium, etc. Iron is the least expensive, most abundant, and most used of all metals." - chemistry.about.com

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[Quote No.35966] Need Area: Money > Invest
"Copper is widely used in the electrical industry. In addition to many other uses, copper is used in plumbing and for cookware. Brass and bronze are two important copper alloys. Copper compounds are toxic to invertebrates and are used as algicides and pesticides. Copper compounds are used in analytical chemistry, as in the use of Fehling's solution to test for sugar. American coins contain copper." - chemistry.about.com

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[Quote No.35967] Need Area: Money > Invest
"Ancient Greeks and Romans used alum as an astringent, for medicinal purposes, and as a mordant in dyeing. It is used in kitchen utensils, exterior decorations, and thousands of industrial applications. Although the electrical conductivity of aluminum is only about 60% that of copper per area of cross section, aluminum is used in electrical transmission lines because of its light weight. The alloys of aluminum are used in the construction of aircraft and rockets. Reflective aluminum coatings are used for telescope mirrors, making decorative paper, packaging, and many other uses. Alumina is used in glassmaking and refractories. Synthetic ruby and sapphire have applications in producing coherent light for lasers." - chemistry.about.com

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[Quote No.35968] Need Area: Money > Invest
"Gold is used in coinage and is the standard for many monetary systems. Gold is used for jewelry, dental work, plating, and reflectors. Chlorauric acid (HAuCl4) is used in photography for toning silver images. Disodium aurothiomalate, administered intramuscularly, is a treatment for arthritis." - chemistry.about.com

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[Quote No.35969] Need Area: Money > Invest
"Cobalt forms many useful alloys. It is alloyed with iron, nickel, and other metals to form Alnico, an alloy with exceptional magnetic strength. Cobalt, chromium, and tungsten may be alloyed to form Stellite, which is used for high-temperature, high-speed cutting tools and dies. Cobalt is used in magnet steels and stainless steels. It is used in electroplating because of its hardness and resistance to oxidation. Cobalt salts are used to impart permanent brilliant blue colors to glass, pottery, enamels, tiles, and porcelain. Cobalt is used to make Sevre's and Thenard's blue. A cobalt chloride solution is used to make a sympathetic ink. Cobalt is essential for nutrition in many animals. Cobalt-60 is an important gamma source, tracer, and radiotherapeutic agent." - chemistry.about.com

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[Quote No.35970] Need Area: Money > Invest
"Magnesium is used in pyrotechnic and incendiary devices. It is alloyed with other metals to make them lighter and more easily welded, with applications in the aerospace industry. Magnesium is added to many propellents. It is used as a reducing agent in the preparation of uranium and other metals that are purified from their salts. Magnesite is used in refactories. Magnesium hydroxide (milk of magnesia), sulfate (Epsom salts), chloride, and citrate are used in medicine. Organic magnesium compounds have many uses. Magnesium is essential for plant and animal nutrition. Chlorophyll is a magnesium-centered porphyrin." - chemistry.about.com

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[Quote No.35971] Need Area: Money > Invest
"There are some investors who become very interested in mining and energy stocks. These companies mine predominantly: the industrial metals -- aluminium (bauxite), cobalt, copper ('red gold'), iron, lead, magnesium, manganese, molybdenum, nickel, tin, zinc; the precious metals, sometimes called the 'money metals' or the non-inflationary/non-fiat currencies -- gold ('yellow gold'), palladium (in the platinum group of metallic elements), platinum ('white gold'- misnamed as real white gold is an alloy of gold which has been decolorized by the addition of palladium.), silver ('poor man's gold'); the energy materials -- both (brown) thermal and (black) coking coal, natural gas, plutonium, (light or heavy, sweet or sour) crude oil ('black gold'), uranium; and miscellaneous materials -- mineral sands, potassium (potash), rare earth elements (REE). Knowing what each is used for can help the investor know when demand is likely to rise or fall within the business cycle and in response to certain news events." - Seymour@imagi-natives.com

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[Quote No.35972] Need Area: Money > Invest
"Manganese is an important alloying agent. It is added to improve the strength, toughness, stiffness, hardness, wear resistance, and hardenability of steels. Together with aluminum and antimony, especially in the presence of copper, it forms highly ferromagnetic alloys. Manganese dioxide is used as a depolarizer in dry cells and as a decolorizing agent for glass that has been colored green due to iron impurities. The dioxide is also used in drying black paints and in the preparation of oxygen and chlorine. Manganese colors glass an amethyst color and is the coloring agent in natural amethyst. The permanganate is used as an oxidizing agent and is useful for qualitatitive analysis and in medicine. Manganese is an important trace element in nutrition, although exposure to the element is toxic in higher quantities." - chemistry.about.com

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[Quote No.35973] Need Area: Money > Invest
"Platinum is used in jewelry, wire, to make crucibles and vessels for laboratory work, electrical contacts, thermocouples, for coating items that must be exposed to high temperatures for long periods of time or must resist corrosion, and in dentistry. Platinum-cobalt alloys have interesting magnetic properties. Platinum absorbs large amounts of hydrogen at room temperature, yielding it at red heat. The metal is often used as a catalyst. Platinum wire will glow red-hot in the vapor of methanol, where is acts as a catalyst, converting it for formaldyhde. Hydrogen and oxygen will explode in the presence of platinum." - chemistry.about.com

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[Quote No.35974] Need Area: Money > Invest
"Potash potassium] is in high demand as a fertilizer. Potassium, found in most soils, is an element that is essential for plant growth. An alloy of potassium and sodium is used as a heat transfer medium. Potassium salts have many commercial uses." - chemistry.about.com

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[Quote No.35975] Need Area: Money > Invest
"Plutonium is used as an explosive in nuclear weapons. The complete detonation of a kilogram of plutonium produces an explosion equal to that produced by approximately 20,000 tons of chemical explosive. One kilogram of plutonium is equivalent to 22 million kilowatt hours of heat energy, so plutonium is important for nuclear power." - chemistry.about.com

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[Quote No.35976] Need Area: Money > Invest
"The alloys of silver have many commercial uses. Sterling silver (92.5% silver, with copper or other metals) is used for silverware and jewelry. Silver is used in photography, dental compounds, solder, brazing, electrical contacts, batteries, mirrors, and printed circuits. Freshly deposited silver is is the best known reflector of visible light, but it rapidly tarnishes and loses its reflectance. Silver fulminate (Ag2C2N2O2) is a powerful explosive. Silver iodide is used in cloud seeding to produce rain. Silver chloride can be made transparent and is also used as a cement for glass. Silver nitrate, or lunar caustic, is used extensively in photography. Although silver itself is not considered toxic, most of its salts are poisonous, due to the anions involved. Exposure to silver (metal and soluble compounds) should not exceed 0.01 mg/M3 (8 hour time-weighted average for a 40 hour week). Silver compounds can be absorbed into the circulatory system, with deposition of reduced silver in body tissues. This may result in argyria, which is characterized by a greyish pigmentation of the skin and mucous membranes. Silver is germicidal and may be used to kill many lower organisms without harm to higher organisms. Silver is used as coinage in many countries." - chemistry.about.com

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[Quote No.35977] Need Area: Money > Invest
"Tin is used to coat other metals to prevent corrosion. Tin plate over steel is use to make cans for food. Some of the important alloys of tin are soft solder, fusible metal, type metal, bronze, pewter, Babbitt metal, bell metal, die casting alloy, White metal, and phosphor bronze. The chloride SnCl·H2O is used as a reducing agent and as a mordant for printing calico. Tin salts may be sprayed onto glass to produce electrically conductive coatings. Molten tin is used to float molten glass to produce window glass. Crystalline tin-niobium alloys are superconductive at very low temperatures." - chemistry.about.com

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[Quote No.35978] Need Area: Money > Invest
"Uranium is of great importance as a nuclear fuel. Nuclear fuels are used to generate electrical power, to make isotopes, and to make weapons. Much of the internal heat of the earth is thought to be due to the presence of uranium and thorium. Uranuim-238, with a half-life of 4.51 x 109 years, is used to estimate the age of igneous rocks. Uranium may be used to harden and strengthen steel. Uranium is used in inertial guidance devices, in gyro compasses, as counterweights for aircraft control surfaces, as ballast for missile reentry vehicles, for shielding, and for x-ray targets. The nitrate may be used as a photographic toner. The acetate is used in analytical chemistry. The natural presence of uranium in soils may be indicative of the presence of radon and its daughters. Uranium salts have been used for producing yellow 'vaseline' glass and ceramic glazes." - chemistry.about.com

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[Quote No.35979] Need Area: Money > Invest
"Zinc is used to form numerous alloys, including brass, bronze, nickel silver, soft solder, Geman silver, spring brass, and aluminum solder. Zinc is used to make die castings for use in the electrical, automotive, and hardware industries. The alloy Prestal, consisting of 78% zinc and 22% aluminum, is nearly as strong as steel yet exhibits superplasticity. Zinc is used to galvanize other metals to prevent corrosion. Zinc oxide is used in paints, rubbers, cosmetics, plastics, inks, soap, batteries, pharmaceuticals, and many other products. Other zinc compounds are also widely used, such as zinc sulfide (luminous dials and fluorescent lights) and ZrZn2 (ferromagnetic materials). Zinc is an essential element for humans and other animal nutrition. Zinc-deficient animals require 50% more food to gain the same weight as animals with sufficient zinc. Zinc metal is not considered toxic, but if fresh zinc oxide is inhaled it can cause a disorder referred to as zinc chills or oxide shakes." - chemistry.about.com

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[Quote No.35980] Need Area: Money > Invest
"Molybdenum is an important alloying agent which contributes to the hardenability and toughness of quenched and tempered steels. It also improves the strength of steel at high temperatures. It is used in certain heat-resistant and corrosion-resistant nickel-based alloys. Ferro-molybdenum is used to add hardness and toughness to gun barrels, boilers plates, tools, and armor plate. Almost all ultra-high strength steels contain 0.25% to 8% molybdenum. Molybdenum is used in nuclear energy applications and for missile and aircraft parts. Molybdenum oxidizes at elevated temperatures. Some molybdenum compounds are used to color pottery and fabrics. Molybdenum is used to make filament supports in incandescent lamps and as filaments in other electrical devices. The metal has found application as electrodes for electrically-heated glass furnaces. Molybdenum is valuable as a catalyst in the refining of petroleum. The metal is an essential trace element in plant nutrition. Molybdenum sulfide is used as a lubricant, particularly at high temperatures where oils would decompose. Molybdenum forms salts with valencies of 3, 4, or 6, but the hexavalent salts are the most stable." - chemistry.about.com

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[Quote No.35981] Need Area: Money > Invest
"Hydrogen readily diffuses through heated palladium, so this method is often used to purify the gas. Finely divided palladium is used as a catalyst for hydrogenation and dehydrogenation reactions. Palladium is used as an alloying agent and for making jewelry and in dentistry. White gold is an alloy of gold which has been decolorized by the addition of palladium. The metal is also used to make surgical instruments, electrical contacts, and watches." - chemistry.about.com

