Datasets:

vencortex

/

TechNews

like 5

T

The Zacks Analyst Blog Highlights IShares Edge MSCI Min Vol USA ProShares S P 500 Aristocrats IShares U S Industrials Vanguard Telecommunication Services And IShares U S Consumer Goods

For Immediate Release Chicago IL June 22 2016 Zacks com announces the list of stocks featured in the Analyst Blog Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets Stocks recently featured in the blog include iShares Edge MSCI Min Vol USA ETF ProShares S P 500 Aristocrats ETF iShares U S Industrials ETF Vanguard Telecommunication Services ETF and iShares U S Consumer Goods ETF Today Zacks is promoting its Buy stock recommendations Here are highlights from Tuesday s Analyst Blog ETFs Scaling New Heights Prior to Brexit Vote he most popular trading adage Sell in May and Go Away is strongly being felt in the U S stock market While the summer months have been historically weak for U S equities this time concerns over a Brexit have hammered the stock market Additionally uneven domestic growth weak corporate earnings uncertain Fed policy sluggishness in emerging markets and global growth fears have added to the woes read However a series of weekend polls suggest that chances of Britain remaining in the European Union have increased ahead of the referendum on U K s membership in the European Union EU to be held on June 23 This brought back the lost confidence in the market duringMonday s trading session fueling a rally in the stocks As a result the S P 500 index touched the key threshold level of 2 100 once gain in early session before retreating At the close of the day the S P 500 was about 2 below its all time high of 2 134 72 Further the Fed kept the short term interest rates steady in its latest meeting and hinted that it is not in a hurry to raise interest rates anytime soon but will follow the path of gradual rate hikes later this year This has given an additional boost to the stock market read All these led to smooth trading in the ETF world as well with several products hitting all time highs in the last trading session While there are winners in several corners of the space we have highlighted one ETF from each corner Any of these could be compelling choices for investors seeking safety ahead of the Brexit vote Volatility iShares Edge MSCI Min Vol USA ETF This is the largest and most popular ETF in the low volatility space with AUM of 13 6 billion and average daily volume of 3 8 million shares It offers exposure to 177 U S stocks having lower volatility characteristics than the broader U S equity market by tracking the MSCI USA Minimum Volatility Index Expense ratio comes in at 0 15 The fund is well spread across a number of components with each holding less than 1 6 share From a sector look healthcare financials information technology and consumer staples occupy the top positions with a double digit exposure each The ETF hit a record high of 45 30 per share representing a gain of about 8 2 in the year to date time frame It has a Zacks ETF Rank of 2 or Buy rating with a Medium risk outlook Dividend ProShares S P 500 Aristocrats ETF This product provides exposure to 50 companies that raised dividend payments annually for at least 25 years by tracking the S P 500 Dividend Aristocrats Consumer staples is the top sector accounting for one fourth of the portfolio while industrials healthcare and consumer discretionary round off the next three spots The fund has 2 billion in AUM and an expense ratio of 0 35 Volume is good as it exchanges more than 314 000 shares in hand a day on average NOBL surged to an all time high of 54 21 per share having gained 9 6 so far this year It has a Zacks ETF Rank of 2 with a Medium risk outlook read Industrials iShares U S Industrials ETF This product provides exposure to 212 industrial stocks by tracking the Dow Jones U S Industrials Index It is heavily concentrated on the top firm GE with 10 8 of assets while others make up for less than 4 share The ETF is tilted toward capital goods companies at 58 8 while software services and transportation round off the next two spots with double digit exposure each The fund has an AUM of 861 9 million and average daily volume of around 86 000 shares Expense ratio comes in at 0 45 The ETF hit a fresh high of 111 80 per share and has moved higher by about 8 2 this year It has a Zacks Rank of 3 or Hold rating with a Medium risk outlook Telecom Vanguard Telecommunication Services ETF This is the most popular telecom ETF with AUM of 1 5 billion and average daily volume of more than 160 000 shares It tracks the MSCI US Investable Market Telecommunication Services 25 50 Index and holds 31 stocks in its basket The top two firms AT T NYSE T and Verizon dominates the fund s portfolio with over 22 share each while other firms hold no more than 4 5 share About two thirds of the portfolio is skewed toward integrated telecom services followed by alternative carriers and wireless The product charges 10 bps in annual fees and hit an all time high of 95 33 per share representing a gain of 13 9 so far this year VOX has a Zacks Rank of 3 with a Medium risk outlook read Consumer Staples iShares U S Consumer Goods ETF This ETF targets domestic consumer goods stocks by tracking the Dow Jones U S Consumer Goods Index It holds about 114 stocks in its basket with heavy concentration on some of the top firms From an industrial look about half of the portfolio is allotted to food beverage tobacco while household products consumer durables and autos components round off the next three spots The fund has amassed 784 3 million in its asset base while trades in a volume of about 89 000 shares Expense ratio comes in at 0 45 The ETF has returned about 6 2 so far this year hitting all time high of 115 24 per share It has a Zacks ETF Rank of 3 with a Medium risk outlook Want the latest recommendations from Zacks Investment Research Today you can download7 Best Stocks for the Next 30 Days Today Zacks is promoting its Buy stock recommendations About Zacks Equity Research Zacks Equity Research provides the best of quantitative and qualitative analysis to help investors know what stocks to buy and which to sell for the long term Continuous coverage is provided for a universe of 1 150 publicly traded stocks Our analysts are organized by industry which gives them keen insights to developments that affect company profits and stock performance Recommendations and target prices are six month time horizons Zacks Profit from the Pros e mail newsletter provides highlights of the latest analysis from Zacks Equity Research About Zacks Zacks com is a property of Zacks Investment Research Inc which was formed in 1978 The later formation of the Zacks Rank a proprietary stock picking system continues to outperform the market by nearly a 3 to 1 margin The best way to unlock the profitable stock recommendations and market insights of Zacks Investment Research is through our free daily email newsletter Profit from the Pros In short it s your steady flow of Profitable ideas GUARANTEED to be worth your time Follow us on Twitter Join us on Facebook Zacks Investment Research is under common control with affiliated entities including a broker dealer and an investment adviser which may engage in transactions involving the foregoing securities for the clients of such affiliates Media Contact Zacks Investment Research 800 767 3771 ext 9339 Past performance is no guarantee of future results Inherent in any investment is the potential for loss This material is being provided for informational purposes only and nothing herein constitutes investment legal accounting or tax advice or a recommendation to buy sell or hold a security No recommendation or advice is being given as to whether any investment is suitable for a particular investor It should not be assumed that any investments in securities companies sectors or markets identified and described were or will be profitable All information is current as of the date of herein and is subject to change without notice Any views or opinions expressed may not reflect those of the firm as a whole Zacks Investment Research does not engage in investment banking market making or asset management activities of any securities These returns are from hypothetical portfolios consisting of stocks with Zacks Rank 1 that were rebalanced monthly with zero transaction costs These are not the returns of actual portfolios of stocks The S P 500 is an unmanaged index Visit for information about the performance numbers displayed in this press release

T

CBS Corp CBS Tops Q1 Earnings Revenues Stock Gains

CBS Corporation s NYSE CBS first quarter 2016 earnings per share of 1 02 easily surpassed the Zacks Consensus Estimate of 94 cents on the back of robust advertising revenues as well as the grand success of the Super Bowl broadcast Notably the company s earnings have beaten the Zacks Consensus Estimate in the trailing five quarters The bottom line of this diversified media conglomerate also soared 30 8 from 78 cents in the year ago quarter Following the result the company s shares gained 2 2 in after hour trading session yesterday Total revenue the company jumped 10 to 3 849 million The bottom line also beat the Zacks Consensus Estimate of 3 819 million The top line of the company reflects 31 3 growth in advertising revenues on the back of the highly successful broadcast of Super Bowl 50 as well as additional National Football League NFL games The 12 increase in underlying network advertising also drove revenues higher Adjusted operating income increased 16 to 821 million Adjusted operating margin came in at 120 as against 21 3 in the prior year quarter Segment wise Entertainment revenues increased 14 4 to 2 587 million Advertising revenues soared 31 3 on growth in CBS Television Network advertising revenues Affiliate and subscription fees surged 67 due to increase in rates However these improvements were marginally offset by decline in content licensing as well as distribution revenues The segment s operating income increased 29 8 to 449 million primarily driven by growth in revenues Cable Networks revenues declined 2 6 to 525 million The segment s operating income fell 9 2 to 228 million mainly due to decline in international licensing revenues as well as due to higher costs associated with the 2016 series premiere of Billions on Showtime Publishing revenues came in at 145 million flat year over year Digital revenues now account for 28 of Publishing s total revenue This segment s operating income grew 8 3 to 13 million Local Broadcasting revenues increased 8 9 to 649 million in the quarter owing to increase in political advertising revenues growth in retransmission revenues and also due to broadcast of Super Bowl 50 on CBS CBS Television Stations revenues rose 18 while CBS Radio s revenues dipped 2 The segment s operating income surged 28 to 206 million due to higher revenues and lower expenses Other Financial DetailsCBS Corp ended the quarter with cash and cash equivalents of 411 million long term debt of 8 226 million and shareholders equity of 5 483 million In the quarter the company generated cash flow from operations of 1 028 million and incurred capital expenditures of 38 million Free cash flow during the quarter was negative 990 million substantially higher than 400 million in the year ago period During the quarter under review CBS Corp bought back 10 3 million shares for 500 million By Mar 31 the company had 1 5 billion remaining under its current share buyback program Bottom LineThe company expects the increase in political revenues to improve advertising further in the latter half of the year The company intends to cross the 2 billion mark in revenues from retransmission consent and reverse compensation by 2020 Several strategic deals with Sinclair AT T NYSE T Nexstar and others have favorably positioned the company to meet the retransmission targets much ahead of schedule Moreover the company is poised to generate higher revenues supported by the launch of Showtime s streaming service online news channel CBSN and over the top service CBS All Access Zacks Rank and Stocks to ConsiderCBS currently has a Zacks Rank 3 Hold Some better ranked stocks include Entercom Communications Corp NYSE ETM Gray Television Inc NYSE GTN and Sirius XM Holdings Inc NASDAQ SIRI Entercom Communications hold a Zacks Rank 1 Strong Buy Gray Television and Sirius XM has a Zacks Rank 2 Buy

T

Sprint S Q4 Loss Widens Revenues Top Stock Up

Sprint Corp NYSE S a leading telecom operator in the U S providing wireless and wireline services to individuals business enterprises and government agencies Sprint finalized its cost cutting framework with the projection to save around 1 billion The plan involves a few operational overhaul and layoffs Sprint has been poaching the subscriber base of its rivals AT T NYSE T and Verizon in order to increase its own customer base Recently it offered lucrative credits to its rival carrier s customers for switching to Sprint s network Additionally it has been offering attractive device leasing plans to its customers Sprint currently carries a Zacks Rank 3 Hold The company has generated a positive average earnings surprise of 3 82 in the previous four quarters We have highlighted some of the key stats from this just revealed announcement below Earnings Sprint incurs loss in Q4 of fiscal 2015 Net loss was wider than the Zacks Consensus Estimate Our consensus estimate called for an adjusted net loss of 12 cents per share and the company reported adjusted net loss was 14 cents per share Investors should note that these figures take out stock option expenses Revenue Sprint reported total revenue of 8 071 million which surpassed our estimate by 69 million Key States to Note In the reported quarter Sprint added 56 000 retail postpaid connections At fourth quarter end the company had 30 951 million retail postpaid connections up 4 2 year over year Retail postpaid average revenue per user ARPU decreased 13 3 to 51 68 per month In reported quarter Sprint lost 264 000 net prepaid connections but gained 655 000 net wholesale connections Stock Price At the time of writing the stock price of Sprint was up nearly 2 01 7 cents in the per market trade on NYSE Clearly the initial reaction to the release is positive We believe that better than expected revenues and net gain of postpaid subscribers are the primary reasons for the initial positive stock price movement Check back later for our full write up on this Sprint earnings report later

