Silver is the most undervalued at this time and in light of the
supply / demand crisis coming up shortly in silver, along with an increasing reliance on
silver in the technology, communications and military industries and of course the tanking
U.S. dollar, which has lost 25% against major foreign currencies in the last 12 months,
silver should be a must in everyone's diversified savings / retirement plan to be sure
that what you have worked for will still be there when you need it.
The world's most famous value investor Warren
Buffett started a stampede into Chinese oil stocks after his Berkshire Hathaway vehicle
disclosed back in May it had taken a significant stake in state-run oil firm PetroChina
(symbol - PTR). Most of the so-called Chinese blue chips are dual-listed in both Hong Kong
and China though the valuations are wide apart.
The 1997 IRA amendment now offers IRA
investors the opportunity to diversify their investments from pure paper, stocks, bonds
and mutual funds, to solid hard-asset investments-precious metals.
Silver Eagles are the only US silver coins specifically approved for IRAs,
though the .999 fine clause makes Silver Maple Leafs also eligible. However, pre-1965 US
90% silver coins are not eligible for IRAs. For IRA investors who prefer silver, bullion
bars are recommended
Gold bullion and silver bullion were approved for IRAs by the US government in 1997.
Heretofore, only Gold Eagles and Silver Eagles coins were acceptable for IRA Plans. This
change is especially beneficial to IRA investors who would like to diversify their IRA
holdings to include more than stocks, bonds and mutual funds.
Warriors Archives 2002
The total notional value of derivatives issued
by the world's financial institutions has nearly doubled over the last four years to
$127.6 trillion according to the Bank for International Settlements. Interest rate
derivatives, which represent about $90 trillion of the total, are leading the growth
spurt. Interest rate derivatives help to fuel the mortgage industry.
What's causing all this renewed exuberance in the stock market? Greenspan addressed the
Council on Foreign Relations in Nov 18, 2002. His message in brief: "Derivatives are
good, and good for you." According to the chairman's speech, derivatives are just
about the greatest things that ever happened to the world of finance, and we'd all be
better off if we had a lot more of them coursing through the global financial system.
Maybe Greenspan is right. however, the world already has a boat load of these financial
marvels.
Derivatives are accumulating in our economic atmosphere like financial happy gas. Are
they as inert as Greenspan and banks like JP Morgan would have us believe? Or are they an
unstable like nitroglycerine? We think the latter.
All we know is that total derivatives exposure
within the banking system is expanding at a staggering rate. No one knows now when the
nitro will explode, but it's happened before, just sort through the ashes of the Long-Term
Capital Management debacle
According to Alan Greenspan, in his typical nauseating verbage, "interest-rate
derivatives have facilitated the large debt-financed extraction of home equity that, in
turn, has been so critical in supporting consumer outlays in the United States throughout
the recent period of cyclical stress."
In other words, if it weren't for derivatives, very few folks would be able to suck out
the sliver of equity remaining in their homes to buy cars and DVD players. But thanks to
the vast deficit-spending that derivatives facilitate, consumers have continued borrowing
and consuming, thereby preventing the economy from tanking.
They make tank sooner than most anticipate. That's the real story. To be sure, derivatives
can be very handy. But we suspect that they are subject to a law of diminishing returns.
The unbridled growth of derivatives that Greenspan seems to crave is probably not
something to wish for.
Derivatives increase leverage throughout the financial system, and a little bit of
leverage goes a long way. Greenspan, himself, said it best: "Derivatives, by
construction, are highly leveraged, a condition that is both a large benefit and an
Achilles' heel...Leveraging always carries with it the remote possibility of a chain
reaction, a cascading sequence of defaults that will culminate in financial
implosion if it proceeds unchecked."
For $150, you can own the top 100 companies on the NASDAQ. If the NASDAQ moves 750 points,
you could make 10 times your money ($5,000 will turn into$50,000). It's happened 29 times
in the last 35 months. Is it getting ready to happen again? What goes up and up and up
will eventually...you know the rest. Stop Limits...Short term trades....and risk capital
are the only protections against a reversal. Enjoy any profits...take the meat out of the
middle...don't wait for the top....buy low and sell high...and good luck.
The amount of money Congress has appropriated to the Defense Department is staggering. And
when you look at it item by item, it's even more astonishing. Of 13 appropriations bills
in Congress, only two have been passed into public law; the Defense bill and the Military
Construction bill.