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[Quote No.35982] Need Area: Money > Invest
"Following the stock market crash of 1929 and the ensuing Great Depression, Irving Fisher developed a theory of economic crises called 'debt-deflation', which rejected general equilibrium theory and attributed crises to the bursting of a credit bubble. According to the debt deflation theory, a sequence of effects of the debt bubble bursting occurs: 1. Debt liquidation and distress selling. 2. Contraction of the money supply as bank loans are paid off. 3. A fall in the level of asset prices. 4. A still greater fall in the net worth of businesses, precipitating bankruptcies. 5. A fall in profits. 6. A reduction in output, in trade and in employment. 7. Pessimism and loss of confidence. 8. Hoarding of money. 9. A fall in nominal interest rates and a rise in deflation adjusted interest rates. This theory was ignored in favor of Keynesian economics, partly due to the damage to Fisher's reputation from his overly optimistic attitude prior to the crash, but has experienced a revival of mainstream interest since the 1980s, particularly since the Late-2000s recession, and is now a main theory with which he is popularly associated. [The book was reviewed at Amazon.com by Gaetan Lion, who was one of their Top 500 Reviewers in the following way: 'Irving Fisher's Debt-Deflation Theory was so prescient vs what occurred 75 years later. This short book written in 1933 is more insightful about the cause of the recent financial crisis than the majority of the current books written after it. The main points of his theory are that the drivers of depressions and financial crisis are over-indebtedness and ensuing deflation as borrowers eventually default and creditors have to resell their collateral at liquidation prices. Fisher also argued that at any point in time at least one economic activity (production, consumption, savings, investments) is in a state of disequilibrium. Economies are nearly always over- or under- doing something (whether it is investing in a specific sector, or producing in another, or whether it is overall consumer demand or savings, etc...). And, eventually one of those market driven disturbances is related to over-indebtedness followed by deflation resulting in another cycle of bubble and crash. This is a vicious cycle because during deflation collateral (asset) prices go down; meanwhile debt outstanding does not. This leads to borrowers defaults and creditors capital write downs. It also leads to contracting credit, income, earnings, demand, GDP, and employment. Fisher's disequilibrium is a foundational concept for John Maynard Keynes The General Theory of Employment, Interest, and Money (Great Minds Series) published in 1936. Keynes expressed that a market economy is typically in a chronic state of disequilibrium. Thus, a market economy needs to be managed through expansive or contracting fiscal policies (generating Budget Deficits during recessions and Budget Surpluses during expansions). Keynes considered Fisher "the great grandparent" of his acclaimed 'The General Theory of Employment, Interest and Money'. For Fisher, over-indebtedness was a main cause of severe contractions. And, he differentiated between the economic disequilibriums with or without over-indebtedness. The ones with over-indebtedness are the ones causing the likes of the Great Depression. The ones without are more benign. We can observe that in modern times. The abrupt stock market crash in October 1987, in the absence of over-indebtedness, hardly left a footprint on the economy. Meanwhile, over-indebtedness proved lethal in our current housing/financial crisis [2008-11]. Hyman Minsky is another famous economist who fully credits Fisher. As stated in his Stabilizing an Unstable Economy Minsky advances that the credit cycle chronically exacerbates the business cycle. Minsky's theory means that while a sector is booming, creditors are only too eager to lend leading to bubbles. While, when the bubble breaks creditors are now too eager to eliminate credit. By doing so, the creditors exacerbate both the up and down swings of the overall economy. Minsky's theory is a direct ramification from Fisher's Debt-Deflation Theory. Also, both economists made the exact same distinction between economic disequilibriums with or without over-indebtedness. Ever since our current housing/financial crisis Minsky has enjoyed a much renewed legacy. Hopefully, the 2010 publication of this short but seminal book will contribute to Fisher becoming fully recognized for his prescience regarding our current financial crisis.]" - Irving Fisher's Publisher - Martino Fine Books
[1867-1947], Irving Fisher was one of America’s most celebrated economists. Although not widely remembered outside of economics, within it he has increasingly become considered a giant of the profession. Quote from the blurb of the 2011 reprinted edition of his 1933 book about the cause of the Great Depression which started in 1929.
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[Quote No.35983] Need Area: Money > Invest
"Rare Earth Elements (REE) are becoming increasingly important in electronic devices used in defense, alternative energy and communications industries. Imagine a world without colour TVs, or without portable digital era technology such as Blackberry devices, iPads or laptops. The mass production of these (and many other hi-tech items) is only possible through the use of rare earths. For good reason, rare earths are receiving significant attention from forward thinking investors. Rare earths are a little known collection of 17 unusual (yet highly critical and often irreplaceable) elements that are mined together and developed into materials that enable high-tech products to function. The diverse nuclear, metallurgical, chemical, catalytic, electrical, magnetic, and optical properties of the REE have led to an ever increasing variety of applications. These uses range from mundane (lighter flints, glass polishing) to high-tech (phosphors, lasers, magnets, batteries, magnetic refrigeration) to futuristic (high-temperature superconductivity, safe storage and transport of hydrogen for a post-hydrocarbon economy). Many applications of REE are characterized by high specificity and high unit value. For example, color cathode-ray tubes and liquid-crystal displays used in computer monitors and televisions employ europium as the red phosphor; no substitute is known. Owing to relatively low abundance and high demand, Eu is quite valuable—$250 to $1,700/kg (for Eu2O3) over the past decade. Fiber-optic telecommunication cables provide much greater bandwidth than the copper wires and cables they have largely replaced. Fiber-optic cables can transmit signals over long distances because they incorporate periodically spaced lengths of erbium-doped fiber that function as laser amplifiers. Er is used in these laser repeaters, despite its high cost (~$700/kg), because it alone possesses the required optical properties. Specificity is not limited to the more exotic REE, such as Eu or Er. Cerium, the most abundant and least expensive REE, has dozens of applications, some highly specific. For example, Ce oxide is uniquely suited as a polishing agent for glass. The polishing action of CeO2 depends on both its physical and chemical properties, including the two accessible oxidation states of cerium, Ce,3+ and Ce4+, in aqueous solution. Virtually all polished glass products, from ordinary mirrors and eyeglasses to precision lenses, are finished with CeO2. Permanent magnet technology has been revolutionized by alloys containing Nd, Sm, Gd, Dy, or Pr. Small, lightweight, high-strength REE magnets have allowed miniaturization of numerous electrical and electronic components used in appliances, audio and video equipment, computers, automobiles, communications systems, and military gear. Many recent technological innovations already taken for granted (for example, miniaturized multi-gigabyte portable disk drives and DVD drives) would not be possible without REE magnets. Environmental applications of REE have increased markedly over the past three decades. This trend will undoubtedly continue, given growing concerns about global warming and energy efficiency. Several REE are essential constituents of both petroleum fluid cracking catalysts and automotive pollution-control catalytic converters. Use of REE magnets reduces the weight of automobiles. Widespread adoption of new energy-efficient fluorescent lamps (using Y, La, Ce, Eu, Gd, and Tb) for institutional lighting could potentially achieve reductions in U.S. carbon dioxide emissions equivalent to removing one-third of the automobiles currently on the road. Large-scale application of magnetic-refrigeration technology (described below) also could significantly reduce energy consumption and CO2 emissions. In many applications, REE are advantageous because of their relatively low toxicity. For example, the most common types of rechargeable batteries contain either cadmium (Cd) or lead. Rechargeable lanthanum-nickel-hydride (La-Ni-H) batteries are gradually replacing Ni-Cd batteries in computer and communications applications and could eventually replace lead-acid batteries in automobiles. Although more expensive, La-Ni-H batteries offer greater energy density, better charge-discharge characteristics, and fewer environmental problems upon disposal or recycling. As another example, red and red-orange pigments made with La or Ce are superseding traditional commercial pigments containing Cd or other toxic heavy metals. The next high-technology application of the REE to achieve maturity may be magnetic refrigeration. The six REE ions Gd3+ through Tm3+ have unusually large magnetic moments, owing to their several unpaired electrons. A newly developed alloy, Gd5(Si2Ge2), with a 'giant magne-tocaloric effect' near room temperature reportedly will allow magnetic refrigeration to become competitive with conventional gas-compression refrigeration. This new technology could be employed in refrigerators, freezers, and residential, commercial, and automotive air conditioners. Magnetic refrigeration is considerably more efficient than gas-compression refrigeration and does not require refrigerants that are flammable or toxic, deplete the Earth’s ozone layer, or contribute to global warming." - Anon

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[Quote No.35985] Need Area: Money > Invest
"Bauxite is not a mineral, but a rock with minerals in it. Bauxite is a sedimentary rock that is an aluminum ore. It is formed in weathered volcanic rocks. It costs a lot of money to get the aluminum out of other ores, so Bauxite is important. Open pit mining is used to get bauxite. The water in bauxite is taken out of the ore. This leaves a white powder that is called alumina which is another name for aluminum oxide. Alumina is made into aluminum. The U.S. makes the most aluminum but doesn’t mine it here. We bring in the bauxite from other countries and use recycled aluminum to make things. Aluminum comes from Canada, China, Australia, India, Brazil, and Russia. Bauxite is used in cement, chemicals, face makeup, soda cans, dishwashers, siding for houses, and other aluminum products. It is recycled so that it can be used over again. Bauxite is thought of as a rock because the minerals in it can be very different depending on where it is found. Actual minerals aren’t that changeable. Mineral identification is based on the ‘sameness’ of the mineral each time a piece is found. For example, if you found a piece of halite, or salt, it would always look shiny or glassy, and always break evenly into cubes. Since the kinds of minerals that are in bauxite change a lot, its mineral identification changes from rock to rock, too. The ‘sameness’ for mineral identification is not there so geologists think of it as a rock." - library.thinkquest.org

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[Quote No.35986] Need Area: Money > Invest
"America [or any country] cannot be great if we go broke. Our businesses will not be able to grow and create jobs, and our workers will not be able to compete successfully for the jobs of the future without a plan to get this crushing debt burden off our backs... Our nation is on an unsustainable fiscal path. Spending is rising and revenues are falling short, requiring the government to borrow huge sums each year to make up the difference. We face staggering deficits. In 2010, federal spending was nearly 24 percent of Gross Domestic Product (GDP), the value of all goods and services produced in the economy. Only during World War II was federal spending a larger part of the economy. Tax revenues stood at 15 percent of GDP this year, the lowest level since 1950. The gap between spending and revenue - the budget deficit - was just under nine percent of GDP. Since the last time our budget was balanced in 2001, the federal debt has increased dramatically, rising from 33 percent of GDP to 62 percent of GDP in 2010. The escalation was driven in large part by two wars and a slew of fiscally irresponsible policies, along with a deep economic downturn. We have arrived at the moment of truth, and neither political party is without blame." - US President Obama's National Commission on Fiscal Responsibility and Reform

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[Quote No.36001] Need Area: Money > Invest
"Given the potential downside risks that rising rate environments pose for intermediate (or longer) duration bond portfolios, many bond investors prefer to limit their exposure to rising interest rates by reducing duration. [This makes sense as the longer out on the yield curve the more sensitive bond prices are to interest changes - which therefore exaggerates the price move up (if rates and therefore yields go down) or down (if rates and therefore yields go up), which for those investors trading for capital gain rather than holding for the full duration is a vitally important understanding to keep in mind.]" - Paul W. Reisz and Kelly Johnson
Senior Vice President, Product Manager and Vice President, Account Manager of noted bond fund PIMCO respectively. Quoted from their April 2011 article, 'Concerned About Rising Interest Rates?'
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[Quote No.36002] Need Area: Money > Invest
"Coal is available in black and brown... Brown coal is known as lignite and black coal is known as bituminous. A soft material, brown coal has only one quarter of the heating value of black coal. When comparing the carbon content, the black coal has more carbon content. Another difference is that the brown coal comes with high moisture... In the formation of brown coal, moderate pressure and temperature is involved. On the other hand, Black coal is formed because of more temperature and pressure... Black coals are mainly used for making coking coals [used in steel making furnaces]. Brown coals are exclusively used for generating electricity. The brown coals are also made into cakes that are used for heating purposes. They are also used in the production of water gas. The brown coals can be more easily converted into gaseous and petroleum products than the black coals." - differencebetween.net