T

Minimize Stress With Low Volatility ETFs

Many investors have been caught off guard this year with the sharp drop in stocks combined with a rush to safety in traditional defensive asset classes This week we will be reviewing a trio of diversified ETFs designed to hold stocks with lower historical price fluctuations than traditional market cap weighted benchmarks These tools can be useful for more conservative investors that are seeking to maintain an allocation to stocks with the goal of mitigating downside risk Reviewing The Playing Field David Fabian The largest ETF in this space is the iShares MSCI USA Minimum Volatility ETF USMV which has over 8 billion in total assets USMV contains exposure to 168 large and mid cap stocks with top holdings in well known names such as AT T Inc N T and McDonalds Inc MCD This smart beta fund carries a modest expense ratio of just 0 15 as well The USMV portfolio is constructed according to rigid constraints on individual stocks sectors and overall price sensitivity of each holding While the structure of this ETF is that of a passive index it s holdings are regularly evaluated to ensure they are maintaining minimal price fluctuations relative to their peer group In addition the multi sector approach allows for this fund to be and not just a short term defensive hideout The PowerShares S P 500 Low Volatility Portfolio SPLV is another well regarded fund in this class with over 5 billion in total assets SPLV takes a variant approach by taking the 100 lowest volatility stocks in the S P 500 Index and equal weighting each underlying holding The end result is a deep pool of quality large cap stocks with high concentrations in financials consumer staples and industrial companies SPLV charges an expense ratio of 0 25 and has a unique feature of providing monthly distributions to its shareholders This type of regular dividend stream may be an attractive characteristic for income investors and the fund currently sports a yield of 2 31 Lastly the SPDR Russell 1000 Low Volatility Focus ETF ONEV is a relative newcomer in this arena ONEV launched in December 2015 and is designed to select a subset of 420 U S large cap holdings from the broader Russell 1000 Index A fund of this nature may be appropriate for investors who favor a deeper index constructed according to similar principles as its more concentrated peers In addition ONEV charges an expense ratio of 0 20 which is reasonable for its class Analyzing The Technical Picture USMV has masterfully done it s job providing minimum volatility The Funds top 5 holdings all sport a 2 9 dividend yield Its structure has allowed investors to take advantage of the strength of defensive stock groups such as consumer staples and utilities while still being highly correlated to the S P 500 The ETF is flat over the past year while the S P 500 is down 10 Also note the sharp drop in correlation between USMV and the S P 500 leading into August 2015 s sharp decline That provided a nice footprint of flows into defensive assets Moving on to SPLV this ETF is also made of stable businesses such as Campbell Soup Coca Cola Clorox and Verizon There are two interesting points worth noting on this chart First there are meaningful drops in the one month correlation from time to time which show the start of a flight to safety in 2015 We also see that while the market has recently reached new lows this index has positively diverged Between SPLV and USMV the technical differences are hardly noticeable ONEV is drastically different than the other two Unlike SPLV and USMV ONEV s benchmark tracks an index made of a drastically larger number of stocks with greater risk qualities As you can see ONEV is down 6 8 since inception while it s Russell 1000 ETF cousins are down roughly 10 In the same period the S P 500 is down 9 We must also note the complete lack of interest in this product to this point ONEV is a defensive instrument within a non defense stock index It s an unproven product and style doesn t really fill a classic market objective Conclusions USMV and SPLV have both proven to be suitable ways to be in stocks defensively The greatest differentiators between the two funds is SPLV s monthly dividend payments and 1 greater expense ratio ONEV is currently not liquid enough to be considered a suitable investment vehicle Thanks for reading Disclosure At the time this article was written David Fabian and clients of FMD Capital Management owned shares of USMV The views expressed by Aaron Jackson are those of the independent author and are not affiliated with FMD Capital Management Disclosure FMD Capital Management its executives and or its clients may hold positions in the ETFs mutual funds or any investment asset mentioned in this article The commentary does not constitute individualized investment advice The opinions offered herein are not personalized recommendations to buy sell or hold securities

T

Where Is AT T Headed

AT T Inc NYSE N T understands like most already people do that you cannot brew the same formula forever The company has been a wireline business has seen the rise of wireless systems and is currently witnessing how the combination of wireless and Internet is disrupting the communications sector History teaches that to stay relevant in the communications industry you must not rest on your laurels With this wisdom in mind AT T is trying to transform itself repositioning its subscriber base revamping its video play and expanding abroad However the major question at this point is whether AT T is getting anywhere with its various turnaround efforts This AT T analysis article puts into perspective the various efforts the carrier is making to reinvent itself and their possible outcomes Impact Of DirecTV Acquisition On Cash Flow There are multiple ways in which AT T could benefit from its acquisition of paid TV provider DirecTV One key way in which DirecTV will be immediately beneficial to AT T is by boosting the carrier s cash flow Being an already profitable business DirecTV could improve AT T s cash position by an additional 3 5 billion The expected 2 5 billion in cost synergies by 2018 from the acquisition of DirecTV could also bolster AT T s cash flow position Therefore taking into account DirecTV s cash flow contribution AT T s total free cash flow could rise to more than 16 billion by next year considering that the carrier on its own had 10 billion of free cash flow last year AT T needs to strengthen its cash position to support its ongoing revenue expansion and diversification efforts that include deep video involvement and expansion in Mexico AT T Acquiring An Old Asset But With Eye On New Future AT T is acquiring DirecTV when it is fully aware of the transformation sweeping through the video market An increasing number of paid TV providers are moving to cut the cord in favor of Internet based video services It may concern many investors why AT T is pouring 49 billion in a business that will soon be overtaken by events However while AT T understands the dynamics of the video market and the flow to online the company is betting on the slow death of the traditional paid TV business It believes that as much as the rise of over the top OTT video services will choke the life out of traditional television services someday the process will be slow and happen over many years AT T s Online Video Agenda Is Alive As much as AT T appears to be siding with a linear television provider at a time of transition it is not lost on the company where the future of video consumption is moving However for the time that most people will still continue to consume video through linear channels AT T believes it will have extra value from DirecTV that it can invest elsewhere especially in building a more robust online video service AT T also understands that it is not enough just to render video over the Internet wirelessly but owning content is an important part of the game As such the company is reportedly investing in online video content through its joint venture called Otter Media Therefore relying on the video experience it is building together with its vast wireless resources AT T is looking forward to a bright future in the video business Subscriber Base Repositioning Part of T s remaking involves subscriber base repositioning The company is more interested in growing its postpaid smartphone subscriber numbers That explains why AT T has in recent times sought to pay less attention to winning over feature phone subscribers As such the population of feature phone customers on AT T s network has been on the decline and the company is not feeling pain about it The reason AT T is not feeling the pain of losing feature phone customers is that the group exhibits a higher churn rate and their loyalty is mostly predicated on aggressive pricing and promotions AT T s subscriber quality approach is sensible in that the company is limiting the cost of attracting and retaining low value subscribers The strategy should enable the company to lower its operating costs and also optimize capital allocation for better returns The repositioning of the subscriber base is already having a positive impact on AT T s average revenue per user ARPU The company reported that its postpaid ARPU rose by about 6 in just one year to 68 from 64 as it increased focus on high value customers while letting go of feature phone subscribers In terms of subscriber distribution AT T has seen its smartphone subscriber numbers lift as its feature phone customers decline The company reported that the population of its smartphone customers rose to 65 million in the last quarter 2Q2015 from 58 million in the same period a year earlier At the same time the population of feature phone subscribers contracted to 9 million from 13 million in the prior year The chart below shows AT T s smartphone and feature phone subscriber trends Cricket Is AT T s Attack Dog AT T has clearly outlined its subscriber growth strategy indicating that it is more interested in widening the population of its high value postpaid smartphone subscribers However the company is also keen to attract and retain high end prepaid subscribers As such AT T has Cricket to serve its interest in the prepaid market The company has at least two strategies with Cricket It is being offered as a fallback plan for customers who do not qualify for postpaid subscription In more recent times AT T has seemed to position Cricket as the attack dog against its rivals T Mobile US Inc NYSE TMUS and Sprint Corp NYSE S AT T appears to be particularly interested in using Cricket to raid the prepaid subscriber bases of T Mobile s MetroPCS and Sprint s Boost Revenue Boost On Top Of Cost Synergy AT T is already known as one of the cost leaders in the U S phone operator business and the acquisition of DirecTV is expected to bolster its cost curtailment advantages While cost benefit was the main theme around the acquisition of DirecTV it should not be lost on investors that DirecTV will also bolster AT T s topline DirecTV generated 33 3 billion in revenue in 2014 One of the areas in which AT T could unlock more revenue growth from DirecTV is through upselling its subscribers and there is wide room to do that Potential Pain Points For AT T Content Agreements One area in which AT T is focusing to cut cost through DirecTV acquisition is through content agreements Because of its expanded scale AT T is hoping that it can pressure content providers into making favorable price adjustments However given that wireless and satellite content deals are usually negotiated separately AT T could find it more challenging than it expected to push content providers to agree to its terms Threat Of OTT AT T is betting that the disruptive machine of OTT will grind gradually allowing it time to recoup profit and investment in DirecTV However AT T has no control over how OTT penetration accelerates which means that its assumptions could be wrong and costly at the end of the day Expansion Into Mexico Sensing market saturation in the U S AT T is looking abroad to unlock new growth The company has acquired two wireless assets in Mexico to expand its footprint in the market While the Mexico acquisition moves are sensible it will take time before they pay off In the meantime AT T could face higher cash burn than it anticipated in sustaining the new businesses in Mexico Bottom Line AT T s transformation is in progress There will be speed bumps along the way as already highlighted but they won t be life threatening

T

S P 500 Futures Reversing The Reverse

Next week has a much busier economic schedule 16 economic reports 2 day FOMC meeting GDP and 10 T bill or T bonds auctions or announcements Monday s eco reports include Durable Goods Dallas Fed Mfg and a slew of earnings Selling the better earnings The big RIP and another Dip Today the S P dropped 35 handles from its high to low So what do we want to talk about Bonds up S P down Gold down to a new 5 year low silver down to a 6 year low Crude oil down to 47 70 Or the AT T NYSE T DIRECTV NASDAQ DTV deal for 48bil being approved by US regulators No lets talk about the liquidation in commodities and biotechs because that was today s main driver FOMC meeting next week Pit Bull 2040 level High 2097 50 EARLYLow 2069 70 LATELast 2074 50 Down 24 HandlesVolume 1 55mil ESU and 14k SPU traded in the pit MOC Sell 67mil

T

AT T Could Surprise The Bears Soon

AT T NYSE T stock reached 36 43 on June 25th but has been declining ever since Yesterday prices fell to 33 44 so the majority of market participants are slowly switching their outlook from positive to negative But let s take a look at the weekly chart for AT T which will allow us to form our own opinion As visible AT T has been rising since the bottom at 20 96 in October 2008 In April 2013 the stock climbed as high as 38 98 Prices have been consolidating between 31 70 and 39 00 for more than two years now However the Elliott Wave Principle suggests the bulls might return soon The entire advance since 2008 looks like an unfinished five wave impulse Unfinished because its wave 5 is still missing Wave 4 seems to be a triangle whose last wave e is still in progress If this is the correct count once it is finished AT T could be expected to head north again As long as the bottom of wave c of 4 is safe the 40 mark remains as a long term target

T

Warrants Options On The Future

Have you ever explored the numerous opportunities available using stock warrants Probably Not Virtually everyday in the news with companies reporting a stock offering either a private placement or a public offering more often than not stock warrants are attached to the offering As well you have probably seen articles about Warren Buffett and Carlos Slim with their personal investments involving stock warrants My message for you today is that stock warrants are seen daily in the news and whether you will ever buy or sell warrants yourself you need to understand what they are and the advantages that stock warrants can bring to your portfolio But first we need to briefly discuss the overall market environment These markets are getting very volatile whether you are investing in the resource sector with gold silver or the shares or if you are investing in the Dow Jones Industrial Average S P 500 or the NASDAQ so let s look at a few charts which tell the story of volatility starting with the strength in the US Dollar Stock Warrants versus Call Options A warrant is a security issued by a company giving the holder the right but not the obligation to acquire the underlying company s shares at a specific price That right expires on a specific date in the future Generally warrants are issued in connection with a stock or a bond offering Frequently they are done so in the context of an equity kicker or sweetener The reason a company will issue a warrant is simple think of it as additional incentive to get the deal done There is an obvious similarity to call options The two instruments are closely related The major difference is that a call option is created in the marketplace by investors and not issued by a company Typically options trade on designated options exchanges such as the Chicago Board Options Exchange Warrants will trade on a traditional stock exchange such as the New York Stock Exchange NASDAQ or the Toronto Stock Exchange just like their common shares Warrants first came about in the 1920s At one time even AT T Inc NYSE T had warrants trading as well as some of the big company names of the past and present Tenneco Inc NYSE TEN Avcorp Industries Inc TO AVP Holiday Inn International Tel Tel Lowes General Tire Rubber Mack Trucks and many more Fast forward to today and you will discover that many stock warrants are trading on the shares of banks financial service companies as well as companies in biotechnology autos restaurants oil gas pipelines and of course on natural resource companies an area in which many readers have a special interest With the possibility of the lows being behind us in gold and silver the opportunity for extraordinary gains in resource shares and or the long term warrants on those shares look interesting TRADER OBJECTIVE The first step in trading stock warrants is selecting the right underlying company This is of utmost importance because if the company does not execute on its business plan and the common shares do not rise holders of either call options or warrants will not make money Each investor must perform his or her own due diligence on companies that are attractive for investment The next consideration is your time horizon Are the markets in a bull market or a bear market and how much time do you want to execute on your investment objective Once a viable company is selected the decision to purchase a warrant or a call option will depend on the timeframe of the trader s goals While traditional call options generally have a life of between 30 days and one year warrants often are issued with two to five years until expiration Thus short term traders may see more opportunity in call options while longer term investors may be more comfortable with the several years until expiration that warrants provide This additional time can be a great asset as in the volatile markets we have experienced over the last few years Investors can also consider LEAPS Long Term Equity Anticipation Securities that typically have a maximum life of two years and trade on the Chicago Board Option Exchange Whether the investor is considering call options or warrants the underlying reason is basically the same increased leverage Both warrants and options offer additional leverage over purchasing a stock outright Of course as with all forms of leverage the leverage afforded by warrants cuts both ways When it comes to warrants traders can expect to achieve at least a two to one leverage over purchasing the common shares this is reasonable with most of the warrants currently trading What this means is if you believe the common shares will rise 100 then the warrants have the potential to increase by at least 200 In addition to speculative or investment opportunities warrants can also provide hedging benefits When combined with both put and call options warrants also can be used to construct some rather interesting sophisticated and potentially profitable trading strategies Disclosure Neither Dudley Pierce Baker nor CommonStockWarrants com is an investment advisor and any reference to specific securities does not constitute a recommendation thereof CommonStockWarrants com is an online newsletter providing complete details on all stock warrants trading in the United States and Canada The information and opinions expressed should not be construed as a solicitation to buy and securities mentioned