To get an appreciation for just how much money the United States spends on defense,
consider some of the following
numbers:
The Air Force will spend $13 billion on 15 C-17 transport aircraft. The GDP of Mauritius,
a current member of the U.N. Security Council, is $4.5 billion. The Army will spend $2.2
billion on appropriations for tracked vehicles, including equipment, ordinance, and spare
parts. The Navy will spend $4.6 billion on procurement.
Procurement of new weapons systems was the only portion of the defense budget that
President Bush did not ask for an increase in. Congress increased it anyway. But the
biggest increases in defense spending were in pay for military personnel and funding for
current operations.
That figures to change in the next five years. The Bush administration has requested over
$2.1 trillion in funding over the next five fiscal years. Annual defense spending would go
from about $350 billion in 2002 to nearly $470 billion by 2007.
Right now, defense spending is about 3% of GDP. While it's true the historic average is
much higher, the United States now spends more on defense than the next 20 nations
combined. Even a modest increase in the percentage of GDP dedicated to defense would send
the total dollar figure well in excess of $500 billion a year - pretty much tantamount to
a total declaration of war on the rest of the world for the indefinite future. Of course,
the Bush administration has said in print that its aim is total military superiority. From
its national security blueprint issued late this summer:
"The United States must and will maintain the capability to defeat any attempt by an
enemy - whether a state or non-state actor - to impose its will on the United States, its
allies, or our friends. We will maintain the forces sufficient to support our obligations,
and to defend freedom. Our forces will be strong enough to dissuade potential adversaries
from pursuing a military build-up in hopes of surpassing or equaling the power of the
United States."
None of this is good news for pacifists. The Aerospace/Defense group as a whole sports a
market cap of $119 billion. Yet the 5 largest of the 56 companies in the group - Boeing
(BA), General Dynamics (GD), Honeywell (HON), Lockheed Martin (LMT), and Northrop Grumman
(NOC) - have a combined market cap of $98.5 billion - nearly 80% of the sector's total
market value.
After these, 5 of the remaining 51 companies have market caps in excess of one billion
dollars. Let me finish the math for you: this means that 46 of the 56 companies in this
sector are fairly small companies. And the big institutional investors usually ignore
stocks like these with market caps below $1 billion. This means there's an opportunity for
individual investors to find some attractively priced stocks. Invision (INVN)
currently at 28 per share is worth researching. The PE Ratio, PSR Ratio, Return of Equity
and Growth are in excellent ranges. OSIS followed by ASE should be reviewed as
comparisons
In fact, this may be the perfect "contrarian play" for the existing environment.
An article in the Wall Street Journal trashed defense stocks. The article says the post
9-11 run-up in the big-cap defense stocks has run its course. It also claims that growth
rates in the federal defense budget are likely to plateau in coming years.
Will Americans skimp on defense...especially in the midst of permanent and unsettling
threats from terrorists. We think not.
What should give us pause today is that so much of our capital is now being consumed.
America isn't the country it was in 1942. Our GDP may be larger, but our economic habits
are worse. If we fail to return to a model of saving and investing in capital goods,
rather than consuming, we will impair our ability to fight and win the wars of the 21st
century.
Deficit spending has broad political support in the context of an ideological war. An
ideological war is exactly what this war on
terror has become. That alone should continue to drive defense spending.
When the rally is over, prices usually fall. This time they may not recover for a dozen
years
Corporate profits are falling; not rising. And corporate balance sheets are in tatters.
But that's not stopping investors from
loading up on yesterday's heroes, as if it were still yesterday. The Dow surged 148 points
to 8,623, while the
Nasdaq leapt more than 3% to 1,419.
Housing starts tumbled a seasonally adjusted 11% in October, more than reversing
September's gains. The October drop was the steepest monthly decline in eight years. The
10-year T-note's yield jumped to 4.06% from Tuesday's 3.98%. Gold fell $1.20 to $317.60 an
ounce.
Even with very low financing, low to moderate-income families are finding it harder to pay
for housing. The number of such households where 50% or more of income goes to pay for
housing has increased 68% in the last 5 years. The biggest group -
41% with critical housing needs is in the suburbs. People are getting poorer in America.
Median household income fell to $42,220 in 2001, down from $43,160 the year before.The
wealth created by the stock market bubble and Greenspan's easy credit, is and will
continue to be an illusion.Debt is real and is still with us today. Tomorrow, we'll have
to reckon with it.
Posted and Archived November 21,2002 Dow
at 8875
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