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[Quote No.36003] Need Area: Money > Invest
"A Detailed Guide on the Many Different Types of Crude Oil: Some people arbitrarily speak about oil as if it is a single, indistinguishably homogenous substance without any unique differentiation, but this is actually not the case at all! In fact, there are many different kinds of oil. In its natural, unrefined state, crude oil ranges in density and consistency, from very thin, light weight and volatile fluidity to an extremely thick, semi-solid heavy weight oil. There is also a tremendous gradation in the color that the oil extracted from the ground exhibits, ranging all the way from a light, golden yellow to the very deepest, darkest black imaginable. For the purpose of having a set, agreed upon 'vocabulary,' the petroleum industry often uses references to 'Geographical Locations' in order to descriptively classify crude oils. This is due to the fact that oil from different geographical locations will naturally have its own very unique properties. These oils vary dramatically from one another when it comes to their viscosity, volatility and toxicity. The term 'viscosity' relates to the oil's resistance to flow. Higher viscosity crude oil is much more difficult to pump from the ground, transport and refine. The term 'volatility' describes how quickly the oil evaporates into the air. Oils that are naturally highly volatile need additional effort to ensure that temperature regulation and sealing procedures loose as little oil as possible. The term 'toxicity' refers to how dangerously poisonous the oil and its refining processes are to local life, from humans, to flora and fauna as well as other environmentally fragile living entities and organisms. If an oil spill were to occur, each type of oil presents quite unique 'clean up' challenges, procedures and priorities! The four primary types of oil are: (1) The Very Light Oils / Light Distillates which include: Jet Fuel, Gasoline, Kerosene, Light Virgin Naphtha, Heavy Virgin Naphtha, Petroleum Ether, Petroleum Spirit, and Petroleum Naphtha. These oils tend to be highly volatile and can evaporate within just a couple of days, which quickly diffuses and decreases toxicity levels. (2) Light Oils / Middle Distillates which include: Most Grade 1 and Grade 2 Fuel Oils and Diesel Fuel Oils as well as Most Domestic Fuels and Light Crude Marine Gas Oils. These oils are moderately volatile, less evaporative and moderately toxic. (3) Medium Oils: Most of the crude oil on the market these days falls into this particular category. Low volatility makes for messier and more complex 'clean ups' and when it comes to the increased toxicity levels, I believe we have all lived long enough to see what 'Medium Oil' spills can do to the local ocean life out on the seas or local wildlife right here on 'terra firma!' (4) Heavy Fuel Oils which include the heavy crude oils, Grade 3,4,5 and 6 Fuel Oils (Bunker B & C) as well as Intermediate and Heavy Marine Fuels. With these oils there is very slow and little evaporation and therefore toxicity is highly increased. This not only means potentially severe contamination for fish, fowl and fur-bearing creatures, but possible 'long term' contamination of water and soil as well. In fact, there are actually over 160 different oils traded on the market theses days, but for simplicity’s sake, let’s discuss the three primary oils that get most of the serious attention in the news and in the markets. West Texas Intermediate (WTI) is an extremely high quality crude oil which is greatly valued for the fact that it is of such premium quality, more and better gasoline can be refined from a single barrel than from most other types of oil available on the market. The WTI 'API Gravity' is 39.6 degrees, which makes it a 'light' crude oil, with only 0.24 percent sulfur, which makes it a 'sweet' crude oil. The term 'API Gravity' refers to the American Petroleum Institute Gravity, which is a measure that compares how light or heavy a crude oil is in relation to water. If an oils 'API Gravity' is greater than 10 then it is lighter than water and will float on it. If an oils 'API Gravity' is less than 10, it is heavier than water and will sinks. [The expression 'sweet or sour' comes from the sour smell from SO2 when high sulphur crude is burnt.] These combined qualities as well as location make WTI a prime crude oil to be refined in the United States, which is by far, the largest gasoline consuming country on the planet. The vast majority of WTI crude oils are refined in the Midwest and Gulf Coast regions. Even with production of WTI crude oil in decline, WTI is often priced from $5 to $7 higher per barrel than 'OPEC Basket' oil and on average, $1 to $2 higher per barrel than 'Brent Blend' oils. Brent Blend is actually a combination of different oils from 15 fields throughout the Scottish Brent and Ninian systems located in the North Sea. Its 'API Gravity' is 38.3 degrees, which makes it a 'light' crude oil, but clearly not quite as 'light' as WTI. It also contains about 0.37 percent sulfur, which makes it a 'sweet' crude oil, but then again, not quite as 'sweet' than WTI. Brent Blend is quite excellent for making gasoline and middle distillates, both of which are utilized in large quantities in Northwest Europe, where Brent blend crude oil is most often refined. Brent Blend production, much like that of WTI, is also on the decline, but it remains a major benchmark for other crude oils in Europe or Africa. Brent Blend oil price is often priced at a $4 higher per barrel compared to the OPEC Basket price. OPEC Basket oil is a collective seven different crude oils from Algeria, Saudi Arabia, Indonesia, Nigeria, Dubai', Venezuela and the Mexican Isthmus. The acronym OPEC stands for 'Organization of Petroleum-Exporting Countries' which is an organization that was formed in 1960 in order to create some common policy for the production and sale of oil within its jurisdiction. Because OPEC oil has a much higher percentage of sulfur within its natural make-up and therefore is not nearly as 'sweet' as WTI or even Brent Blend and since it is also not naturally as 'light' as well, the prices of OPEC oil are normally consistently lower than either Brent Blend or WTI. However, OPEC’s willingness or ability to quickly increase production when necessary makes OPEC a consistent 'Major Player' in the oil industry! " - oilprice.com