T

Facebook Seeks EU Approval For WhatsApp

Reportedly Facebook NASDAQ FB has sought antitrust approval from the European Union for its purchase of mobile messaging service WhatsApp In Feb 2014 Facebook declared its intention of acquiring Whatsapp for a whopping sum of 19 0 billion The company expected this acquisition to not only expand its mobile product lineup but also to add a predominantly young user base Since the time Facebook first floated the idea of acquiring WhatsApp some European telecom companies have raised concerns about the proposed deal apprehending that the social network will have a monopoly in the mobile communications market Facebook s WhatsApp is expected to offer free voice call services by the end of second quarter of this year It announced that the service will initially be available on iOS and Android and will gradually be extended to Windows and Blackberry users WhatsApp s free voice call service will intensify competition for telecom companies such as AT T NYSE T This acquisition has already been approved by the Federal Trade Commission FTC in the U S This step of seeking approval from the European Union was initiated by Facebook as it will save the company from multiple regulatory reviews in different European nations However the acquisition deal may be outside the purview of the European Commission as WhatsApp does not earn sufficient revenues to fit into the given criteria Nevertheless the commission can take responsibility for the case provided three national regulators raise objection against the same Allthough any negative result of the aforesaid review will likely to be a headwind for Facebook we believe that it will not significantly impact its revenue growth in the near term Moreover the decision of the European Union will in no way prevent the closure of the acquisition deal At the most it can prevent the usage of WhatsApp in Europe Facebook intends to use the services of Whatsapp in its internet org program Hence if WhatsApp gets banned in Europe then the growth prospect of the internet org initiative may be hampered to some extent Facebook s rapid pace of acquisitions is expected to weigh down on profitability and cash balance in the near term Intensifying competition from the likes of Google NASDAQ GOOG Yahoo NASDAQ YHOO and Twitter NYSE TWTR remains a major concern However we believe that Facebook s growing mobile user base Instagram s increasing popularity frequent launch of new products and international expansions will boost the company s top line and profitability going forward

T

Why We re Ignoring The Stock Correction Scenario For Now

Investor Doubt Increases Correction Odds The S P 500 traded at 1 850 intraday on December 31 2013 Last week s intraday low was 1 862 or just 0 64 above the level seen 135 calendar days earlier Why have investors become so hesitant in 2014 Answer The economy and earnings From Behind the stock market s anxious ups and downs of late lies the fear that a weakening U S and global economy could dash hopes for an uptick in corporate earnings For the first quarter earnings season is nearly done More than 90 of big companies have reported results and they were lackluster Most beat analyst estimates but only because expectations were rock bottom Profit gains for S P 500 companies were just 2 1 overall compared with a year earlier well below the previous quarter s 8 5 rise FactSet said Now investors are seeing soft reports on industrial production housing starts consumer sentiment and European economic growth and they are growing anxious Navigating A Stealth Correction In Stocks As noted in this week s stock market video below it is not possible for stocks to experience a multi week or multi month correction without a breakdown occurring in the major stock indexes first For example if investors are concerned enough about future economic outcomes to spark a stock market correction the chart below would look worse than it does as of noon Monday Last week we covered the concept of a stealth bear market in stocks The concept is explored in detail in the video below allowing us to better understand the odds of a breakdown in the major stock indexes DirecTV Deal Met With A Yawn Typically if there is confidence that stockholders on either side of the aisle in a takeover deal will be winners we would see one of the stocks go up That is not what we were seeing early in Monday s session From Equities have come under pressure with consecutive weekly declines for the first time since January as investors have become leery about growth prospects Last week readings on retail sales and consumer sentiment fell shy of expectations while labor and housing data provided reason for optimism AT T NYSE T lost 1 7 percent to 36 12 after the telecom company said it will acquire DirecTV NASDAQ DTV for 48 5 billion as it seeks fresh avenues of growth beyond the maturing U S cellular business DirecTV shares lost 1 81 at 84 37 Investment Implications Patience Needed The market s indecisive nature from a risk tolerance perspective can be seen in the chart of the NASDAQ below The negative slope of the blue 50 day moving average tells us investor conviction has been waning for some time now In terms of risk management guideposts we d would feel better about tech and stocks in general if a the NASDAQ would recapture its 50 day at 4 159 and b the slope of the 50 day turned back up The market s pricing mechanism will guide us if we are willing to monitor and adjust as new fundamental and technical information comes to light For now we continue to hold a mix of stocks SPDR S P 500 ARCA SPY bonds iShares Barclays 20 Year Treasury ARCA TLT and cash

T

Dow Utilities Technical Breakdown

It s clear that AT T NYSE T has a lot to do with yesterday s action in the Dow 15 Utilities but it s interesting to me how plainly the bullish breakout has failed over the past couple of weeks on this important index

T

AT T For My Passive Income Portfolio

For readers who a new to the matter and my dividend growth philosophy I funded a virtual portfolio with 100k on October 04 2012 with the aim to build a passive income stream that doubles each five to ten years I plan to purchase each week one stock holding until the money is fully invested The total number of constituents is expected at 50 70 companies and the dividend income should be at least at 3 000 per year Let s go forward The markets in are in a small turmoil Bernanke announced to reduce its quantitative easing at the beginning of autumn this year The markets were surprised about the fast mind changing views Let me mention one thing It s always good to reduce the artificial influence from national banks It s also good that the Fed is the first institution who sweeps off the enduring mechanism of programs to improve the economy The economy hasn t shown bigger growth signals due the Fed stimulus The only thing that happens is that the risk of asset bubbles increases rapidly In order to avoid future price hikes in special markets they needed to shut down their expansive monetary policy Last Friday I bought AT T shares in an amount of around 1 000 for the Dividend Yield Passive Income Portfolio The leading telecom provider yields above the 5 percent mark and is one of the biggest companies in the world with a current market capitalization of USD 190 billion AT T provides telecommunications services to consumers businesses and other providers in the United States and internationally The company operates in three segments Wireless Wireline and Other The Wireless segment offers various wireless voice and data communication services including local wireless communications services long distance services and roaming services It also sells various handsets wirelessly enabled computers and personal computer wireless data cards through its owned stores agents or third party retail stores and accessories comprising carrying cases hands free devices batteries battery chargers and other items to consumers as well as to agents and third party distributors As you might have seen I invest more and more money into telecoms They are not cheap but they can give me more stability for my asset allocation In addition telecoms are some of the biggest losers in my portfolio Maybe I start to repurchase some shares of China Mobile Rogers or Tesco if the stock performance worsens I personally believe that telecoms have a tough fight against falling prices on higher volumes They are something like a utility but in my view they have also a bigger potential than electric or gas utilities The gird of AT T is a real asset and it will grow For sure this cost a lot of money and will be a burden of the stock price The new stake will give me around 50 bucks in additional dividend income For the full year the income is now expected at 1 905 The current yield is at 3 33 percent while the yield on cost amounts to 3 5 percent The return of the portfolio was hit badly with the recent sell off Because of the high cash amount of 46 2k it s still manageable As of now the life to date performance is at 3 16 The stockholdings had a performance of 4 79 percent Here is the income perspective of the portfolio

T

Long Term Gold Prospects Reinforced by Global Appetite Asian Consumers

The World Gold Council published a Market Update on Friday which examines the effect of the recent fall in the gold price in April 2013 on world gold markets The Market Update also provides new consumer perspectives in India and China on gold price expectations and future purchasing intentions Gold backed ETFs which have accounted for 6 5 of global gold demand over the last three years have seen outflows of 350 tons t out of a total of 2 700t held from the beginning of the year through to the end of April Concurrently demand for gold in the form of bars coins and jewellery as an important form of investment which makes up 72 of global demand and had begun to increase in Q1 2013 has seen a surge following the mid April price fall This has left many shops empty of stock and refineries introducing waiting lists for buyers The divergence in behavior following the gold price drop reflects the dichotomous nature of investment in gold with consumers that buy bars coins and jewellery behaving very differently from buyers of exchange traded products Highlights from the Market Update 1 Premiums pushed to exceptional levels Premiums paid for gold in Asian markets over and above the spot price rose almost immediately following the price fall The Shanghai Gold Exchange saw premiums reach US 40 oz Gold auctions run by the State Bank of Vietnam were fully subscribed with premiums at US 150 oz In Mumbai premiums were as high as US 26 oz before settling to around US 10 oz in the month following the price drop 2 Gold demand in India up sharplyIndia which represents 28 of global consumer demand may see an increase of up to 150 year on year in Q2 2013 This suggests that up to 400t of gold may be imported into India during Q2 2013 almost half of the total imports for the whole of 2012 3 Consumers in India and China see opportunity in price movesWorld Gold Council s latest research carried out in May 2013 reveals that 82 of consumers in India and China believe that over the next five years the price of gold will increase or be stable In May 2013 45 of Chinese and Indian consumers questioned said they had bought gold in the previous six months 4 Increased demand for bars and coins extends beyond AsiaIn the U S American Eagles saw the highest ever dollar value for coins US 311m in April The U K mint reported a tripling of coin sales in April The Perth mint in Australia reported the highest demand levels in five years Marcus Grubb Managing Director Investment at the World Gold Council commented This report leads us to conclude that Asian markets will see record quarterly totals of gold demand in Q2 2013 Even if ETF outflows continue in the U S it is quite likely that the gold previously held in ETFs will find a ready market among Indian Chinese and Middle Eastern consumers who are taking a long term view on the prospects for gold

T

Slump Traders Beware Gold May Hit Short Covering Levels

Gold has fallen 9 1 to 1 395 an ounce its lowest level in two years as fears of high inflation recede Investors typically buy gold to protect against inflation which erodes the value of cash investments But investors are now expecting the U S central bank to tighten monetary policy by stopping its quantitative easing QE programmed Fears of falling global demand also undermined the price of gold Other commodity prices fell back too China announced on Monday that its economy grew 7 7 in the first quarter lower than forecasts and below the pace of growth of recent years The World Gold Council s latest study of the gold market reports the value of gold demand in 2012 reached an all time high up 2 to 236 4 billion On a tonnage basis it found gold demand was down 4 on 2011 to 4 405 tonnes the first dip since 2009 but still the second highest level of gold demand ever recorded The average price of gold during 2012 was 1 669 0 per oz up 6 from 1 571 5 per oz in 2011 it said Global gold demand in Q4 2012 was 1 195 9 tonnes t up 4 on the same quarter in 2011 In value terms demand reached 66 2 billion Short Term Technical TrendIn two days spot gold breaks all the near psychological support like 1500 and 1400 On the five year chart gold creates a format of head and shoulder in an up trend it indicated that selling pressure continue below its crucial resistance 1540 15 You can see 1577 40 and 1600 11 if it crosses its crucial resistance 1540 15 and giving close on it On 5 years charts RSI below 26 so some heavy short covering expected in gold You can see heavy selling pressure below its near crucial support 1346 75 Again we can see level of 1437 84 to 1480 50 if gold sustain on its crucial near support 1346 75 Down Bollinger band will complete around 1346 75 on five years technical chart so fresh recession trend may start below its crucial support 1346 75 You can see 1329 23 and 1309 99 if gold break its crucial support and give close in it 2 Days SMA and EMA near 1507 81 Short Term Traders Should Follow These Levels Support 1346 75 1329 23 1309 99Resistance 1424 30 1437 84 1480 50