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[Quote No.36016] Need Area: Money > Invest
"Danger Signals for Stock Market:.. I thought I would write a little about the reasoning for our macro, overall stock market exposure caution. Many of the important intermediate and long-term indicators we chart are signaling investors are now fully invested, without (1) much 'fear' of the future or (2) money on the sidelines left to invest in 2011-2012. From a contrarian standpoint, the logic and odds tell us the 'fuel' for buyers overwhelming sellers day after day (the necessary supply/demand ingredient for rising prices) is waning quickly. The odds now favor a shift toward greater imbalances of sellers versus buyers, with a requisite decline in prices over time. One of Greg’s favorite valuation indicators is a ratio comparison of the total U.S. stock market value (capitalization) versus annual GDP economic output by America. The average ratio is near 75% during the last 80 years for reference. Historically the stock market has traded as low as 30% of GDP in the early 1930s Depression era and the important 1982 bottom, to as high as 150% in the Technology Boom years of the late 1990s and 2000. Working quite well over decades of various economic and social backdrops, this may be the single best 'long-term' indicator of how expensive or cheap stocks really are. Super-investors like Warren Buffett and George Soros have mentioned this ratio as one they review consistently. Major stock market peaks (when low stock exposure would have been wise) have witnessed numbers above 100%: 130% in 1929, 120% in 1965, and 120%-150% between 1997 and 2001. Looking at the current market to GDP position of 91%, stocks appear to be on the more expensive side overall versus history. The problem with this ratio going forward is economic growth may actually move into reverse again (recession), meaning if stocks just hold onto their amazing nearly double in price since the March 2009 bottom (47% market cap to GDP at the low), the market/GDP value could easily drift above 100% the next year or two. Consequently, the odds favor a rather large stock market decline in price from here, if the economy goes into reverse and business profitability slides. While stock market capitalization to GDP is worrisome, other indicators are raising even bigger red flags in early 2011. Stock market speculation is clearly the highest since the important 2007 or all-time 2000 peak years based on a combination of sentiment indicators with decent long-term track records. Mutual fund cash holdings as a percentage of total assets have been near record lows the past year and a half. At 3.4% currently, mutual funds that focus on stock investments have been fully invested for many months and have almost no wiggle room if investors decide to liquidate/sell. Given a recession or black swan event that shakes investor confidence, redemption orders to mutual funds cannot be met with existing cash on hand. Mutual funds would be forced to sell stock holdings, similar to a margin call event for speculators using borrowed money, regardless of price or value received. The 50-year average mutual fund cash to stock asset ratio is about 7.5% for comparison. The important 1962 and 1965 stock market peaks saw readings below 4.5%, with the 1972-73 and 1999-2000 tops witnessing cash levels below 4%. The 2007 stock market high coincided with a similarly low 3.6% cash number versus today for mutual funds. Conversely, nearly every stock market bottom during the 1960s, 1970s and 1980s witnessed a 10%+ reading for cash versus total assets at stock mutual funds. Amazingly, this indicator has been screaming to investors to stay away from stocks for quite a while, and given ample time for individuals to lock in their 2009 and 2010 gains. Are you listening? Total margin debt levels by speculators that borrow money to buy stocks are nearing the record nominal level of 2007 just before stocks fell 55% in less than 2 years. The current $320 billion number is somewhat lower than the $380 billion record in July 2007, but is equal to the whole year’s average reading. More worrisome is the ratio of margin debt to credit available in margin accounts. According to this indicator, speculators are the most fully invested since October 2000 (right after the Technology Bubble peaked), just as a bear 50% stock market price decline was beginning. While the nominal dollar level of margin debt has changed over the years with inflation, investors and analysts can construct useful relative ratios of margin debt to help identify investor sentiment. Based on our work with several of these in-house created ratios, real caution is now warranted for stock investors. We also keep track of weekly put/call option trading activity on both individual equities and index products. Options trading history is shorter than most of our other indicators, as they were not actively traded on exchanges or accepted by small investors until the 1970s and 1980s. Consistent trading data started in the mid-1980s. Put options are a right to sell a stock at a certain price for a predefined length of time, while call options give investors the right to buy a stock at a predetermined price for a length of time until expiration. In January 2011, my favorite intermediate-term option indicator, a 6-week moving average of trading volume activity, highlighted the greatest level of investment optimism (more calls bought than puts) since September 2000, and essentially tied the number of late-April 2010, just weeks ahead of the infamous 10% May flash crash over a few hours of trading and subsequent 20% market sell-off into August of last year. The Investors Intelligence survey of hundreds of investment advisors and forecasters has a history dating back to the 1960s. It is a straightforward survey of sentiment and current stock market allocation of capital. Typically, extremes in bullish response occur at major stock market tops and bearish responses are recorded near bottoms in price. The Investors Intelligence survey is also signaling danger ahead. The extreme +40% reading in April of nearly 60% bulls versus less than 20% bears is quite rare and happens about once every 4 years historically. This indicator has averaged more like 45% bulls and 30% bears for a +15% difference over the past 50 years. On top of some high weekly bullish numbers, the net difference average of +30% since October 2010 is very rare. Holding steady for 6-9 months, investors have been steadfastly optimistic with their investments for a prolonged period of time. Again this is a sign that investors and advisors have reached a fully invested state, and have little or no additional money to add to stocks during the coming months. In fact, advisors and investors are at such a high reading of optimism, it will not take much for the cycle to turn down in emotions from this lofty level of confidence. During the past decade, the Chicago Board Options Exchange Volatility Index (VIX), a fear and complacency gauge of volatility in daily price swings for the S&P 500 stocks, has become popular to follow. Ranging from a 150 high in the days after the October 1987 stock market crash, to lows around 10 in the mid-1990s and 2006, readings under 20 have occurred at nearly every important intermediate-term peak in pricing the last 25 years of real-time use and calculation. During most of calendar 2011, we have been below 20 to as low as 14 in April. The average number for the VIX over decades of history is about 24. For context, the VIX reading was 16 in May 2008 before the real estate derivatives bubble completely burst, rising to a high of 80 right after Lehman Brothers was allowed to fail in October and November 2008. The VIX is not the best long-term indicator of past or future price changes. It is more a record of current “expected” returns and volatility in the coming weeks for stocks. As such, it is now highlighting an abnormally low expectation of daily price volatility, alongside rising stock prices. Individually the above six indicators have excellent track records in signaling trouble ahead for stock investors. In the first half of 2011, ALL SIX are screaming for lower than typical stock market exposure, and Quantemonics Investing is listening. Any type of negative news flow or event could lead to selling volumes greater than buying volumes in the near future, producing falling prices for stocks generally. We have plenty of potential sell triggers to choose from, during the summer and autumn, including government defaults on sovereign debt, slashed federal and state spending in the U.S. economy, a lower and steadily declining Dollar value, rising oil prices and overall inflation, climbing interest rates, new trade wars involving the U.S., and more. If history is a guide, any substantial trigger from this fully invested state could easily push stocks into a typical 20% bear market decline in price. Remember the stock market undergoes a 20% or greater drop in price every 3-4 years, on average. Our computer models suggest a range of possible futures between +10% and -30% for the U.S. stock market during the remainder of 2011 and early 2012, with a mean expected total return of -10% to -15% from June 2011 to June 2012. As a consequence of our numbers and trading experience, we believe a more cautious approach to investing and low net stock market exposure are the intelligent option today. Our Covestor account battle plan is to slowly increase exposure as the market declines, by investing our cash holdings and converting the 'short' ETF products we currently own as hedges into regular stocks." - Paul Franke
quantemonicsinvesting.com - Published 1st June, 2011.
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[Quote No.36017] Need Area: Money > Invest
"Equities are overpriced and bonds overpriced [in 2011]. But the thing I am saying that is really quite different is normally when the economy slows [and share market busts] bonds do well [prices rise as yields fall and money previously in share market goes into bonds], that is the normal relationship. That's what everybody expects. What I am saying is a much more frightening scenario, where the economy slows and bond yields go up [as prices go down as little demand for them for their safety is now weakened due to government deficit and massive US debt to GDP is over 90%]. And the reason I am suggesting they go up is the matters underpinning their path of huge inflows of foreign central bank capital simply stop coming or slow very dramatically. You might say that this just does not happen. You just do not get scenarios like this. But what springs to mind is 1931 when falling Britain's exit from the gold standard and people panicked that America would do the same, and when they realized that money they lent to America the American government would be paid back in pieces of paper that would be worth less than gold, then suddenly bond yields went up into a depression as people reassessed the quality of the paper they would be paid back with. [Moody's and S&P have just put US bonds on negative watch for a downgrade from AAA]" - Russell Napier
Stock market historian and CLSA consultant
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[Quote No.36020] Need Area: Money > Invest
"In a boom, fortunes are made, individuals wax greedy, and swindlers come forward to exploit that greed [with 'boiler-room', 'pump and dump', fraudulent Initial Public Offerings - not all IPO's, 'small, up and coming' company's shares, latest fad investment, but some]." - Charles P. Kindleberger
'Manias, Panics, and Crashes: A History of Financial Crises' (1978)
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[Quote No.36021] Need Area: Money > Invest
"In every boom companies are formed primarily if not exclusively to take advantage of the public’s appetite for stocks [so beware of Initial Public Offerings -IPO's. Not all are traps for the greedy and gullible, but some are]." - Edwin Lefèvre
'Reminiscences of a Stock Operator', (1923).
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[Quote No.36046] Need Area: Money > Invest
"Is there a time series somewhere of historical 'inflation expectations'... Sure, take the straight 10 year treasury yield and subtract the real yield on 10 year TIPs. The spread between them is what players in the TIPs market are expecting to get in their CPI adjustments to the bond value. Same issuer, same terms in other respects, so the difference is average inflation expectations over the maturity of the TIP. The Fed series DFII10 is a constant maturity adjusted 10 year TIP rate. The series DGS10 is the comparable series for the nominal 10 year, without an inflation adjust payment. So the difference between those two would be the inflation expectations time series you are after, for rolling forward 10 year periods. Here are links to the two series at Fred II - http://research.stlouisfed.org/fred2/series/DFII10 http://research.stlouisfed.org/fred2/series/DGS10" - JasconC
http://seekingalpha.com/article/272655-what-correlates-with-bond-yields#comment_update_link
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[Quote No.36047] Need Area: Money > Invest
"The VIX wants you to stop worrying so much. To judge by the stock market’s closely watched volatility index, investors are taking a tough trading environment in stride. The Chicago Board Options Exchange Volatility Index flashed signs of confidence on Friday despite a weaker-than-expected jobs report. The VIX eased 3% to a level of 17.56, after earlier spiking 3.3% on the data. That’s relatively low compared to some other key turning points in the market. The long-term average for the VIX is around 20, which is considered to be moderate anxiety among traders. The measure briefly surged above the psychologically significant 30 level earlier this year during the geopolitical turmoil in the Middle East and Africa, though that was well below the 90 level it hit at the height of the financial crisis. 'One might argue that the market is showing a lot of resilience in the face of all this bad news,' WhatsTrading.com analyst Frederic Ruffy said. The VIX reading is 'certainly not consistent with fear and panic on Wall Street.' The VIX tends to shoot up dramatically when big worries rip through the stock market. That’s because investors drive up the price of the protective stock options that push and pull the index. Rather than a big jump in worry, the index has made more incremental gains this week, including an 18% gain Wednesday that coincided with a 280-point drop in the blue-chip index. None of which means that professional options traders are ruling out a sudden turnaround." - Brendan Conway
http://blogs.wsj.com/marketbeat/2011/06/03/vix-says-what-me-worry/
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[Quote No.36048] Need Area: Money > Invest