T

Tick Tock Wall Street Stumbles On Christmas Eve

U S stocks closed lower in Monday trade as lawmakers headed home for the holidays without a fiscal cliff solution in the bag The down market reflects investor concern that time is running out for U S politicians wrangling to reach a deal to avert another U S recession Lawmakers over the weekend did little to ease investor fears saying there remains time for a deal but acknowledging that time is running short U S markets closed early at 1 p m ET today and will remain closed until Wednesday for the Christmas holiday There was no economic data or reports due today When the markets re open Wednesday the Case Shiller home index for October will be released along with weekly jobless claims consumer confidence and new home sales Commodities ended mixed Crude oil prices declined for a second day closing at 0 16 down 0 18 to settle at 88 50 a barrel on the New York Mercantile Exchange Gold climbed adding 0 40 or 0 02 to settle at 1 660 50 an ounce Here s Where The U S Stocks Stood At Day sDow Jones Industrial Average down 51 76 0 39 to 13 139 08S P 500 down 3 49 0 24 to 1 426 66Nasdaq Composite Index down 8 41 0 28 to 3 012 60GLOBAL SENTIMENTNikkei 225 Index down 0 99 Hang Seng Index up 0 16 Shanghai China Composite Index up 0 27 FTSE 100 Index up 0 24 UPSIDE MOVERS ATV Wholly owned subsidiary China DRTV agreed to purchase 7 859 550 ordinary shares in the form of ordinary shares and ADSs from a limited number of former company employees and their affiliates representing the entire shareholdings in the company held by such individuals The purchase price was 1 1 per ordinary share equivalent to 3 3 per ADS INFI Amends development and license agreement with Millennium The Takeda Oncology Company and Takeda Pharmaceutical Company Limited for INFI s phosphoinositide 3 kinase PI3K program SSYS Piper Jaffray has reiterated an Overweight rating on the stock with an 81 price target DOWNSIDE MOVERS MOTR SEC filing from Friday details the termination of the mobile content provider s agreement with AT T T ALXA U S Food and Drug Administration has approved Adasuve Inhalation Powder 10 mg to treat agitation associated with schizophrenia or bipolar I disorder in adults RPTP Received U S Food and Drug Administration notification that it will require additional time to complete its review of the New Drug Application NDA for RP103 PROCYSBI for the potential treatment of nephropathic cystinosis 2012 MidnightTrader Inc All rights reserved

T

B Of E Studies HFT Begins And Ends With Ambivalence

A recent working paper from reports on efforts to understand the rise of high frequency trading and its impact on equity markets I think it fair to say that the study fails to get any firm grasp of its subject matter going as poet Omar Khayyam wrote The authors leave the subject by the same ambivalent door they used on the way in Nonetheless the trip is instructional if only of the difficulties inherent in the subject matter The authors Evangelos Benos and Satchit Sagade distinguish between aggressive HFTs which take liquidity from the marketplace and passive HFTs which serve a market making function providing liquidity The aggressive HFTs as so defined are the more controversial figures in the HFT world so one of Benos and Sagade s concerns is to determine the difference that this difference makes In the chart below the passives are represented by the green line aggressives by red and all other traders by blue The dotted lines represent confidence bands The graph is designed to show the price impact that the various sorts of traders have From Liquidity to Volatility It appears that the aggressive HFTs have a larger impact than do the passive One could rather hastily interpret this to mean that the aggressive HFTs make more of a contribution to price discovery than the passive HFTs Aha Then they are serving a function and their price discovery value justifies the liquidity they soak up But wait That inference would be too hasty because as Benos and Sagade also tell us the larger contribution of the aggressives is roughly proportional to their larger aggressively executed trading volume so that on a trade by trade basis they aren t really more informative than are the market makers after all There is no firm conclusion to be drawn from studying liquidity so let s talk about volatility Here too the authors start with a distinction There is good volatility and there is excessive volatility respectively information and noise They ask what HFT does to both A given trader can of course contribute to both For example the authors say half of a particular party s trades might be informed speculation contributing to the information value of prices while the other half are simply used to calibrate her inventory levels adding to the level of noise Adding Hasbrouck to the Mix The authors work from a formula proposed by Joel Hasbrouck in 1991 pt pt st In English prose They assume with Hasbrouck both a random walk component p reflecting the efficient information discounted price and a stationary component s reflecting noise The price at any given time t is the sum of both What does HFT do to s The answer again is ambivalence On the one hand the high frequency traders have a higher information to noise ratio than old fashioned human velocity traders The HFTs in the database employed by these authors participated in only about 27 percent of the total traded volume but contributed more than half of the total private information that is impounded in prices via trades On the other hand they also observe that there are instances where HFTs contribute significantly more noise than the rest of the traders and where the aggressive group contributes a good deal more noise than the passive one within the HFT domain One reason for this is that HFTs typically want to end the day with their positions flat This may require a lot of uninformed or noisy trades toward the end of a trading session The conclusion of all this is no conclusion The overall welfare implications of HFT are unclear these will depends on how the marginal benefit of information at some times compares with the marginal cost of excess volatility at other times including in periods of market stress Benos is a Bank of England Research Economist Co author Sagade is a Ph D candidate at the ICMA Centre in Reading

T

TECO Energy No Big Change Expected

In this article we introduce a tentative pricing model for TECO Energy TE This is one of many energy related companies in the S P 500 index Our pricing model is based on our concept of stock dependence on consumer price index The intuition is simple and clear the evolution of a share price is inherently related some goods and services and thus the evolution of their relative prices For example it is not easy to ignore the intuition that crude oil has to affect share prices of oil companies We have reported that such a link exists for CO P and formulated an empirical model On the other hand the oil price is not the only changing price and other goods and services should obviously affect share prices of oil companies Thus one needs also some reference price which best expresses the overall price evolution An example from life when one jumps in a moving elevator the net trajectory depends on both the person and elevator Therefore our model is seeking two CPI components from a large number of pre selected ones which minimize the difference between observed monthly closing price adjusted for dividends and splits and predicted prices for the period between July 2003 and October 2012 For TE we use a set of 92 individual consumer price indices to select the best two CPIs in order to describe the evolution of the share price Our two component model also includes a free term constant and a linear time term which compensates well know linear time trends between various CPI components We allow the modeled share price to lead and lag behind one or both defining CPIs When the price is lagged the model is deterministic one and foresees at the horizon of the smallest lag When the price leads both CPIs one cannot predict the future of the price but get some information on the future CPIs In the case of TE both CPIs are contemporary to the share price and the best fit model is as follows TE t 1 43R t 0 0 05E t 0 1 49 t 2000 150 92 October 2012 where R t in the index recreation at time t E is the index of energy also contemporary to the price t 2000 is the elapsed time Figure 1 depicts the evolution of both CPIs The index of recreation evolves slowly and the energy index has been actually driving the TE price since 2003 Figure 2 depicts the observed and predicted monthly closing prices together with the monthly high low prices which are natural limits of the intermonth price uncertainty Our model correctly predicted the price since 2003 The model residual error is shown in Figure 3 It has standard deviation of 0 85 for the period between July 2003 and October 2012 For an investor the evolution of TE is almost fully related to the price index of energy implies a fall to 40 to 60 by 2016 This may induce a fall in energy prices in the long run and the TE price will be on a down ward trend as well On this long term trend there should be periods of high fluctuations associated with elevated market volatility When the actual price is far below the predicted price one may consider a profitable in the short run share purchase When the actual price is far above the predicted price it is best time to sell Currently the predicted and observed prices are almost equal No action needed

T

U S Stocks Finish Higher On Positive Employment Data

U S stocks closed with modest gains after hovering close to even in Thursday s session as investors kept their eyes on the fiscal cliff negotiations Investors were cautiously optimistic following a statement by President Obama that Republicans are budging on their stance against higher tax rates on high income earners which the president said could allow for a deal this week Still according to reports Republicans want to secure commitments on entitlement reforms to reduce the nations ballooning debt U S UnemploymentThe Labor Department meanwhile said the number of Americans filing for first time unemployment benefits dropped 25 000 to 370 000 last week Economists polled by MarketWatch forecast claims would come in at 375 000 Overseas The European Central Bank and the Bank of England both announced Thursday morning that they will leave interest rates unchanged Commodities finished mixed gold futures clawed back above the key 1700 an ounce level after the European Central Bank cut its economic forecasts Oil for January delivery closed down 1 8 at 86 26 a barrel Here s Where The Markets Stood At Day s EndDow Jones Industrial Average up 39 55 0 30 to 13 074 04S P 500 up 4 66 0 33 to 1 413 94Nasdaq Composite Index up 15 57 0 52 to 2 989 27GLOBAL SENTIMENTNikkei 225 Index up 0 81 Hang Seng Index down 0 09 Shanghai China Composite Index down 0 13 FTSE 100 Index up 0 16 DAX up 1 07 UPSIDE MOVERS IVAN Reported that its wholly owned subsidiary Sunwing Zitong Energy Sunwing has received approval from the Ministry of Commerce of the People s Republic of China the Ministry to transfer its participating interest in the Contract for Exploration Development and Production in the Zitong Block Sichuan Basin to Shell China Exploration and Production Co Shell AKAM Announced its strategic alliance with AT T T in which the companies will deliver a global suite of content delivery network CDN solutions to companies DSCI Climbed toward its 52 week high after the company priced an underwritten public offering of 3 06 million shares of common stock at 10 34 per share The company has granted the underwriters a 30 day option to purchase an additional 459 300 shares of common stock to cover over allotments if any DEXO Enters amended merger agreement with SuperMedia Inc SPMD SPMD shares also higher DOWNSIDE MOVERS NBY Crashed after the company priced its previously announced underwritten public offering of an aggregate of 5 9 million shares of its common stock at a price of 1 25 per share and one year warrants to purchase up to an aggregate of 4 425 million shares VRA Company announced that in Q3 it earned 0 44 per diluted share on revenues of 138 3 million According to Yahoo Finance analysts were expecting VRA to earn 0 60 per share on revenues of 158 65 million ALGN Shares fell following the company s report that it has made some organizational changes Included in these changes is the appointment of new heads of the businesses and the cutting of about 25 jobs In addition the company said it expects fourth quarter results to come in at the low end of its previously forecast range of between 0 21 to 0 23 per share on revenue of between 134 2 million and 137 8 million 2012 MidnightTrader Inc All rights reserved

T

The Rare Earth Sector Needs These Three Things To Prosper

For too long the rare earth space has operated in obscurity Greater clarity on prices inventory levels and demand will create more market stability according to Matt Gibson institutional research analyst with CIBC World Markets In this Critical Metals Report interview Gibson emphasizes that rare earths are for the risk takers at least for now For the strong of stomach he offers details on trading levels catalysts and opportunities How will you place your bets The Critical Metals Report Matt in a recent research report you noted that the rare earth element REE space is being driven by market sentiment Do you expect sentiment to change in the near term Matt Gibson Recent support for REE prices has lifted some of the stocks off the bottom I think we will need a more prolonged period of price stability to really return a lot of positive sentiment TCMR When might that happen MG That is tough to say We need a lot more clarity regarding Japanese demand and Chinese supply We should have that clarity over the next six to eight months TCMR Is getting REE data from inside China easier now than it used to be MG There are a number of systems that track pricing data and make it available on Bloomberg terminals now A number of websites are also dedicated to tracking prices TCMR Will that improved transparency provide investors more security MG I think it helps The tough part is knowing how much volume is being traded at a given price Without volume data it is hard to evaluate the conviction behind a specific price The current systems do not always provide volume data TCMR You also noted in your report that REE equities have betas up to three times the market As a benchmark what is the average beta for an exploration stage base metal company MG I would say that your typical producer would have an average beta of about 1 5 times the market and a junior would be closer to twice the market It is fair to say that high risk high reward is a characteristic of this space TCMR What are the highest beta names in the REE space MG Names like Molycorp Inc MCP NYSE Avalon Rare Metals Inc AVL TSX AVL NYSE AVARF OTCQX and Rare Element Resources Ltd RES TSX REE NYSE MKT have the highest beta to REE prices and general sentiment in the space TCMR In a June 2012 report you wrote that REE companies were trading at an average of 0 3 times net asset value NAV What are they trading at now on average MG The juniors are still trading at that level Molycorp being closer to the production stage is trading at about 0 4 times its NAV By comparison the juniors recently touched down at 0 2 times NAV They have traded as high as one times NAV TCMR What are the essentials of your REE equities thesis MG Right now it goes back to what I mentioned earlier prolonged price stability in the overall REE market clarity about Japanese demand inventory levels and Chinese supply A better sense of where global growth in general is going would help too TCMR Looking at your coverage universe from A to Z Avalon recently amended its process flow sheet to exclude the cost of cracking stage That will shave 200 million 200M off its capex and about 70 per ton t in operating costs However its capex remains close to 1 2 billion 1 2B Are these changes enough to make Avalon s Nechalacho REE project economic MG While shaving off part of the capex and operating costs is important for the economics I think the real savings lie in derisking the project from an operational and technical standpoint The company is taking a very complex piece of technology out of the flow sheet That should help Avalon find a partner for the project and derisk putting Nechalacho into production TCMR Why has Avalon not yet made an agreement with an offtake partner MG Avalon is dealing with mineralogy that has never been processed before so it is developing a novel flow sheet Before pulling the trigger any potential offtaker or joint venture partner will want to make sure that Avalon has completed the pilot plant testing and product testing phases with a larger volume of material Avalon is completing its pilot plant testing right now Once that is done and the definitive feasibility study is finished potential joint venture partners will be looking at a project with much less risk TCMR Is the processing plant in the southern U S still part of Avalon s plan MG Yes that is where the cracking and separation facility is likely to be located TCMR In an August 8 2012 research report on Avalon you wrote Trade disruptions between China and the rest of the world will maintain tightness in the market and increase the possibility of a takeover offer for AVL Who would be the potential suitors in a situation like that MG I was thinking that emerging producers like Lynas Corp LYC ASX or Molycorp having a robust production profile for light rare earths would perhaps be attracted by Avalon s heavy rare earths However both of those companies are going through their own growing pains and are experiencing issues with ramping up production As a result the timing for potential transactions may have been pushed out into the future TCMR What is more likely for Avalon an offtake agreement a takeover offer or both MG In the near term an offtake agreement is more likely TCMR You also follow Frontier Rare Earths Ltd FRO TSX In June it was trading below cash Recently Frontier s joint venture partner KORES delayed a 24M payment by two weeks Should investors be nervous MG I do not see any cause for concern over a delayed payment Frontier ended the quarter with 30M on its balance sheet the company is not hurting for cash Editor s note KORES completed its transaction Friday Dec 14 and Frontier currently has a cash balance of 52M TCMR What makes Frontier attractive compared to other REE equities MG Three things make Frontier attractive Compared to a lot of the other juniors it has a much higher grade deposit Its mineralogy has a known processing method so the company does not have to develop a flow sheet from scratch Finally it has a strong financial partner in KORES TCMR What is its timeline to production MG Ultimately that will depend on permitting and a lot of derisking activities Right now I see the project coming into production in the 2016 timeframe TCMR Does having a strategic partner like KORES scare off potential takeovers MG It could be a deterrent it also could attract interest The REE space is very much like a specialized chemical business Knowing where you will be selling the material at the end of the day and that it will meet an actual customer s needs is attractive in the REE space TCMR You also cover Molycorp the largest of all REE plays in terms of market cap You have a Sector Outperform rating on Molycorp with a 12 18 month 20 target price Molycorp was trading at 35 in April Does Molycorp deserve the beating its share price has taken since then MG Whether the price drop is warranted is outside my scope I will say that several things have contributed to the price decline One is an increase in capex that affected the valuation The continued decline in REE prices also contributed There has been dilution associated with Molycorp s equity financing And I think the investment community is disappointed with how forthright management has been in discussing the capex increases TCMR Not long ago Molycorp was flush with cash Now it will need more capital to complete the ramp up of Mountain Pass Has the company mismanaged its resources MG I do not know if this is a matter of mismanagement These things tend to happen in projects where you are putting so many components in place Typically the labor component ends up costing more than expected This is mostly a function of how much time it takes to get these projects built and up and running TCMR Molycorp should end 2012 producing about 19 000 tons per year of rare earth oxides and finish 2013 at 40 000 tons per year Will that be enough to put Molycorp in the black MG It should be enough I am forecasting a further decline in its REE basket price to 18 per kilogram However ramping up production will spread its operating costs over more production Ultimately that will drive Molycorp into profitability TCMR Do you have any parting thoughts for retail investors looking to add REE exposure to their portfolios MG The REE space is for investors with a higher than average risk tolerance It is for people who are bullish on global growth and in the sectors that drive REE demand It will take some time for price stability and sentiment to return to the market That is the tradeoff every investor has to consider TCMR Matt thank you for your time and your insights joined CIBC s Equity Research Department in February 2009 He covers the junior base metals rare earth uranium and iron ore spaces His more macro focus and financial acumen have helped to support commodity related calls and augment the wealth of technical expertise on the mining research team Gibson holds a Master of Business Administration from McMaster University where he focused on financial markets and business valuation and a bachelor s degree Honors in economics from McMaster University Read about Matt Gibson s ideas for investing in iron ore DISCLOSURE 1 Brian Sylvester of The Critical Metals Report conducted this interview He personally and or his family own shares of the following companies mentioned in this interview None 2 The following companies mentioned in the interview are sponsors of The Critical Metals Report Rare Element Resources Ltd and Frontier Rare Earths Ltd Interviews are edited for clarity 3 Matthew GIbson I personally and or my family own shares of the following companies mentioned in this interview None I personally and or my family am paid by the following companies mentioned in this interview None I was not paid by Streetwise Reports for participating in this interview

T

Autonation s Share May Fall In Q4

Here we revisit our price model for AutoNations AN which we have been modeling since 2009 In March 2012 we presented a new prediction for AN in which we expected no large changes in the first half of 2012 At least the price was not expected to go out of the uncertainty bounds defined by monthly high low prices This prediction was right The AN monthly closing price was hovering around 35 before it started to grow in July and reached the level of 44 in September 2012 Our current model shown the price to fall back to 35 in the months to come The closing price for the 12th of November was 40 56 i e approximately 10 down from the October s closing price The model suggests that no recommendation to buy AN should be given and there is no reason to keep it in the short run few months We will revisit the model in two three months Two Best CPIsAutoNations is a company from the services sector as defined by the S P 500 and operates as an automotive retailer in the U S here we present the current model which has been obtained by decomposition of the time series of monthly closing share prices adjusted for splits and dividends into a weighted sum of two consumer price indices One might presume that a fast growth in the CPI inherently linked to the AN share price e g energy consumer price for energy companies relative to some independent by dynamic reference should be manifested in a higher pricing power for the company Therefore the task is to find the two best say in sense of RMS residual error defining CPIs It allows testing of the underlying concept decomposition into CPIs and to estimate time lags and coefficients for AN We have borrowed the time series of monthly closing prices of AN from Yahoo com and the relevant seasonally not adjusted CPI estimates through September 2012 are published by the BLS The evolution of AN share price is defined by the consumer price of rent of primary residence RPR and the index of financial service FS In March 2012 the defining time lags were as follows the RPR index leads the price by 10 months and the FS index leads by 5 months The revised model has only one difference the lag of RPR is one month longer The relevant best fit models for AN t are as follows AN t 1 89RPR t 10 0 36FS t 5 15 47 t 1990 270 31 February 2012 AN t 1 95RPR t 11 0 37FS t 5 16 08 t 2000 439 34 September 2012 where AN t is the AN share price in U S dollars t is calendar time This model is valid since August 2011 with the same lags and coerffcients Figure 1 displays the evolution of both defining indices since 2002 Due to the negative coefficient slope the sharp drop in the FS index in 2009 best explaines the jump in the share price five months later Monthly Highs And LowsFigure two depicts the high and low monthly prices for the share together with the predicted and measured monthly closing prices The predicted prices are well within the bounds of the share price uncertainty before June 2012 and then the curves deviate This deviation has been growing and presented the challenge to the model It also supposed that the probability for the price to fall has been increasing with time The model residual error is shown in Figure 3 with the standard deviation between July 2003 and September 2012 of 2 01 Both CPIs have negative influence on the share price Therefore the price should decrease when the indices grow fast

T

India s Gold Demand Rises While China Cools

Gold demand overall is high as Market sentiment is yet bullish because of the tension in the Middle East and also the Fiscal Cliff India s Gold demand picked up in Q3 as expected due to re stocking ahead of the Indian wedding and festive season Gold buying during Diwali in November India was the world s strongest Gold Market in the third quarter while Chinese demand slipped due to a softer economy the World Gold Council reported today The result is that through the first three quarters of the year the two countries are neck and neck in the race for total Gold Demand in 2012 Through the end of September India s Gold Demand moved back out in front at 612 metric tons while China s was 605 India s Gold Demand rose 9 to 223 1 metric tons in the July September period from 204 8 in the year ago quarter the WGC said in its quarterly report on trends in demand India accounted for 30 of global consumer demand Indian Gold Jewelry buying was up 7 year on year to 136 1 tons and investment demand rose by 12 to 87 0 tons Global Gold Demand reflects challenging global Economic climate The WGC Report ETFs up 56 and India up 9 in Q3 2012 Global Gold Demand in Q3 2012 was 1 084 6 tones t down 11 from the record Q3 2011 figure of 1 223 5t This dip in demand is in comparison with exceptional demand in Q3 last year Gold Demand remains resilient Q3 2012 was above the five year quarterly average of 984 7t according to the World Gold Council s Gold Demand Trends Report In value terms Gold Demand was 14 0 lower year on year at 57 6bn and the average gold price of 1 652 oz was down 3 on the record average Q3 2011 price The key findings from the report are as follows Global investment in ETFs over the quarter was up significantly by 56 on the previous year The Indian market is showing signs of recovery up 9 to 223 1t from 204 8t in Q3 2011 following increases in both jewelry and investment demand In comparison with Q3 2011 jewelry demand was up 7 to 136 1t and investment demand rose by 12 to 87 0t Investors moved into the imitation coin market up 59 whilst jewelry increased due to re stocking ahead of the Indian wedding and festival season Indians appear to have acclimatized to recent price trends and have been buying into a rising market In China Gold demand fell 8 to 176 8t in Q3 2012 from 191 2t in Q3 2011 due to falls in jewelry of 6 and investment of 12 mainly as a result of negative sentiment surrounding China s slowing economy Jewelry demand was 123 8t in Q3 2012 due to a decline in purchases of 18k pieces and a notable slowdown in the expansion of the retail network as stock building reduced Investment demand was down to 53 0t demand this quarter remains 19 above the longer term average Central banks bought 97 6t in the quarter In six out of the last seven quarters central bank Gold demand has been around 100t which is a sharp increase from as recently as 2010 The year to date figure for central bank buying is up 9 Marcus Grubb Managing Director Investment at the World Gold Council said Gold is beginning to re establish itself as part of the fabric of the financial system In the medium term the quantitative easing initiatives in the West and the continuing growth story in the East particularly in India and China coupled with the seasonally strong quarter coming up in Asia are excellent indicators for further growth in the Gold Market Against a backdrop of continued global economic uncertainty and elections in China and the US it is clear from five year rising demand trends that gold s fundamental property as a vehicle for capital preservation continues to endure as evidenced by this quarter s increase in global ETF investment up 56 and continued purchasing by central banks the ultimate long term investors Gold Demand and supply statistics for Q3 2012 Third quarter Gold demand of 1 084 6t was down 11 0 in comparison to Q3 2011 The value measure of Gold demand was 14 0 lower year on year at 57 6bn The average gold price of 1 652 oz was down 3 on the record average Q3 2011 price Investment demand the sum of ETFs and total bar and coin demand was 429 9t down 16 compared to the same quarter last year but was 23 above the five year average Demand for Gold ETF and similar products in Q3 were up by 56 0 on the previous year to 136 0T Demand in the jewelry sector was down 2 0 to 448 8T compared to 458 0T in the same quarter in 2011 The ongoing slowdown in China continued to dampen demand in the second largest regional jewelry marketThird quarter Gold demand in the technology sector was down on Q3 2011 by 6 0 at 108 0T though remains stable Use of gold in electronics has shown a steady level of incremental growth since Q4 2011 driven by demand for tablet devices and mobile phones among others Both the supply of gold and recycling were down 2 in the third quarter compared to year earlier levels with mine production down 1 for Q3 2012 China Unveils New Top Leaders China on Thursday unveiled the elite group of leaders who will set the agenda for the country for the next decade presenting them to journalists from around the globe after months of secretive bargaining and abundant speculation The seven members of the committee that sits atop China s political system strode out onto a stage in the Great Hall of the People in Beijing reported CNN They were led by Xi Jinping who takes over from Hu Jintao as head of the Communist Party which has ruled China for more than 60 years Xi is joined on the new Politburo Standing Committee the party s top decision making body by Li Keqiang who is expected to replace Wen Jiabao as premier early next year Xi also succeeded Hu as head of China s powerful Central Military Commission which oversees major national security and military affairs That makes for a cleaner transition than in the past two power handovers when the former party chiefs held onto the key military role for years afterward using it to keep exercising considerable power and influence Xi s immediate assumption of the military leadership unlike his two predecessors and the decision to cut the Standing Committee to seven from nine leave fewer voices to obstruct consensus and may help him consolidate control Those moves may also speed up decisions on challenges ranging from an economic revamp and shrinking the nation s wealth gap to a strengthened campaign against corruption and managing territorial disputes with Japan