"Why Gold Does Well When Other Investments Don't: . Gold has a unique and valuable investment property -- the ability to weather inflation and deflation alike. I came across another anti-gold column this week. The author doesn't spring to mind, but the gist was easy to recall. It was the tired old argument that 'gold is not an investment' because you can't value it like a traditional investment. Because gold does not have cash flow, or offer some form of intrinsic asset comparison, it has to be a 'speculation.' (With speculation implied as a dirty word.) This line of thinking seems silly to me. Who is to determine what counts as a speculation and what doesn't? Buying a growth stock at 50 times earnings sure smells like a speculation, even if there are tangible cash flows and assets to measure. One could say the same for the entire S&P 500 at certain valuations, which means even plain-vanilla index funds have 'speculative' qualities at times. At the same time, buying gold as a crisis hedge -- with total exposure in the 5% to 10% portfolio range -- seems a lot more like common sense, or a form of insurance, than a seat-of-the-pants speculative play. Traditional investors don't like gold because they don't know how to value it and they don't like to think about it. So they pooh-pooh gold and misunderstand its value in times of crisis. In one sense, gold is a hedge against government folly. The more foolish the monetary policy, the better gold does. That is partly why gold is more relevant than ever now -- because free markets are witnessing one of the most intense periods of government intervention in all of financial history. If you really think Bernanke and his Europe/China counterparts have gotten it right, you don't want to own gold. In fact you probably want to be short. But if you suspect they haven't gotten it right -- or may have even screwed up royally -- then gold makes natural sense as a hedge against that risk. Gold also has a unique investment property. Along with its characteristics as a precious metal, gold can do well in periods of inflation OR deflation. When market conditions are inflationary [high and rising CPI and PPI followed by monetary tightening and rising bond yield especially at the short end of the yield curve even inverting as bond prices falling and share markets stalling before usually a fast 20% drop into recession], gold rises along with other commodities. This is why gold has been doing well for nearly 10 years now -- conditions have been inflation-prone since the early 2000s. But gold is unique because it can also shine in times of deflation -- when general prices, including commodity prices, are falling [low and falling CPI and PPI, monetary policy loosening as bond prices rising and especially at the short end of the yield curve and share market falling]. Why does that happen? Because of gold's role as a 'neutral currency.' In times of deflation, the central banks of the world tend to panic and pump out more liquidity. It doesn't do much good -- the 'pushing on a string' effect -- but gold outperforms anyway as the one form of currency not being actively debased. The environment where gold does poorly, as we hinted at earlier, is in periods of sustained moderation, where economic growth is decent and inflation is mild or even falling. That explains why gold was a terrible investment for nearly 20 years, from 1982 to 2002. Having peaked in the late 1970s, Western inflation and interest rates then declined continuously for the next 20 years, even as leverage grew. So if we look to the lessons of history, there are a few questions we can ask in respect to gold's attractiveness: --Is the present-day period of crisis and uncertainty coming to an end? --Have the major problems of the day been resolved, or otherwise addressed powerfully? --Can we reasonably expect inflation to fall... and general economic growth to rise? I don't have to tell you, the answer to all three is 'NO.' If anything, the level of uncertainty [and therefore fear] is rising, not falling. Potential for new crisis has gone up, not down, due to the extra layers of leverage baked into the systemic crisis cake [left after the GFC - Great Financial Crisis, second only to the Great Depression]. In the 1970s it took a bold leader, Paul Volcker, to 'break the back of inflation' with firm and decisive action [of interest rates over 20%]; today there is no such sheriff in sight. And finally, any meaningful drop in inflation threatens deflationary bust, thanks to 'extend and pretend' [or as some say 'delay and pray'] and [fiscal and monetary - quantitative easing = money printing] stimulus gone wild. In sum, there are plenty of historical reasons why gold remains a good 'speculation' -- if not a wise hedge against inflation and deflation. When uncertainty peaks and pro-growth, low-inflation conditions return, we'll know." - Justice Litle
Editorial Director, Taipan Publishing Group, Friday, 27 May 2011
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[Quote No.36049] Need Area: Money > Invest
"Gold-mining shares don’t glimmer like the real deal, but they may be safer: Striking gold is generally considered a slice of good luck. Owning it, however, is a sign that you fear the worst. Some people buy the yellow stuff because they think it looks pretty, to be sure. But the quintessential gold bug is an investor who expects every form of paper wealth to collapse, along with civilization itself. Gold is not like other commodities. The demand for iron ore depends on down-to-earth things, such as how many steel girders Chinese builders are using. The demand for gold depends on airier considerations, such as whether you think Barack Obama is the antichrist. Not all gold investors stockpile guns and tinned food in remote cabins, of course. Nor are they all fans of Glenn Beck, an American pundit who preaches doom and urges his listeners to buy gold. But most agree that the world is a scary place. The euro zone is tottering, America’s deficit is alarming and inflation is looming, they think. Such fears have ramped the price of gold up to an incredible $1,545 a troy ounce, up almost sixfold in a decade. Yet gold mining shares have failed to keep pace. This is new. Gold and gold-mining shares used to rise and fall in lockstep. Over the past five years, however, the price of gold has trebled while the value of gold mining companies has merely doubled. Investors in firms that shift, crush and process rocks are more grounded, it seems, than those who invest in bullion. As mines age, extracting gold gets harder and costlier. Ores give up less of the metal — average grades have fallen by 30 per cent since 1999 according to GFMS, a consulting firm. And ore must be hauled up from ever greater depths. Fuel is pricier. So, too, are labour and equipment, since the global minerals boom has driven up demand for miners and drills. A decade ago, the average cost of extracting an ounce of gold from the ground stood at a little over $200. In 2010 it hit $857, says GFMS — though this figure depends in part on the gold price. When gold was $200 an ounce, nuggets that cost $800 to extract stayed buried. Finding new seams to replace depleted ones is becoming harder. Metals Economics Group, a mining consulting firm, estimates that in 2002 gold mining companies spent $500 million on exploration. By 2008, they were spending $3 billion but finding much less. All the easy gold has been mined already. The big gold mining firms have turned to acquisitions to boost their reserves. Last year, Australia’s Newcrest bought an Aussie rival, Lihir Gold, for $8.7 billion. By value, 31 per cent of the mining deals last year involved gold, according to the consulting arm of PwC. Merged firms seek to cut costs and often end up spending less on exploration than they did separately. That makes it even less likely that they will find much more gold. The world’s miners dug up 2,964 tons of gold last year. Granted, that was a record. But, despite the huge surge in investment, it was only a few flakes more than the total output a decade ago. Investing in gold mining carries risks unrelated to the price of the metal. Mergers can flop. As readily recoverable reserves dwindle in stable places such as North America and Australia, mining companies are forced to operate in more troublesome ones, such as Latin America and Africa. Huge investments can yield disappointing returns if promising mines turn out to contain less glitter than predicted. Gold bugs, by definition, bet that the price of gold will go up and up. Mining companies sometimes do the opposite. Many hedged their wares, selling gold forward to ensure smooth cash flows and to raise money to dig more mines. This may have seemed prudent at the time. But it repelled gold bugs and, as the gold price rose ever higher, it hurt mining profits, too. Barrick Gold, the world’s biggest gold miner, and AngloGold Ashanti, the third-largest, have both spent billions unwinding hedges over the past couple of years. Gold bugs are often allergic to other metals. Gold mining companies are not. Many produce copper, too, since it often sits in the same ore bodies as gold. In April, Barrick offered $7.7 billion to trump a Chinese bid for Equinox, an Australian copper miner. The heavy demand in China and short global supply for 'red gold' makes Barrick’s move look sensible. But gold bugs hated it. Barrick’s shares fell sharply after the bid was revealed. Most damaging of all for the marriage between gold bugs and gold mining companies has been the arrival of a seductive new financial tool. Exchange traded funds, backed by physical gold, offer investors direct exposure to the gold price without any exposure to gold mining themselves. They have become popular: In less than a decade, gold ETFs have gone from nothing to holding some 2,400 tons of gold — nearly a whole year’s production. If the world goes to hell, gold bugs will say: 'I told you so.' But if investors ever wake up and notice that the yellow metal is not much more useful than tulips, the gold bugs will be burned. The mining companies, less so." - The Economist
http://thechronicleherald.ca/Business/1246969.html - published 5th June, 2011.
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[Quote No.36050] Need Area: Money > Invest
"The Gold-Oil Ratio: The Link Between Gold and Oil - Gold and crude oil prices tend to rise and fall in sympathy with one another. There are two reasons for this: 1. Historically, oil purchases were paid for in gold. Even today, a sizable percentage of oil revenue ends up invested in gold. As oil prices rise, much of the increased revenue is invested as it is surplus to current needs -- and much of this surplus is invested in gold or other hard assets. 2. Rising oil prices place upward pressure on inflation. This enhances the appeal of gold because it acts as an inflation hedge... The Gold-Oil Ratio - ...How many barrels of oil you can buy with an ounce of gold: Gold-Oil Ratio = Price of Gold (per oz.) / Price of Crude Oil (per barrel) The gold-oil ratio helps us to identify overbought and oversold opportunities for gold... [A chart would show] solid support between 8 and 10 barrels/ounce of gold over the last 30 years, with occasional spikes carrying above 20 but seldom holding for any length of time... Signals - The gold-oil ratio identifies: •Buying opportunities (for gold) when the gold-oil ratio turns up at/below 10 barrels/ounce; and •Selling opportunities when the gold-oil ratio turns down at/above 20 barrels/ounce. [Keep in mind - Gold is generally quoted in US dollars per ounce of gold; so any fluctuations in the strength of the dollar are likely to be reflected in the dollar price of gold. Refer also to the gold-DOW ratio.] " - Colin Twiggs
http://www.incrediblecharts.com/economy/gold_oil_ratio.php
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[Quote No.36051] Need Area: Money > Invest
"Gold was not selected arbitrarily by governments to be the monetary standard. Gold had developed for many centuries on the free market as the best money; as the commodity providing the most stable and desirable monetary medium." - Murray N. Rothbard
Economist
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[Quote No.36052] Need Area: Money > Invest
"Deficit spending is simply a scheme for the 'hidden' confiscation of wealth [through increasing inflation]. Gold stands in the way of this insidious process. It stands as a protector of property rights." - Alan Greenspan
Economist and later Chairman of the US Federal Reserve Bank.
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[Quote No.36053] Need Area: Money > Invest
"Gold [and oil] is generally quoted in US dollars per ounce of gold; so any fluctuations in the strength of the dollar are likely to be reflected in the dollar price of gold [and oil]: when the dollar falls the gold [and oil] price rises... and when the dollar rises gold [and oil] falls. The relationship is not exactly inverse, however, and there are times when both gold [and oil] and the dollar rise or fall simultaneously." - Colin Twiggs
http://www.incrediblecharts.com/economy/gold_dollar.php
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[Quote No.36055] Need Area: Money > Invest
"History of the Commodity Markets and the New Index Fund Era: Commodity markets were and are intended as a place for producers and/or users of commodities to enter into contracts for the delivery or sale of commodities at guaranteed prices. The markets helped reduce volatility in commodity prices and allowed producers and consumers to lock in prices and better manage budgets and production. Participants in commodity markets can be divided into two categories: hedgers and speculators. -Hedgers:- Hedgers are defined as those that produce or intend to consume the commodity and are using financial instruments to lock in a set price [at present prices for that future delivery. The price may go up or down as that date draws closer until spot price which is the next almost immediate delivery date contract]. They may be producers, such as farmers, mining companies, and oil and gas exploration companies. They may also be consumers of the commodity, usually processors or manufacturers, such as apparel companies hedging the price of cotton, a tire manufacturer hedging the price of rubber, or a utility company hedging the price of natural gas or coal. -Speculators:- There are two categories of speculators. First, are those that speculate by [taking delivery and] hoarding the physical commodity itself. An example of this would be a speculator chartering tankers and filling them with oil and then mooring them offshore with the hopes of selling the oil at a higher price later. The second type is someone who buys (or sells short) [usually on margin] a future contract on one of the commodity exchanges and hopes to resell (or buy) that same contract at a later date or when it expires at a higher (lower) price. In both cases, the individual does not intend to purchase the commodity for consumption. When examining speculative activity it’s important to look at both types of speculators: physical speculators and those using the financial markets to speculate. Prior to 2000, commodity markets were strictly regulated. In 2000, the Commodity Futures Modernization Act was passed, which among other things did away with position limits in commodities markets. While commodity index funds have existed since 1991, it wasn’t until recently that they became popular and could handle large inflows of funds. In 2003 [during Alan Greenspan's Chairmanship of the US Federal Reserve where he was keeping interest rates too low in order to spur the share markets and US economy out of a bear market/recession and in the process debasing the US dollar which denominates most commodities almost guaranteeing that they would nominally rise in US dollars], several academics published research showing that commodities did not show strong correlations with other asset classes like stocks, bonds, or real estate. Wall Street, never having met a fee generating idea it didn’t like, seized on this research and began creating and selling commodity index funds to retail and institutional investors. Over the better part of the next decade $350B flowed into newly created commodity funds. ...the total assets that are linked to the S&P Goldman Sachs Commodity Index [- S&P GSCI - went from nothing in 2006 when it started to $200 billion USD in 2011, refer bettermarkets.com data]. Commodity index funds track other indexes, such as the Dow Jones-UBS Commodity Index, but the S&P GSCI remains the most popular. To understand the effect this $350 billion inflow of speculative money has had on the commodity markets, let’s first look at the participants of the markets pre-CFMA 2000 and post-CFMA 2000 (the index fund era). Participants in Commodity Markets Today: Historically, most commodity markets operated with hedgers making up 70-90% of the market and speculators making up the remainder. Some level of participation by speculators is necessary to maintain a healthy market, and commodity markets functioned well pre-2000 with speculators making up 10-30% of the market. Now, however, the level of speculators has risen dramatically. ...In 1996, speculators made up 20-30% of the market and hedgers made up the rest. In 2010, speculators account for almost half of the market. The oil market shows an even more pronounced change in the types of activity. From 1995 to 1999 speculators made up only about 10% of the market. Fast forward to 2006-2010 and speculators now dominate the market, making up almost 70% of the market! Some markets also have data available on the number of speculators that are actually index funds (think the commodity ETFs and mutual funds that are springing up). Again, we see that speculators made up the minority of the market (about 35%) from 1995-1999. Then from 2006-2010 they made up the majority of the wheat market. We can also see that the increase in speculators is almost solely due to commodity index funds. Oil and the Effects of Speculation: We can also see the effects of speculation in the price of commodities themselves. The prices for many commodities spiked around 2003-2004. ...prior to 2000-2003 all spikes in oil prices were the result of events that affected the oil supply, including the two 1970s oil embargoes and the 1991 Gulf War. Then something strange happened. With the Commodity Futures Modernization Act of 2000 and the advent and popularization of commodity index funds, oil prices went through the roof [going from USD$15/barrel in 2003 to USD$80 in 2008]. There could be other reasons; after all, correlation does not imply causation. So lets look at the actual use of commodities. Is the Global Demand Story True? Earlier I said that I don’t necessarily disagree with the 'commodities story,' I just disagree that they are attractive investments especially at current prices. ...[If you chart] industrial production (a good proxy for commodity demand) versus commodity prices... you can see, world industrial production is growing and perhaps even growing faster than it has in the past. But commodity price increases have far outstripped production. Again, the meteoric rise in commodity prices coincides with the 2003-2004 rise of commodity index funds and the $350 billion influx of investor assets that are now in the commodity markets. Summary: What is likely to happen? Commodity prices will likely continue to rise, driven mostly by speculation. Some sources report that on average pension plans and endowments have a target allocation of approximately 5-6% to commodities, but currently only have a 2-3% allocation. That means there is still much more money to be poured into the commodity markets. The attractiveness of the commodity story and willingness of Wall Street to sell any product regardless of its merits as an investment probably means retail investors will continue to increase their commodity exposure as well. Investments in commodity markets depend on being able to sell your commodities (or contracts) to other investors at ever higher prices as they generate no cash flows by themselves. The tech bubble and the real estate bubble were built on the same principal of forever rising prices justifying the investment. Just as those ended in tears so will this bubble. The only question is when. I have a feeling this bubble will last long enough to make this article look foolish for several years to come [as the story of China and India's growth is true as is the debasement of the US dollar by the latest Chairman of the US Federal Reserve Bank, Ben Bernanke, after the 2007-9 Great Financial Crisis, second only to the Great Depression in wealth destruction, tries to reflate the US economy and resist deflation]." - Ben Strubel
Quoted from his article 'Why We [at Strubel Investment Management] Don’t Own Commodities', http://www.gurufocus.com/news/132181/why-we-dont-own-commodities
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[Quote No.36056] Need Area: Money > Invest
"[The following article is consistent with the Austrian economic's theory for the boom bust cycle in economies and sharemarkets:] ...The Credit Cycle at Work: Consider this: the ups and downs of economies are usually blamed for fluctuations in corporate profits, and fluctuations in profits for the rise [booms] and fall [busts] of securities markets. However, in recessions and recoveries, economic growth usually deviates from its trendline rate by only a few percentage points. Why, then, do corporate profits increase and decrease so much more? The answer lies in things like financial leverage and operating leverage, which magnify the impact on profits of rising and falling revenues. And if profits fluctuate this way – more than GDP, but still relatively moderately – why is it that securities markets soar and collapse so dramatically? I attribute this to fluctuations in psychology and, in particular, to the profound influence of psychology on the availability of capital. In short, whereas economies fluctuate a little and profits a fair bit, the credit window opens wide and then slams shut . . . thus the title of this memo. I believe the credit cycle is the most volatile of the cycles and has the greatest impact. Thus it deserves a great deal of attention. In 'The Happy Medium,' I discussed the workings of the credit cycle in creating market extremes: Looking for the cause of a market extreme usually requires rewinding the videotape of the credit cycle a few months or years. Most raging bull markets are abetted by an upsurge in the willingness to provide capital, usually imprudently. Likewise, most collapses are preceded by a wholesale refusal to finance certain companies, industries, or the entire gamut of would-be borrowers. Then, in 'You Can’t Predict. You Can Prepare.' I described this expand-and-contract process in detail, along with its ramifications:  The economy moves into a period of prosperity.  Providers of capital thrive, increasing their capital base.  Because bad news is scarce, the risks entailed in lending and investing seem to have shrunk.  Risk averseness disappears.  Financial institutions move to expand their businesses – that is, to provide more capital.  They compete for share by lowering demanded returns (e.g., cutting interest rates), lowering credit standards, providing more capital for a given transaction, and easing covenants. When this point is reached, the up-leg described above is reversed.  Losses cause lenders to become discouraged and shy away.  Risk averseness rises, and with it, interest rates, credit restrictions and covenant requirements.  Less capital is made available – and at the trough of the cycle, only to the most qualified of borrowers, if anyone.  Companies become starved for capital. Borrowers are unable to roll over their debts, leading to defaults and bankruptcies.  This process contributes to and reinforces the economic contraction. Of course, at the extreme the process is ready to be reversed again. Because the competition to make loans or investments is low, high returns can be demanded along with high creditworthiness. Contrarians who commit capital at this point have a shot at high returns, and those tempting potential returns begin to draw in capital. In this way, a recovery begins to be fueled. . . .Prosperity brings expanded lending, which leads to unwise lending, which produces large losses, which makes lenders stop lending, which ends prosperity, and on and on. The bottom line is that the willingness of potential providers of capital to make it available on any given day fluctuates violently, with a profound impact on the economy and the markets. There’s no doubt that the recent credit crisis was as bad as it was because the credit markets froze up and capital became unavailable other than from governments. Impact of the Credit Cycle: The section above describes how the capital cycle functions. My goal below is to describe its effect. From time to time, providers of capital simply turn the spigot on or off – as in so many things, to excess. There are times when anyone can get any amount of capital for any purpose, and times when even the most deserving borrowers can’t access reasonable amounts for worthwhile projects. The behavior of the capital markets is a great indicator of where we stand in terms of psychology and a great contributor to the supply of investment bargains. ('The Happy Medium') An uptight capital market usually stems from, leads to or connotes things like these:  Fear of losing money.  Heightened risk aversion and skepticism.  Unwillingness to lend and invest regardless of merit.  Shortages of capital everywhere.  Economic contraction and difficulty refinancing debt.  Defaults, bankruptcies and restructurings.  Low asset prices, high potential returns, low risk and excessive risk premiums. On the other hand, a generous capital market is usually associated with the following:  Fear of missing out on profitable opportunities.  Reduced risk aversion and skepticism (and, accordingly, reduced due diligence).  Too much money chasing too few deals.  Willingness to buy securities in increased quantity.  Willingness to buy securities of reduced quality.  High asset prices, low prospective returns, high risk and skimpy risk premiums. The point about the quality of new issue securities in a wide-open capital market deserves particular attention. A decrease in risk aversion and skepticism – and increased focus on making sure opportunities aren’t missed rather than on avoiding losses – makes investors open to a greater quantity of issuance. The same factors make investors willing to buy issues of lower quality. When the credit cycle is in its expansion phase, the statistics on new issuance make clear that investors are buying new issues in greater amounts. But the acceptance of securities of lower quality is a bit more subtle. While there are credit ratings and covenants to look at, it can take effort and inference to understand the significance of these things. In feeding frenzies caused by excess availability of funds, recognizing and resisting this trend seems to be beyond the majority of market participants. This is one of the many reasons why the aftermath of an overly generous capital market includes losses, economic contraction and a subsequent unwillingness to lend. The bottom line of all of the above is that generous credit markets usually are associated with elevated asset prices and subsequent losses, while credit crunches produce bargain-basement prices and great profit opportunities. The Events of the Past Decade: The last several years have provided a typical example of the credit cycle at work – typical in its pattern, that is, but unique in its extent and impact. The highs in risk tolerance, credulity, financial innovation and leverage seen between 2004 and early 2007 gave rise to a credit crunch in late 2007 and 2008 – the greatest of our lifetimes – and to vast capital destruction. Structured and levered investment vehicles melted down, bringing unprecedented losses to those who had provided their capital, and forcing the sale of holdings regardless of price. Financial institutions flirted with potential insolvency, requiring their capital to be rebuilt via government programs. Money market funds and commercial paper had to be buoyed as well. Lehman Brothers went under. General Motors and Chrysler went bankrupt and required bailouts, and companies such as Fannie Mae, Freddie Mac, Merrill Lynch and Bear Stearns had to be supported or absorbed. All of this stemmed in large part from the too-easy availability of capital and from market participants’ irresponsible behavior in the middle of the decade. The result was a massive flight to quality and widespread refusal to take risk. In 2009, miraculously in my opinion, the responses of governments caused investor psychology to turn positive, and the pursuit of return caused risk tolerance to be restored. Risk capital became available again, enabling financial institutions to raise equity capital and highly indebted companies to access the capital markets, extending maturities and capturing the discounts on their debt. As a result – thanks to the rise in risk appetites – many markets showed their greatest gains ever. This year, even though economic and geopolitical fundamentals are still shaky and new things to worry about arise from time to time, the credit markets are generally wide open for companies deemed to have critical mass. In 'Warning Flags' in May, I observed that certain types of deals could be completed that exemplified behavior in the most heated pre-crisis days but had become impossible in late 2007 and 2008. These included issuance of CCC-rated, covenant-lite and payment-in-kind bonds; dividend recap transactions; and the organization of structured entities for investing in debt. Recently there have been additions to that list:  The issuance of 100-year bonds.  The issuance of 50-year bonds callable in five years (if interest rates go up, the buyer will be stuck with a low-rate bond, but if interest rates go down, the issuer can quickly replace the bond with one bearing a lower rate).  The issuance of inflation-adjusted Treasury Inflation-Protected Securities (TIPS) that will return minus 0.55% plus the rate of inflation (if there’s no inflation, the return will be negative, and if the rate of inflation is positive, the yield on the TIPS will be below that rate).  The issuance of bonds through so-called 'drive-by deals.' When a deal is announced in the afternoon and priced the next morning, investors have little time to study its creditworthiness and covenants. Each of these things is indicative of the following on the part of investors:  rising confidence and declining risk aversion,  emphasis on potential return rather than risk, and  willingness to buy securities of declining quality." - Howard Marks
Chairman of fund management company, Oaktree Capital Management. Quote from a memo entitled 'Open and Shut' to clients, 1st Dec, 2010.
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[Quote No.36057] Need Area: Money > Invest
"Don't be afraid to buy on a war scare. [The noted investor and author Philip] Fisher noted that involvement in a war tended to drop equity prices but offered an excellent time to invest since inflation tended to rise in the countries which became involved. He also pointed out that it was paramount that the US won these world wars or the result might have been quite different. Typically, during inflationary times equity prices tend to increase at least in a nominal sense. The worst place to be is in cash which steadily loses it buying power. The exception noted was WWI when the US entered late after accumulating a huge fortune by selling materials to Europe throughout the course of the war, resulting in an inflationary economic boom in the US. Of course the situation was temporary, and it helped set the stage for the first great deflationary bear market of the 20th century, which began in 1919 and ended in the late summer of 1921. The main lesson that Fisher is teaching is that one must be heavily invested in stocks when inflation is imminent, although exactly the correct time to deploy one's capital is a difficult question. " - John Emerson
http://www.gurufocus.com/news/135225/philip-fishers-investment-series-the-ten-donts-for-investors
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[Quote No.36067] Need Area: Money > Invest