T

Pitney Bowes Share Price May Continue Its Long Term Fall

This time we would like to revisit our deterministic model for a share price of Pitney Bowes PBI which provides software hardware and services to enable physical and digital communications In March 2012 we presented a preliminary model and did not exclude that the price would fall below the level of 15 per share by May 2012 This was a correct prediction and the monthly closing price fell to 13 28 in May as borrowed from Yahoo at 11 10 2012 This level was below the predicted one and the actual price has been hovering near 14 since June The updated model as based on the data between March and October 2012 has validated our concept of share pricing Since the consumer index of IT does not show any sign of a faster growth and the food price index will likely grow till 2014 the PBI s share will suffer further fall We would not recommend buying this share in the near future The PBI model is deterministic since it has been obtained by decomposition of a share price into a weighted sum of two consumer price indices One may follow up our simple assumption that the growth in a CPI related to PBI e g information technology relative to some independent but dynamic reference e g food away from home should be seen in a higher pricing power for the studied company But this is the outcome of modeling To obtain this result our stock price model tries to find one defining CPI and the best reference from a set of 92 different not seasonally adjusted CPIs The best model has to have the smallest RMS error between July 2003 and October 2012 This set includes the headline and core CPI all major categories from food to other goods and services and many minor subcategories with long enough history i e continuous estimates should be available since 2000 We have borrowed the time series of monthly closing prices of PBI from Yahoo com and the CPI not seasonally adjusted estimates through October 2012 are published by the BLS As mentioned above the evolution of PBI share price is defined by the consumer price of the index of information technology IT and the index of food away from home SEVF In the original model the defining time lag is the same for both CPIs one month In the updated model the time lag of the IT index is zero The best fit models for PBI t are as follows PBI t 2 09 SEVF t 1 4 87IT t 1 7 66 t 1990 381 64 February 2012 PBI t 1 90 SEVF t 1 4 62IT t 0 6 82 t 2000 420 30 October 2012 where PBI t is the PBI share price in U S dollars t is calendar time Figure 1 displays the evolution of both defining indices since 2002 Both indices have negative slopes and the IT index defines the growth of the price Higher food prices suppress the level of PBI share price Figure 2 depicts the high and low monthly prices for an PBI share together with the predicted and measured monthly closing prices adjusted for dividends and splits The predicted prices are well within the limits of the share price variation within the corresponding months The model residual error is shown in Figure 3 with the standard deviation between July 2003 and October 2012 of 1 37

T

Spain 33 Unemployed In 2013

A year ago using the LSQ technique as applied to the integral version of Okun s law u t u t0 bln G G0 a t t0 1 where u t is the rate of unemployment at time t G is the level of real GDP per capita we used Conference Board EKS PPP a and b are empirical coefficients The best fit dynamic model for Spain minimizing the RMS error of the cumulative model 1 is as follows du 0 406dlnG 2 00 t 1995 du 1 11dlnG 1 54 t 1994 2 This model suggests a big shift in the slope and a smaller change in the intercept around 1995 Having a new unemployment estimate for 2011 we have updated Figure 1 from our previous post and confirmed the excellent predictive power of the model The predicted value is 21 4 and that borrowed from the is 21 8 Figure 1 also shows a prediction red circle of the unemployment rate in Spain in case of a 10 fall in real GDP per capita in 2013 The current economic performance in Spain is awful and some experts see a GDP fall of 25 We are scared to publish the number for the fall by a quarter of the current GDP level since even a 10 fall will result in a 33 rate of unemployment Essentially a one third of labor force will be unemployed Unfortunately even a zero GDP growth rate will result in a 1 5 increase in unemployment see eq 2 Figure 1 The observed and predicted rate of unemployment in the Spain between 1971 and 2011 In 2013 the rate may reach 33 in case of 10 fall in real GDP The cumulative form of the dynamic Okun s law is characterized by standard error of 1 68 for the period between 1971 and 2011 0 92 after 1995 The average rate of unemployment for the same period is 13 6 14 6 after 1995 with a standard deviation of the annual increment of 2 12

T

S P 500 Returns Imply Real GDP Growth Of 4 In Q3

We have been following the link between the S P 500 and real GDP since 2008 when the first version of our S P 500 quantitative model was published We revisit our prediction on a regular basis and calculate a new forecast Last time we discussed the model on and reported a good prediction for the prior period Here we update our model with the revised GDP estimates and include the advance GDP estimate for the third quarter of 2012 The monthly closing prices through September 2012 are used As discussed in our on the S P 500 index there exists a trade off between the growth rate of real GDP G t and the S P 500 return R t The predicted returns Rp t can be obtained from the following relationship Rp t 0 0054dlnG t 0 03 1 where G t is represented by the Q Q annualized growth rate because only quarterly readings of real GDP are published by the BEA Figure 1 compares the observed and predicted returns through September 2012 The third quarter of 2012 is characterized by a rapid rise in the level of the S P 500 index and its returns over the previous 12 months The real GDP estimate for the third quarter will be available in approximately two weeks but one may estimate this value from the S P 500 returns using 1 Three red diamonds in Figure 1 represent the predicted growth in the returns for the annualized GDP growth rate of 4 Therefore the stock market index indicates the growth rate of real GDP above the consensus estimate for the third quarter Our estimate is also supported by the fall in the rate of unemployment to 7 8 in September from 8 1 in August which corresponds to the GDP growth rate above 3 per year Figure 1 The predicted and observed S P 500 return The predicted curve is smoothed by MA 4 The 12 month S P return observed during the third quarter of 2012 implies the real GDP growth rate of 4

T

A Critical Metals Mixed Bag Chris Ecclestone

A flood of companies scrambled to capitalize on the rare earths space overpopulating the sector with too many losing bets according to Chris Ecclestone a mining strategist with Hallgarten Co in London Now a downturn in the sector should reveal which companies have the pedigree to make it to production Ecclestone says In this exclusive Critical Metals Report interview learn which other metals and minerals are getting the market s attention with positive fundamentals The Critical Metals Report With so many players entering the rare earth elements race you ve said it s gone from the Kentucky Derby to something akin to the Gypsy Horse Fair How can investors make sense of it Chris Ecclestone Well the next phase after the Gypsy Horse Fair is the glue factory There are more than 300 rare earth companies listed on the Toronto Stock Exchange Even 200 would be too many This space should really have 30 public companies with probably five in production in the next five or six years while the rest fiddle around exploring I think there will be a rush of these companies tacking Gold onto the end of their names and saying Hey look We re a gold story now All the better too because the space is overcrowded with non serious people with very mediocre properties The amount of capital that was sucked into the vast number of rare earth stocks that have gone nowhere has detracted from the few that are serious players and that are going to get into production The legitimate companies have been rather capital starved in recent times because of the bad odor that has surrounded the rare earth space TCMR Which companies are among the handful that you do like CE Molycorp Inc MCP NYSE is doing all the right things Vertical integration is key Molycorp was able to use what was probably an overvaluation in its stock price to acquire Silmet and Neo Materials Those were very clever deals Another good example is Great Western Minerals Group Ltd GWG TSX V GWMGF OTCQX I like the Steenkampskraal Mine in South Africa a lot The mine is not in production right now but Great Western has been processing for years with its wholly owned subsidiaries Less Common Metals Ltd and Great Western Technologies Inc People say that Frontier Rare Earths Ltd FRO TSX is likely to get into production All that really depends on getting a partner Frontier looks OK from that point of view Then you have companies in Australia involved in xenotime which is a rare earth phosphate mineral that s used for coating jet engines due to its heat resistant element There s a whole magnet culture in rare earths but there are a lot of other rare earth applications other than magnets Magnets are not the only way forward There s a list of products that are made from the whole group Seventeen elements make up the rare earth suite TCMR With rare earths generating less investor interest compared to 2011 some of those companies have started to promote their secondary projects for example tantalum or niobium properties How does this work and what do investors need to be aware of in evaluating these projects CE Some of these companies actually start off as tantalum stories In fact the tantalum or niobium property may have once been its main property which is obvious if you look at the grades It s similar to some uranium producers that located a small amount of rare earths and said Oh we re not uranium now We re rare earths because uranium is in the dumpster But tantalum has an interesting dynamic The problem is Is it going to be economic to mine these really low grade deposits Is having a really big resource at a really low grade a compelling property The niobium market is totally dominated by two mines one of which is the Niobec mine in Qu bec which is owned by IAMGOLD Corp IMG TSX IAG NYSE Between IAMGOLD and CBMM s Araxa mine they ve got a little more than 90 of the market which they ve kept really well serviced The end users feel pretty comfortable about the way it s managed Nobody is going to upset the apple cart by promoting other niobium properties TCMR With rare elements on the backburner you re looking more closely at other critical metals and minerals such as tungsten fluorspar and antimony Starting at the top what does an investor need to know about tungsten CE Look for companies with past producing properties Tungsten mines can last for 50 60 or even 80 years Malaga Inc s MLG TSX Pasto Bueno mine in Peru has been operating since the turn of the century With tungsten it s better to go with the tried and true TCMR Ammonium paratungstate which is the raw material from which tungsten is separated was priced at about 450 ton t this time last year What s it trading at now CE It s come off but it hasn t come off that much It s under 400 t at the moment Industrial demand may be sort of sloppy but it s still a great price enough to justify production of some of these old mines that have been closed down TCMR You mentioned Malaga and its tungsten mine in Peru In February it increased its Proven and Probable reserves by 16 and its Measured and Indicated resource by 140 What sort of advantage is it to have a growing tungsten producing mine outside of China CE There s always an advantage to having a growing resource It also pleases the Canadian retail crowd who want to see a forward moving resource The mineralization just goes on and on forever That s really the nature of the tungsten deposit Malaga has quite dramatic expansion plans that could double or triple the amount of production I think the market s there for that at the moment But that inflow of extra production is liable to choke off the demand for some of the more expensive projects out there TCMR Basically Malaga supports the industry to a point where there s excess supply CE I m not sure we re going to see excess supply for a few years yet It s a fair way until we start seeing some flow out of these other companies Largo Resources Ltd LGO TSX V in Brazil is working over an old tungsten mine which is particularly rich But altogether it s still only a single digit percentage of global production coming from each one of these These projects are not really making a big dent in China s dominance TCMR Let s move on to fluorspar What s the investment thesis for fluorspar CE Most people have never heard of fluorspar but rare earths tungsten antimony it s all the same story The Chinese took it out of the ground destroyed the competition by giving it away then stopped exporting it in large volumes The same thing is happening with fluorspar More and more companies are weary of moving their factories to China The only way that they can guarantee that they don t have to do that is to find an alternative source of supply It doesn t matter what metal you re in if you ve got a proprietary technology you re the end user and the processor You better find yourself another source of production or the Chinese are going to come calling and say If you want to keep getting this product you have to move your factory to Shanghai The Japanese were effectively told they needed to move their plants and many of them did but now everyone s a bit spooked by that TCMR Are there any serious players on the fluorspar side CE Definitely Canada Fluorspar Inc CFI TSX V has an offtake agreement with France s leading chemical company Arkema Before there just wasn t the economics to do that until the Chinese started tightening the screws TCMR Canada Fluorspar is developing the St Lawrence Mine in Newfoundland and expects a preliminary economic assessment PEA in early 2013 The mine previously produced fluorspar What are your thoughts on that project CE It s a good development The company can t do much better than having a sugar daddy through an offtake agreement I don t think there s that much room for a lot more players South Africa is currently the largest producer of fluorspar There are a few players down there some of which are owned by Spanish or German end users There might be room for three or four more market entrants TCMR The British Geological Survey says that antimony is in critically short supply Does that mean the price of antimony could be on a steep upward climb CE It used to be 2 000 4 000 t for decades But now there s a strong suspicion that the Chinese have really have blown the resource up They haven t got anything left That is producing panic because antimony mines are very rarely large at least not in the West Any replacement mines are likely going to be extremely small and may provide just 1 of global supply Antimony appears in veins The grade is frequently good but the grade in the vein is sometimes 7 and the veins are never wide TCMR What is antimony mostly used for CE It s used in plastics as a fire retardant The main market force behind that was the auto industry where the need for lighter vehicles meant that more plastic needed to be used Vehicles would essentially become like bombs if automakers used the old types of plastic Antimony is a product that goes in the mix to provide that fire retardant quality TCMR Why should investors be interested in antimony CE It s got one of the best price dynamics out there Largely the demand is going up but the supply is going down And there is no quick fix There is no Molycorp or Lynas that s going to be on the scene to build a mega antimony mine because mega antimony mines do not exist They never have Except for that one freakishly large mine in China all the rest are miniscule TCMR Antimony is usually produced as a byproduct Are there any publicly traded companies producing antimony as a byproduct that you re following CE Mandalay Resources Corp MND TSX would like us to believe that it s a gold company producing antimony but I think it is more of an antimony company with a gold byproduct Antimony often occurs with some other metal like lead or gold If a company can get antimony and gold together it s hit the jackpot Mandalay has that It also has enormous potential to develop other antimony mines TCMR About 70 of Mandalay is controlled by institutional investors Is that cause for concern CE No it s great I like that The more institutional investors the better The market loves that come hell or high water TCMR It seems to be fairly well situated too in that there s infrastructure around it CE Yes there are roads and railroads there It s a really old mine it was found in the 1860s It just goes to show that tungsten and antimony mines can go on forever There are some interesting things going on in reviving old antimony mines in the Maritime provinces in Canada Nova Scotia to the heartland is where production has been in the past Watch that area because that s where you re going to start seeing it happen again TCMR Let s bookend this discussion with rare earths How will investors know when to return to the rare earth sector Is now the time while things are still incredibly undervalued CE I would selectively return to a couple of names But be hyper selective because the rest of the rare earth companies will be flapping their gums TCMR Thanks for speaking with us today is a principal and mining strategist at Hallgarten Co in New York He is also a director of Mediterranean Resources a gold mining company listed on the Toronto Stock Exchange with properties in Turkey Prior to founding Hallgarten Co in 2003 he was the head of research at an economic think tank in New Jersey which he had joined in 2001 Before moving to the U S he was the founder and head of research at the esteemed Argentine equity research firm Buenos Aires Trust Co from 1991 until 2001 Prior to his arrival in Argentina he worked in London beginning in 1985 as a corporate finance and equities analyst and as a freelance consultant on the restructuring of the securities industry He graduated in 1981 from the Royal Melbourne Institute of Technology DISCLOSURE 1 Brian Sylvester of The Critical Metals Report conducted this interview He personally and or his family own shares of the following companies mentioned in this interview None 2 The following companies mentioned in the interview are sponsors of The Critical Metals Report Frontier Rare Earths Ltd and Mandalay Resources Corp Interviews are edited for clarity 3 Chris Ecclestone From time to time Streetwise Reports LLC and its directors officers employees or members of their families as well as persons interviewed for articles on the site may have a long or short position in securities mentioned and may make purchases and or sales of those securities in the open market or otherwise