"...So today is a Jobs Jamboree. I sure like these days more when the US Bureau of Labor Statistics (BLS) didn't see it necessary to add 'ghost jobs' each and every month. For instance, last month, the majority of the 244,000 jobs that were 'added', were made up by the birth / death model of the BLS [The monthly payroll report from the BLS is a survey based estimate of the employment situation. A key purpose of the report is to provide a timely snapshot of the number of payroll jobs added or lost each month. Like all surveys, the monthly estimate is subject to both sampling and nonsampling errors. A primary source of non-sampling error is due to employment growth generated by new business formations. So, as part of the monthly report, the BLS uses a model (the 'Birth/Death model') to estimate this employment growth. A few years ago several people pointed out that the Birth/Death model would miss turning points in employment...the model would overstate the number of jobs added as the economy slid into recession (and understate the number of jobs lost monthly during a recession). Sure enough that is what the annual benchmark revision showed during the employment recession...[Recently] several commentators started subtracting the monthly B/D number from the monthly payroll number. That was completely wrong. First, the B/D number is Not Seasonally Adjusted (NSA), and it can't be subtracted directly from the Seasonally Adjusted (SA) payroll number. Second, even if we could remove the B/D number, this would reintroduce the primary non-sampling error - and defeat the purpose of a timely month estimate!]... Maybe those new companies were started, and maybe new jobs were created. Maybe... but probably not! Not in today's environment of having to sign away your first born male to the government to start a business! So the forecast for today's Jobs Jamboree is a job creation in May of 165,000. In recent months, the reaction by the currencies to the Jobs numbers has returned to 'normal' [as if the currency were the equivalent of a share market listed company], in that they reward the dollar for strong job creation, and sell it with weak job creation [relating this to the likely movement of currency investment to the US dollar from their preference for country's that have economies that are growing in real terms - after inflation figure is removed from the GDP - with the view that it will continue and therefore monetary policy and therefore interest rates and the share markets will rise]. I would have to think that given the ADP job data [a monthly estimate of US private nonfarm employment] earlier this week that the risks on the report are for a downward or disappointing number, which will not be good for the dollar, and probably push the euro over 1.45 to end the week... Ok, so I've gone out on the limb, and said that I thought the number would be disappointing... But let me say that I have no idea what the BLS will pull out of their hat (ala Bullwinkle)... But you know me, I'll tell you on Monday what they did! I'm thinking the number comes in around 130,000... The forecast is for 165,000... So, let's say that the disappointment meter kicks in around 150,000... Anything below that, could spell trouble for the dollar today... 150,000 to 165,000 leaves the dollar neutral, and anything greater than 165,000 sends some love to the dollar.... today. " - Chuck Butler
President, EverBank World Markets and currency trader. Published in the currency investment newsletter that EverBank produces, called 'A Pfennig For Your Thoughts' [and emailed as 'The Daily Phennig', Friday, June 03, 2011].
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[Quote No.36068] Need Area: Money > Invest
"[TA: Re portfolio/country allocation (through country EFTs, as well as individual foreign companies), what are the key factors in your decision-making process?] MH: We are always overweight markets with attractive valuations (cheap PEs) and large current account surpluses. The latter implies high levels of savings and liquidity. If you can get that cheap then you are onto a winner. [Also keep in mind relative foreign currency exchange rate movements - as related to non-inflationary GDP growth and inflation adjusted interest rates differentials as well as monetary and fiscal policies.]" - Michael Hartnett
Chief Global Emerging Markets Equity Strategist at Merrill Lynch in New York. Quote from an interview with 'The Technical Analyst', June 2008.
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[Quote No.36069] Need Area: Money > Invest
"Now think about the fact that monetary [interest rate] policy [as set by the central bank] operates with a lag of 12 to 18 months. [It's like steering a big ship, where the 'ship of state' and economy takes a good bit of time to slow down and slow inflation and by the same token a good bit of time to speed up when the economy is going backwards in a recession. That's not to say that the share market responds that slowly. It anticipates slow downs and speed ups in share prices very quickly and well before these changes are seen in the economy. That is why it is seen by economists, business leaders and politicians as a leading indicator for the economy.]" - Adam Carr
Senior economist at ICAP Australia.
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[Quote No.36075] Need Area: Money > Invest
"Deteriorating Global Liquidity: Below we will take a closer look at one of our favourite leading [economic] indicators, namely the global liquidity indicator. Global liquidity may be defined in numerous ways. We tend to like the way Merrill Lynch defines it, mostly because it has proven an excellent predictive measure over the years. According to Merrill Lynch, global USD liquidity equals the sum of the U.S. monetary base plus reserves held in custody by the Federal Reserve for foreigners - mostly Asian central banks. If the U.S. current account deficit grows, as has been the case in recent years, global liquidity would be expected to improve, because the countries having a current account surplus with the United States would be expected to buy U.S government bonds for at least some of the surplus dollars. This way, the U.S. current account deficit has played an important role in terms of providing stimulus to the global economy in recent years, a fact often ignored by those being so critical of the large deficit. So let's take a closer look at the global liquidity indicator. As you can see from chart 1 [http://www.investorsinsight.com/images/otbemail/112105/image002.gif ], the growth in liquidity has actually decelerated quite sharply in the last 6 months, reflecting several factors. For a start, the U.S. monetary base itself is experiencing slower growth, which is not at all surprising given the rise in the U.S. Fed Funds rate [and therefore the interest rate]. At the moment it grows by approximately 3% per annum, substantially less than the nominal growth of the U.S. economy. Secondly, and perhaps more surprisingly, foreign reserves deposited with the Fed are not growing as fast as the current account situation might otherwise suggest. After all, with the U.S. current account deficit being higher than ever, you would expect foreign reserves to continue to grow rapidly. Why is that not happening? There are several reasons for this, but let's focus on two important ones. A substantial part of foreign reserves held by the Fed belong to Asian central banks. Virtually all Asian countries are importers of oil. The sharp rise in the price of oil has created a new situation, where the growing U.S. current account deficit is not matched by a corresponding growth in the Asian surplus, simply because they are spending more dollars on their oil purchases, just like we are. In addition to this, because of the sharp rise in the Fed Funds rate (the cost of money in the U.S.), speculators are borrowing considerably less in U.S. dollars than they used to. This, we believe, is a major contributor to the deceleration of global USD liquidity. However, since there is little evidence of any meaningful de-leveraging going on in financial markets around the world, it is probably safe to assume that much of the speculative borrowing has simply moved from U.S. dollars to other low cost currencies such as euros and Swiss francs. This may also explain why Euroland is one of few areas in the world where the monetary base continues to grow at a healthy rate -- 10%+ per annum at the latest count. But back to our main story. We assign much significance to the liquidity indicator, because global USD liquidity has proven so valuable in predicting the trend in financial markets. We can best illustrate this by borrowing a few more charts from Merrill Lynch. Chart 2a: Global Liquidity v. Commodity Prices [http://www.investorsinsight.com/images/otbemail/112105/image004.gif ] Chart 2b: Global Liquidity v. Asian Stock Prices [http://www.investorsinsight.com/images/otbemail/112105/image006.gif ] Chart 2c: Global Liquidity v. Credit Spreads [http://www.investorsinsight.com/images/otbemail/112105/image008.gif ] Chart 2d: Global Liquidity v. Volatility [http://www.investorsinsight.com/images/otbemail/112105/image010.gif ] Source: Merrill Lynch As you can clearly see from charts 2a through 2d, global USD liquidity is strongly correlated with commodity prices and Asian stock prices and strongly negatively correlated with credit spreads and stock market volatility. But the story gets worse. Our friends at GaveKal Research produce their own global liquidity charts. Chart 3 below [http://www.investorsinsight.com/images/otbemail/112105/image012.gif ] is very similar to chart 1, although it covers a slightly longer period (1980-2005). As you can see, whenever the year-on-year growth in global liquidity dips below zero, the world usually finds itself in some sort of crisis. The liquidity drain in 1981-82 sowed the seeds of the Latin American debt crisis. The slump in liquidity in 1988-89 was at least partly responsible for the most dramatic crisis the U.S. banking industry has undergone since the depression in the 1930s – the so-called savings & loans crisis. Large parts of the U.S. banking systems were on the verge of a complete collapse. 1997-98 gave us the crisis in Asia and Russia and, as a result of that, the collapse of Long Term Capital Management. Finally, the liquidity slump in 2000-01 was partly responsible for the crisis in Argentina, and we also 'enjoyed' the experience of Enron and several more corporate disasters, just to round things off. It is virtually assured that a significant deterioration in global liquidity will cause some sort of crisis somewhere. It always does. We cannot say for sure where the skeletons will pop up this time, but urge you not to ignore the fact that Indonesia took a bit of a battering in August and September of this year. Although Indonesia is an OPEC country, it is actually a net importer of oil and it has, like many other Asian countries, a system in place whereby retail energy prices are heavily subsidised. Although oil prices have backed down from almost $70 when the crisis in Indonesia unfolded to the mid-fifties today, the danger is by no means over. Taiwan has gone through a rough time recently, and other Asian countries are struggling to adapt to the higher energy prices. Indonesia and Taiwan are important reminders to all concerned that investing in Asia is not a one-way street. The region is in fact quite accident prone as evidenced by the 1997-98 crisis, and many investors have had their fingers burned in Indonesia and more recently in Taiwan. When global liquidity starts to deteriorate, according to the laws of economics, either GDP growth will slow or financial markets will suffer, or both will take a hammering. There is no other way out. Given all the yellow flags that the global liquidity indicator is throwing at us, we see no reason to be heroes. As summarized by GaveKal: 'We are rapidly moving to a period of more fools than money. And in such times, fools and their money are soon parted.' The Liquidity Driven Dollar: So what are the implications of deteriorating global liquidity for currency markets? Since the liquidity indicator we use in our analysis is USD based, we can only speak with conviction about USD but, in a nutshell, deteriorating global liquidity is bullish for the dollar. Here is why: The majority of people we speak to are still bearish on the dollar, and since this bearishness is often based on the large U.S. current account deficit, let's begin our discussion there. The first point we would like to make, and we wish to make it rather emphatically, is that it is too simplistic to assume that a large current account deficit automatically leads to a weaker currency. For a small country this may very well be the case, but a large country such as the U.S. could probably live with a substantial deficit almost in perpetuity. In fact, we would argue that, as long as the U.S. dollar remains the primary reserve currency in the world, a large current account deficit is almost irrelevant. This finds support in several studies conducted over the years which show that the correlation between the dollar and the U.S. current account deficit is low. More importantly, and contrary to what many people seem to think, countries don't freely choose which currencies to hold in reserve. These decisions are largely dictated by trade flows. Therefore in a world of rising energy prices (always priced in dollars) and increased trade between nations (most of which is traded in dollars), central bankers are forced to increase their holdings of dollars whether they like it or not. So, unless the world agrees to price more goods and services in other currencies - Russia has in the past made a case for pricing oil in euros - the greenback is very likely to hold onto its status as the main reserve currency of the world. The famous economist Ed Yardeni (you can find examples of his high quality work on www.yardeni.com) has done a lot of work on global liquidity. He has in fact developed his own global liquidity indicator called FRODOR [Foreign Official Dollar Reserves], and he has found a strong negative correlation between global liquidity and the U.S. dollar (see chart 4 below). In other words, when global liquidity grows strongly, the U.S. dollar tends to perform quite poorly. When growth in global liquidity slows down, the dollar starts to do better. This is consistent with the recent robust performance of USD versus EUR, GBP and JPY. Of course, global USD liquidity is closely linked with U.S. interest rate policy (higher rates slow down growth in the monetary base), which is another way of saying that during periods of rising Fed Funds rates (i.e. the last 18 months), the dollar is likely to be quite strong. On the other hand, when the Fed is easing (which will lead to stronger growth in global liquidity), the dollar is likely to show signs of weakness. Chart 4: Global Liquidity (FRODOR) v. USD: [http://www.investorsinsight.com/images/otbemail/112105/image014.gif ] Source: www.yardeni.com During a period of rising USD rates, falling GBP rates and flattish EUR rates (an environment we find ourselves in at present) the underlying support for USD is very strong indeed. The story gets a little bit more complex if we instead focus on the outlook for the U.S. dollar versus Asian currencies. Asian central banks have for years performed every trick in the book to prevent their currencies from appreciating against USD. When a central bank intervenes to keep the lid on its own currency, it usually buys USD against its own currency. This may cause a substantial rise in the domestic money base, which is neutralised through a so-called sterilisation process (nothing to do with the human anatomy!). When a central bank sterilises, it issues government bonds in local currency to soak up part of the rise in the money supply caused by the interventions in the FX markets. Otherwise such interventions could be highly inflationary. One of the 'safest' bets - if it is prudent to use the word safe in the context of investments - has long been considered short USD versus Asian currencies. Many Asian currencies are, after years of central bank intervention, almost grotesquely cheap relative to Western currencies, if one applies a traditional valuation approach based on purchasing power parities. In the past, we have in fact advocated ourselves for going short USD against Asia. However, since the modest re-rating of the Chinese renmimbi earlier this year, Asian currencies have been remarkably weak. As a result, interventions have been few and far between. This anecdotal evidence is further supported by the global liquidity indicator. If Asian central banks had made significant interventions over the past several months, global liquidity would look a great deal stronger than it actually does. So what is happening? The one-way traffic in USD versus Asia is not working as almost everyone expected it to. Could it be that the high oil price is starting to make a real impact on Asian economies? Only time can tell. One thing is for sure though. This is not the time to be short U.S. dollars." - Niels C. Jensen