T

Weighing The Week Ahead Time For A Confidence Rebound

Everyone agrees that the economic recovery has been disappointing There is no consensus on the cause Nearly everyone has missed the most crucial element The crisis of confidence Confidence is essential to economic success as we have known for more than a century Listen to this brief sound clip instantly recognizable to many The background story is not so well known The TeachingHistory site provides of the drafts of FDR s first Inaugural Address and the changes involved The most memorable line was actually taken from discussions in the business community as noted here When confidence is lacking we get less not all or nothing but less of the following Employers are less willing to expand new plants new workers Potential entrepreneurs are less willing to act new businesses new jobs Young families are less willing to buy new homes Anyone worried about employment is less willing to make a major purchase Banks are more reluctant to lend And many other similar effects Without the ingredient of confidence the economic engine is missing an element It is time to retire the pushing on a string analogy which has outlived its usefulness I suggest that we call this the Confidence Gap We have all of the elements for the economic engine deferred demand strong balance sheets and potential profits for all There is one thing missing I think of it as the spark plug gap being a little too wide but that is because my education includes with his cap at a jaunty angle Who is responsible for the confidence gap There are plenty of candidates especially after last year s debt ceiling fiasco I ll offer some of my own expectations in the conclusion but first let us do our regular review of last week s news Background on Weighing the Week Ahead There are many good sources for a list of upcoming events One source I especially like is the weekly post from the WSJ s In contrast I highlight a smaller group of events My theme is an expert guess about what we will be watching on TV and reading in the mainstream media It is a focus on what I think is important for my trading and client portfolios This is unlike my other articles where I develop a focused logical argument with supporting data on a single theme Here I am simply sharing my conclusions Sometimes these are topics that I have already written about and others are on my agenda I am putting the news in context Readers often disagree with my conclusions Do not be bashful Join in and comment about what we should expect in the days ahead This weekly piece emphasizes my opinions about what is really important and how to put the news in context I have had great success with my approach but feel free to disagree That is what makes a market Last Week s Data Each week I break down events into good and bad Often there is ugly and on rare occasion something really good My working definition of good has two components The news is market friendly Our personal policy preferences are not relevant for this test And especially no politics It is better than expectations The Good The news last week was very good even better than the market result Rail traffic is better especially measured by intermodal traffic See and his helpful chart Sentiment a contrarian indicator is below the bullish average of the recent market rise Housing had a good initial reaction to the QE3 announcement Home sales data were encouraging where you can see a comprehensive look at sales and building permits as well as this revealing look at the improving inventory situation The Bad There was plenty of bad news last week Flash PMI indicators from Europe were weak via multiple sources I noted this source in last week s preview There is a thirst for data because we are so interested in news from Europe and China The same pundits who express skepticism about surveys rush to embrace this source I am watching but with some caution I like to see a longer track record Initial jobless claims remained in the danger zone Seasonal factors might still be in play but I continue to regard this as bad news Here is the long term perspective in the Greece is headed back to the front burner for market worries Our key source on that topic The New Athenian notes both the and the toward meeting Troika requirements The Greek dilemma remains on the agenda for a Euro solution Gasoline prices rise again up more than four cents Check out this and other mixed high frequency indicators Leading Economic Indicators had a slight decline puts this in historical perspective The Ugly Denard I am expecting a rebound from my favorite college player but this is a great illustration of dispassionate investing versus emotion I am cheering for Michigan as usual but not investing Meanwhile readers are invited to submit ugly news that I should have noted The Indicator Snapshot It is important to keep the current news in perspective My weekly snapshot includes the most important summary indicators The The key measures from our Felix ETF model An updated analysis of recession probability The SLFSI reports with a one week lag This means that the reported values do not include last week s market action The SLFSI has moved a lot lower and is now out of the trigger range of my pre determined risk alarm This is an excellent tool for managing risk objectively and it has suggested the need for more caution Before implementing this indicator our team did extensive research discovering a warning range that deserves respect We of 1 1 or higher as a place to consider reducing positions The SLFSI is not a market timing tool since it does not attempt to predict how people will interpret events It uses data mostly from credit markets to reach an objective risk assessment The biggest profits come from going all in when risk is high on this indicator but so do the biggest losses The C Score is a weekly interpretation of the best recession indicator I found Bob and I recently did some videos explaining the recession history I am working on a post that will show how to use this method As I have written for many months there is no imminent recession concern I recently showed the significance of by explaining the relationship to the business cycle The evidence against the ECRI recession forecast continues to mount It is disappointing that those with the best forecasting records get so much less media attention The idea that a recession has already started is losing credibility with most observers I urge readers to check out the list of excellent updates from prior posts Readers might also want to review my new which explains many of the concepts people get wrong The single best resource for the ECRI call and the ongoing debate is Doug Short describes the complete history the critics and how it has played out The post highlights the most important economic indicators used in identifying recessions showing that none have rolled over Doug updates the recession debate every week and includes a great chart of the big four indicators used by the NBER in recession dating This has become a mandatory weekly read for those who are still worried about a new recession Our Felix model is the basis for our official vote in the weekly We have a long public record for these positions This week we continued as bullish after a brief stint at neutral These are one month forecasts for the poll but Felix has a three week horizon The ratings have moved a little higher and the confidence has improved from last week It has been a close call over the last few weeks For more on the penalty box see For more on the system ratings you can write to etf at newarc dot com for our free report package or to be added to the free weekly ETF email list You can also write personally to me with questions or comments and I ll do my best to answer The Week Ahead There is a busier calendar for data this week As noted above my grading of the reports relates to what I see as important The A List includes the following Consumer Confidence Conf Board T as an important confirming concurrent indicatorInitial claims Th which continue to provide the most up to date read on jobs and the economy The B List includes several reports Michigan Sentiment F is as important as the Conference Board but we already have the preliminary read for the month Chicago PMI once again more significant because of the weekend before the national PMI This is the most reliable of the regional indicators Personal income and spending for August F Other indicators may seem fresher but this is important confirmation and could move the market Durable goods TH has the same significance and interpretation as Personal Income There will be assorted speeches by central bankers but the key discussion will be about Spain The market wants Spain to agree to a bit more austerity and request an official bailout This news will be greeted as bullish sending Spanish yields lower the Euro higher and US stocks higher as well This may seem counter intuitive to some but that will be the take Watch for it Trading Time Frame Felix has moved back into a marginally bullish posture over the last two weeks but it has been a close call In practice the official forecast has mattered little to our trading positions Felix became more aggressive in a timely fashion near the start of the summer rally Since we only require three buyable sectors the trading accounts look for the bull market somewhere even when the overall picture is neutral The ratings have been getting a little stronger so we maintain the profitable trades Felix does not try to call tops and bottoms but instead keeps us on the right side of major moves either up or down Investor Time Frame Many long term investors have simply Here is an astounding research finding One surprising finding shows that investors are likely so consumed by the negative economic news including high unemployment and the weak housing market that they haven t even noticed the strength of the stock market For example when 1 000 investors were asked whether they thought the S P was up or down during each of the past three years 66 thought it was down in 2009 48 thought it was down in 2010 and 53 thought it was down last year In fact the S P gained 26 5 in 2009 15 1 in 2010 and 2 1 last year Those worried that it is too late to invest should read Eddy Elfenbein s nice post including this chart Understanding the attractive fundamental conditions is the first step for the long term investor but it does not mean that you should be going all in How much risk should you take The right answer is different for everyone but too many people choose zero These investors do not follow the Buffett advice of buying when others are fearful Then when the market rallies they are afraid that they are too late I wrote a new article Stock Prices and the Fundamentals Don t be Fooled showing how to avoid this trap The answer is not going all in since most of us have to pay more attention to short term risk than does Mr Buffett Should you worry about the fiscal cliff The basic answer is not yet I explain why in two articles The first reveals my one word solution The second offers and how I am investing for the long term program If you have been following our regular advice you have done the following Replaced your bond mutual funds with individual bonds bond funds are very risky Sold some calls against your modest dividend stocks to enhance yield to the 10 range andAdded some octane with a reasonable allocation of good stocks There is nothing more satisfying than getting yield and call premiums even if stocks move sideways If you have not done so it is certainly not too late We have collected some of our recent recommendations in a a starting point for the long term investor Comments and suggestions welcome Final Thoughts on Confidence There are some glimmers of improvement The latest WSJ NBC poll includes these two results where you can see their other six key takeaways A burst of right direction optimism Nearly four in 10 people said that the country is headed in the right direction the highest that number has been in NBC WSJ polling since January 2009 By way of comparison in NBC WSJ polling in August July and June the right direction number never rose above 32 percent Important piece of context A majority of people 55 percent still say that things are off on the wrong track Economy improving In a bounce similar to the right direction improvement noted above 42 percent of people now believe the economy will get better over the next year an improvement from the 36 percent who said the same just a month ago That burst of optimism comes not from those who had previously been pessimistic 18 percent in both the August and September NBC WSJ poll said the economy would get worse but rather from movement among those who had previously predicted the status quo 38 percent in August and now feel more optimistic 32 percent in September This is only a start but most readers probably are not seeing these indicators in their regular reading Tracking confidence measures of all sorts is important for investors This is how we will discover that prospects are improving or not This week s upcoming data will provide updated information on consumer sentiment We will see more on the candidates and general economic sentiment as well The Payoff If Confidence Returns to Normal Some astute observers see plenty of upside JP Morgan s Thomas Lee notes that if the S P earnings yield merely equaled the high yield bond a frequent past metric the S P 500 would be at 1600 Check out the to see what else might happen before election day It is going to take heightened confidence before we see this but it certainly could happen

T

Crude And Steel Still In Sync

We have been reporting on the trade off between the producer price index of crude oil domestic production and the PPI of iron and steel since 2009 It has been always a linear and lagged link between them Our previous update included PPI data through March 2012 Here we present an annual wrap up We reported that the PPI of crude oil had been likely evolving in sync with that of iron and steel but with a lag of two months in September 2009 In order to present both indices in a comparable form the difference between a given index iPPI i e iron steel and crude and the overall PPI was normalized to the PPI iPPI t PPI t PPI t These normalized differences represent the evolution of the rate of deviation from the PPI over years Figure 1 depicts the corresponding time histories of the normalized deviations from the PPI including the most recent period through August 2012 Even a simple visual inspection reveals the following feature the normalized deviation from the PPI of the index of iron and steel lags by approximately two months behind the normalized index of crude oil Figure 1 The deviation of the iron and steel price index and the index of crude oil from the PPI normalized to the PPI In order to reduce both deviations to the same scale we additionally normalized the curves in Figure 1 to their peak values between 2005 and 2012 iPPI t PPI t PPI t max iPPI PPI This scaling allows a direct comparison of corresponding shapes In Figure 2 we display the normalized index of iron and steel shifted by two months ahead to synchronize its peak with that observed in the normalized index for crude petroleum The scaled index of crude demonstrates just short term deviations from the index of iron and steel in the overall shape and timing of the peak and trough Simple smoothing with MA 3 makes the curves resemblance even better As an extra benefit of the resemblance one can use the two month lag to predict the future of the iron and steel price index Figure 2 Deviation of the iron and steel price index from the PPI normalized to the PPI and the peak value after 2005 as compared to the deviations of the index for crude petroleum normalized in the same way The normalized index for iron and steel is shifted two months ahead ConclusionThe link between oil and iron has been unbreakable Between 2006 and 2012 the deviation of the price index of iron and steel from the PPI in the USA repeats the trajectory of the deviation of the index of crude petroleum domestic production with a two month lag Therefore the prediction of iron and steel price for at this horizon is a straightforward one