Partner, Absolute Return Partners LLP. Published John Mauldin's Outside the Box, 1st November 2005. http://www.investorsinsight.com/blogs/john_mauldins_outside_the_box/archive/2005/11/21/deteriorating-global-liquidity.aspx
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[Quote No.36074] Need Area: Money > Invest
"Behind the February 2011 [US] Employment Numbers: Once again, the latest U.S. employment numbers for January 2011 gave mixed signals. Employment rose by a mere 36,000 yet the unemployment rate fell to 9.0% from December's 9.4% rate. How can that be? Moreover, how should we make sense of these numbers? On average, the U.S. economy needs to generate 120,000 new jobs each month to absorb all the new entrants. Since the latest recession began, the number of people without jobs grew to more than 8 million with another 8 plus million either giving up or working part time. If the economy generated 320,000 jobs per month, it would take more than 6 years to get back to a 'full employment' level. This is why so many people believe the economy will struggle for years to come. Yet if we look deeper into the jobs picture, the problem is both alarming and a sign that things are improving. While a deeper employment problem will be with us for years to come, the economy is generating more jobs than the 36,000 number implies. Lack of Jobs Here to Stay for Some: For some people the lack of jobs will be with us for years. Not surprisingly, unemployment hits those with less education and fewer skills the most. The chart below from Chart of the Day [http://www.chartoftheday.com/20110204.htm ] illustrates the unemployment situation by education level. Those with more education experience better job prospects and make more money. Those with at least a bachelor's degree are experiencing a 4.2% unemployment rate, whereas people without a high school diploma see poor job prospects with their unemployment rate at 14.2%. If you have a high school diploma, your unemployment rate for January 2011 was 9.4%. These numbers are for those that the government considers unemployed. You must be actively looking for work over the last four weeks to be in this category. Add to this number the number of people who have given up or are working part time while looking for full time work and the number is over 16%. While the Bureau of Labor Statistics does not report this number by education level, I bet it is much higher for those without a high school education. This is a serious problem that will be with us for years. Clearly, the recession hit those without a high school education the worst. To succeed in the global economy high cost economies like the United States and Europe need workers to perform more complex and skilled tasks. Jobs that expect you to have more than a high school education. If you do not have the necessary education, it is difficult for you to get a minimum wage job as you might be competing with someone with more education. For example, some graduates from prestigious law schools have been unable to find a job as a lawyer. Instead, they are working as court reporters or law clerks in a municipal court, jobs normally held by trained and college educated people. This pushes these people to find work wherever they can such as minimum wage jobs. What chance does someone without a high school education have? According to a report by the Center for Labor Market Studies at Northeastern University in Boston, Massachusetts, and the Alternative Schools Network in Chicago, Illinois, in 2007 before the recession more than 16 percent of the total population between 16 and 23 do not have a high school education or its equivalent. If such a large part of our society does not possess minimal skills, how do they expect to be contributing members of society? Many face a life of menial jobs at best, part time work if they can find it, and living off of government support, as long as it is available. They face a dim future. In addition, they will be unable to participate in a growing economy. Rather, their dependence on government assistance acts as a drag on overall economic growth. The U.S. unemployment rate will remain high for many years, until we solve the education problem. Statistics Strike Again: If you closely follow the Bureau of Labor Statistics (BLS), you have heard of the birth-death model. The BLS uses this model to estimate the number of new companies formed (birth) and the number of existing companies that no longer are in business (death). In addition to their surveys, the BLS uses this birth-death model to estimate the number of jobs gained and lost by sector. The problem is the model tends to lag the actual numbers. When the economy is topping out, the birth-death model remains on the rising trajectory even as the economy is turning down and companies are laying off workers. Eventually it catches up. When an economy is turning up, recovering from a recession, the birth-death model tends to under estimate the number of new jobs being created. We face this situation today. Despite attempts to improve the model, history tells us the birth-death model is under estimating the number of new jobs the economy is generating. Since the recovery is still in its early stages, I believe the 36,000 new jobs for January is lower than what is really taking place. New companies are forming, small businesses are hiring more workers (skilled) and there are better job prospects for those with the right education and training. The problem is we do not know how many new jobs there really are, other than the BLS is underestimating the number. On the other hand, I do not believe the number of new jobs is anywhere near the number necessary to reduce real unemployment and absorb the new entrants to the work force. Most likely the United States is generated somewhere in the range of 100,000 to 200,000 jobs per month. More than in the past, but not enough jobs to address the chronic unemployment problem. Moreover, each month new entrants join the work force. Speaking of the unemployment number, the headline tells us unemployment fell to 9.0%. What we are not told is the number of people in the work force fell causing the drop in the unemployment number. Fewer people in the work force is not a positive sign for the economy. For January 2011, the total civilian labor force was 153,186,000 down from 153,690,000 in December 2010. Essentially, 504,000 people either retired or quit the work force. In November 2010, the total civilian labor force was 153,950,000. The drop in the unemployment rate for the last two months is due primarily to the drop in the number of people counted as in the labor force. Removing more than 500,000 people from the work force allows the number of unemployed to fall as well. For January, the number of unemployed fell by 622,000. Take away the 504,000 from that number and the number of unemployed drops by only 118,000. Had the number of people in the work force remained at the December 2010 level, the unemployment rate for January would remain at 9.4%. Once again, the details in the statistics tell a different story than the headlines. The Bottom Line: The strength of the economic recovery is an important determinant of the growth potential for most companies. As we move forward, U.S. companies will grow and expand despite a long-term high unemployment level. The labor situation will place downward pressure on wages as people with the necessary skills and training move from part time work to the higher paying full time jobs. This will benefit most companies, as their labor costs will remain constrained. Labor inflation will not be a problem. However, some companies may find it difficult to find skilled workers. From a human perspective, those without the necessary education face a difficult life. Since the government cannot afford to provide their support, the country faces a difficult dilemma. Education and skills and the key to a better life. Companies, communities and individuals will need to step in to create ways for these people to change their lives. If we do not, the economy will suffer as will the country. While I do not expect a revolt, the high unemployment situation in many countries fostered major changes in the government. It can happen in the western world as well." - Hans Wagner
FinancialSense.com - 8th February, 2011.
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[Quote No.36076] Need Area: Money > Invest
"FRODOR is a creation of my friend [the highly respected economist] Ed Yardeni and stands according to him for 'Foreign Official Dollar Reserves of central banks' and is 'the sum of U.S. Treasury and U.S. Agency securities held by foreign central banks. It is probably the best available measure of world liquidity because foreign central banks tend to transmit and to amplify U.S. monetary policy globally. The yearly growth rate of FRODOR is extremely pro-cyclical. It tends to rise during global economic expansions and to fall during recessions.' [It can be used as a Leading Economic Indicator as well as a Leading Market Indicator.] When FRODOR expands asset markets including stocks, commodities and real estate tend to perform well while the US dollar tends to decline. Conversely, when FRODOR growth decelerates, asset markets come under pressure while the US dollar strengthens." - Marc Faber
Editor and Publisher of 'The Gloom, Boom & Doom Report,' and author of the bestselling 'Tomorrow's Gold'. Quote from 'The Gloom, Boom and Doom Report', 6 May 2005. www.gloomboomdoom.com/gbdreport/indexgbdreport.htm http://www.gold-eagle.com/editorials_05/faber050605.html
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[Quote No.36078] Need Area: Money > Invest
"A recurring theme in this monthly commentary and in the more detailed Gloom Boom & Doom Report has been that we are in the midst of a significant liquidity contraction as a result of slower debt growth. The slowdown in credit growth depresses the US housing market, the stock market and increasingly commercial property prices and leads to far weaker consumption. Official statistics still maintain that consumption is growing but if inflation was properly accounted for it would show a pronounced decline in real terms. Don’t forget that lending standards are now tightening in earnest for both individuals and for commercial property lending. In turn, tighter lending standards hurt personal consumption and lead to a contracting US trade deficit as a result of lower demand for imported goods and also. Moreover, lower imports have negative implications for Asian economic growth rates. In turn, slower Asian economic growth amidst high inflation depresses the domestic demand in the Asian region, which then leads to reduced demand for commodities. In addition, a declining trade deficit leads to a decline in the current account deficit and a relative tightening of global liquidity as Foreign Official Dollar Reserve (FRODOR) growth slows down. Since FRODOR growth is inversely correlated with the USD and correlates over time with the movement of gold prices, any contraction in FRODOR growth would be USD supportive and negative for commodities and gold. I have a friend who is an outstanding economist who thinks that the Asian current account surpluses will shrink in 2009 by about 50% from their peak in 2007. In this scenario, global liquidity would become extremely tight and would have a devastating impact on asset markets including real estate, commodities, non-AAA bonds and equities. Such a decline in the Asian current account surpluses would cut the US current account deficit by half and lead to a very strong USD [currency]." - Dr. Marc Faber
Market Commentary August 20, 2008 - Interim Report www.gloomboomdoom.com http://www.gloomboomdoom.com/subscribers/download/080820_interim.pdf  
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[Quote No.36079] Need Area: Money > Invest
"Also a new bull market is unlikely to get underway soon because mutual fund cash positions are still very low [under 5% is considered low and showing complacency regarding cash required for redemptions so if there is a crash it will be made worse by redemptions requiring selling shares to get the cash]. Please compare today’s cash positions to the cash positions which existed at the 1982 (12%) and 1990 (13%) market lows! Over the last 18 months, households have been heavy sellers of equities (in order to maintain their spending). The support for equities in 2007 came only from LBOs and share repurchases. " - Marc Faber
Market Commentary August 20, 2008 Interim Report http://www.gloomboomdoom.com/subscribers/download/080820_interim.pdf
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[Quote No.36080] Need Area: Money > Invest
"...the 'newest economy' is characterized by seemingly endless bubbles, courtesy of the man who has done more to destroy the value of paper money than any one else in the 200 year history of capitalism: Mr. Alan Greenspan [in his position as the Chairman of the US Federal Reserve Bank]. The destruction of paper money as a store of value - the most important quality paper money should have - occurs only in one way and that is through increasing the quantity of paper money at a higher rate than real GDP growth [Refer ‘Global liquidity’ and USA’s ‘Foreign Official Dollar Reserve (FRODOR)’ – USA’s because it is the Global Reserve Currency]. At times this 'excessive' money supply growth will lead to real wages rising strongly [wage inflation], such as in the 1960s, or to commodity and consumer prices soaring [physical commodity inflation], such as in the 1970s. But, excessive money supply growth can also lead to the most dangerous form of inflation and this is [financial] asset inflation, which at times will boost equity prices to lofty levels (Kuwait in 1980, Japan in 1989, Taiwan in 1990, NASDAQ in 2000, etc) and on other occasions boost the value of real estate into cuckoo-land (Tokyo in 1990, Hong Kong in 1997, and now in the Anglo Saxon countries). The reason asset inflation is so dangerous is that central bankers - usually unemployable in any other capacity - not even as waiters - only pay attention to consumer price inflation. Therefore, when consumer prices do not rise much, for example because of international competition (as is now the case), they print money like water [to remove the chance of deflation - falling prices and rising purchasing power, which they believe is even more destructive than inflation - rising prices and falling purchasing power, especially regarding loans because they become even harder to service as time passes in deflation. Refer 'The Debt-Deflation Theory of Great Depressions', by the economist, Irving Fisher, published in 1933]. So, with the entry of China and India into the global economy we had low consumer price increases around the world - although higher than the statisticians in the US are under political pressure computing, calculating and doctoring - and this led Mr. Greenspan to create, after he fueled the NASDAQ investment mania with easy money, another gigantic bubble: the housing bubble! There are many ways to recognize a bubble. One of the most reliable indicators that an investment mania is underway is always very high volume." - Marc Faber
Editor and Publisher of 'The Gloom, Boom & Doom Report,' and author of the bestselling 'Tomorrow's Gold'. Quote from 'The Gloom, Boom and Doom Report', 6 May 2005. http://www.gold-eagle.com/editorials_05/faber050605.html
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