T

Forget AT T This Is The Telecom Stock You Should Own

It s the largest cell phone provider in the world It has more customers than AT T NYSE T Verizon NYSE VZ and Sprint NYSE S combined In fact with 650 million subscribers this company has twice as many customers as the United States has people But I doubt you ve ever heard of it The company I m talking about is China Mobile NYSE CHL China s largest cell phone provider Now before you dismiss this as another risky emerging market growth stock let s see the facts China mobile is the world s largest wireless telecommunications company with more than 650 million subscribers The company controls about two thirds of the total Chinese mobile phone market and about 45 of the nation s third generation 3G mobile data market In other words this is a dominant company With a 200 billion market cap and 84 billion in annual revenue China Mobile is just as big as the leading U S cell phone service provider AT T But unlike AT T China Mobile has a lot more room for growth In the United States more than 100 of the population owns a mobile phone Even other markets including Brazil Russia Turkey and South Africa have mobile penetration rates of more than 100 In China that number sits at just 67 As Chinese households continue to grow their incomes China Mobile should maintain its top line growth as more first time mobile customers buy handsets Currently the Chinese government has been targeting economic growth in the nation s smaller cities and towns where China Mobile dominates with unparalleled network coverage and about 70 of the 2G market share Since mobile penetration is lowest outside the major cities China Mobile is the best placed competitor in China to win this new business And that s just the tip of the iceberg China Mobile s more exciting growth prospects lie in high speed mobile data services Data revenue soared 45 in 2011 powered by overall mobile data traffic growth of 152 1 year over year To boot the company pays a solid dividend yield that has grown every year since 2006 In 2011 alone the company boosted its dividend nearly 13 Right now China Mobile pays a quarterly 0 51 distribution for a current yield of 4 0 But with close to 53 billion in cash and 4 6 billion in total debt on the books I expect the company will have no problem growing its dividend in the years to come Don t get me wrong I m not saying AT T is a bad company and that you shouldn t invest in it Quite the contrary as the largest cell phone provider in the United States the company should have a bright future ahead of it I m merely trying to get the point across that there are dominant companies similar to AT T that just happen to trade in foreign markets and most of these companies have a lot more room to grow In other words investing internationally doesn t have to be as risky as it seems There are dozens of companies trading outside the United States that are dominating their markets and rewarding shareholders in the process The only difference between these international stocks and U S blue chips is that they trade on a different exchange but don t worry you can buy most of them without even leaving the U S stock exchange Risks to Consider Of course that isn t to say that investing abroad isn t without risk Investing anywhere is never guaranteed to make you money Investing internationally also exposes you to things such as currency risk and foreign country tax liability So as always make sure to do your research before you decide to make any changes to your portfolio But if you want the chance to secure strong and stable companies that are growing twice as fast as companies here in the United States then I suggest you look to the international markets I have a sneaking suspicion that s where you ll find them BY Paul Tracy

T

Wall Street Exposed Part 3 How Dividends Create Value

Before we dicuss how the mechanism of dividends keeps the stock and by extension market somewhat rational we need to review what we have learned thus far about the sneakyisms of Wall Street discussed the necessity of having dividends to anchor share prices to company fundamentals Part 2 showed why share buybacks are an inferior method of transferring wealth from firm to shareholder and that is if you believe that it succeeds in doing that at all The third segment in this Wall Street expose is to show how dividends work in creating ballast for your investment vehicle which will keep your portfolio afloat Dividends and a Zero Growth Economy To illustrate this assume that the economy falls into zero growth and stays that way perpetually Does this mean that it is impossible to make money investing Not at all But consider two companies one is a defensive dividend stock and the other was formerly a high growth tech stock Defensive Dividends 100 per share Earnings yield of 10 PE of 10 Payout ratio 50 dividend yield 5 Techie Titan 100 per share Earnings yield of 5 PE of 20 No dividendsIf you invested in the Defensive Dividends stock you would be locking in a 5 yield and there is the potential to get up to a 10 dividend yield if payout ratios are boosted Remember we are assuming zero earnings growth Will share prices fall Maybe but likely not fall too far as it forces the yield up In a no growth economy it is unlikely that investors wouldn t be interested in a 10 yield in a company with defensive earnings This would provide lift to the prices to bring yield back down thus protecting your capital But where is the floor in the Techie Titan If they offer dividends you ll likely see prices fall in half since a 50 payout ratio at current valuations is only a 2 5 dividend yield If they didn t offer dividends what is the worth of this no growth company It could be much lower indeed Dividends provide support for share prices Dropping prices mean bigger yields which increases attractiveness for investors Granted if the profit falls or the dividend is cut this can create more downward pressure But all things being equal a decent yielding dividend stock has more ballast in the share price than a non dividend stock Look at China small cap stocks and how low valuations can get since they refuse to pay dividends If these firms paid dividends even a small one the prices would be supported at much higher levels Even in risky stocks people are willing to invest even if only a small amount when yields start getting in the high teens and low 20s Jumping Yields and Price Support Some investors time their purchases by looking at dividend yield compared to historical averages When hte yield gets too high they start buying When yields get too low due to rapid share price advance they go back to saving up cash Look at the company AT T T and note how you could have made money by simply buying systematically when yields broke above 5 5 5 and holding When the sky was falling in 2008 and 2009 a dividend yield on AT T above 6 seemed to be the sweet spot for investors to jump on board Granted dividends are derived from profit and profit is not a constant that we can plot This means that we cannot dogmatically say that you should buy high yield stocks that are well above their 5 year average since revenue and earnings might be shrinking at this is being priced in advance But the point I am trying to make is how a dividend policy can provide a bottom floor that will attract investors when prices fall too far This is your ballast since there is a direct link between lower share prices and higher income streams Dividends help create an equilibrium between share price and income for a smoother ride Paying Dividends Creates Deep Value In addition to dividends being a transparent and fair method of transferring company wealth to shareholder and creating a tangible link between firm value and share price it is also a useful mechanism to keep your dividend yields strong How so It is important to remember that dividends come from profit The lower the price is in relation to profit the higher the dividend you can achieve Wouldn t it be good if we could keep share prices down for a nice strong and consistent income payment Sure but how would you do so Prices typically only drop when earnings fall right Wrong You can remove equity from a company and lower share prices which will boost your dividend yield provided this removal of equity doesn t directly lower future earnings Here is an example A certain utility company trades at 12 per share The payout ratio is 80 and the dividend is at 1 per share with small annual increases This means the dividend yield is now at 8 3 The company has been slowly accumulating cash and now has 2 per share in liquid assets This is factored into the share price If the company were to announce a one time special dividend what would happen to the share price Shares must fall on ex dividend date by the same amount as the dividend anything less would work out as an arbitrage play in the short term No money made or lost right Well look at the picture with longer range lenses Let s assume for simplicity sake that the 2 per share in cash and 1 per share profit are paid out all at once This 3 per share removal of equity drops shares down to 9 as anything less will allow short term profiteering Although the book value has dropped 25 the future profits did not drop 25 or 1 to 75 cents Even if profits remain the same the price to earnings ratio is now more attractive despite the removal of equity Dividend yield is now 11 and the future earning potential remains the same This means that you are either getting a better income return or that share prices need to bounce back up over the next while to maintain valuations Either way this is a win win situation for the shareholder and it doubles up as a protection that keeps executives and their stock options at a distance In fact I would be even happier if the company could sell all its assets and give the cash to shareholders if future profits were not harmed In a limited sense this is what is happening when dividends are given back Prices are temporarily depressed the opposite of open market buybacks which creates deeper value in one of the only metrics that matters to dividend investors the price to earnings ratio and not price to cash revenue assets By continually removing equity from the company the share price s valuations are continually lowered thus resulting in stronger support for capital gain and income yields combined Academics wonder why there s a premium or extra market wide performance on low price to book ratio stocks maybe they should look into the dividend mechanism that lowers book value compared to the price to earnings ratio Now that we scratched the surface of the market and examined the importance of dividends for sane valuation and sustainable profit taking we are going to switch gears for a while and talk about the myth of risk What really is risk Is it possible that financial experts that blow off all these fancy risk adjusted ratios are really just blowing smoke into the air Has Wall Street pulled the wool over your eyes again Part 4 will reveal the answer

T

Weighing The Week Ahead It s All About Jobs

From start to finish the coming week will have a heightened focus on employment Labor Day weekend in a presidential election year provides the obvious backdrop Stubbornly high unemployment and sluggish economic growth underscore the issue of greatest concern This popular chart from Calculated Risk shows the nature of this recovery described in terms of employment So little accomplished and so far so far to go What are the solutions Republicans contend that Obama policies even augmented by aggressive Fed action have failed Expect the Democrats to use their convention to blame Congress The week culminates with the monthly employment situation report for August It is more important than ever since most see the data as significant in determining the Fed s next move I ll offer some of my own expectations in the conclusion but first let us do our regular review of last week s news Background on Weighing the Week Ahead There are many good sources for a list of upcoming events With foreign markets setting the tone for US trading on many days I especially like the comprehensive calendar from Investing com There is also helpful descriptive and historical information on each item In contrast I highlight a smaller group of events My theme is an expert guess about what we will be watching on TV and reading in the mainstream media It is a focus on what I think is important for my trading and client portfolios This is unlike my other articles where I develop a focused logical argument with supporting data on a single theme Here I am simply sharing my conclusions Sometimes these are topics that I have already written about and others are on my agenda I am putting the news in context Readers often disagree with my conclusions Do not be bashful Join in and comment about what we should expect in the days ahead This weekly piece emphasizes my opinions about what is really important and how to put the news in context I have had great success with my approach but feel free to disagree That is what makes a market Last Week s Data Each week I break down events into good and bad Often there is ugly and on rare occasion something really good My working definition of good has two components The news is market friendly Our personal policy preferences are not relevant for this test And especially no politics It is better than expectations The Good There was very little data last week and the news was open to varying interpretations Bernanke threads the needle The Fed Chair did better than I forecast last week since I thought that anything less than a clear policy statement would disappoint markets He did enough hinting to satisfy while making it clear that more data is needed Of the many discussions of his speech I want to emphasize those most helpful for investors I like the and also the For those of us who are interested in what we expect to happen we should respect the conclusion Mr Bernanke acknowledged some of the hurdles he faces noting It is true that nontraditional policies are relatively more difficulty to apply he said But he left little doubt that he sees the benefits of trying Over the past five years the Federal Reserve has acted to support economic growth and foster job creation he said and it is important to achieve further progress particularly in the labor market Rail traffic is at a four year high via Sentiment has backed off from excessively bullish levels On a contrarian basis this is positive ECB President Draghi skipped the Jackson Hole Symposium The market saw this as good news as participants concluded that the ECB team was on a specific proposal for next week We shall see about that but the stories on this front got a positive reaction Housing is showing strength calls it a significant turn Still only back to the 1999 or 2000 levels in real terms the nominal prices do show an uptick See for the expected fine analysis and several charts The Bad There was negative news but fairly modest in overall significance GM idling Volt plant for four weeks beginning September 17th The July employment data was positively influenced because the traditional summer plant closings did not take place This plant who will receive 90 of normal pay from unemployment compensation For those of us watching employment data it is something to note Spain continues to delay in asking for help The market reacts negatively since it delays the process It is rational for Spain since the objective is to get the best possible terms They want to see the ECB proposal The Bundesbank s Jens Weidmann is over expanded ECB bond buying This is a natural response and a good bargaining posture Chancellor Merkel has urged him to stay on the board and make his views clear More bad news on China s economic growth as the flash PMI and hits a We all want to get the best data on China The flash index differs from official data Actual consumption of key inputs may differ from either of these surveys One key input is iron ore so I was intrigued by the thoughtful analysis from the FT s Izabella Kaminska There is an intriguing analysis of the data and some good charts China watchers and that should be all of us need more reporting like this Consumer Confidence via the Conference Board was weaker Here is the long term chart The University of Michigan report was slightly better than expectations The Ugly Individual investor knowledge The SEC studied this by doing some tests with fake fund prospectuses They discovered that investors did not even grasp the basics of the study Meanwhile there is an increase in day trading among individual investors The Silver Bullet I occasionally give the Silver Bullet award to someone who takes up an unpopular or thankless cause doing the real work to demonstrate the facts Think of The Lone Ranger This week s award goes to Todd Sullivan who has some His work qualifies for the Silver Bullet because so many prominent pundits have been completely wrong on this subject He fearlessly takes on the big names like the ECRI David Rosenberg Nouriel Roubini and Nassim Taleb He highlights the most important aspect of the discouraging employment picture the drag from the continuing loss of government jobs If you view the data in terms of private employment growth the picture is quite different Todd s analysis should help anyone who wants a complete picture of the sources of sluggish growth The Indicator Snapshot It is important to keep the current news in perspective My weekly snapshot includes the most important summary indicators The The key measures from our Felix ETF model An updated analysis of recession probability The SLFSI reports with a one week lag This means that the reported values do not include last week s market action The SLFSI has moved a lot lower and is now out of the trigger range of my pre determined risk alarm This is an excellent tool for managing risk objectively and it has suggested the need for more caution Before implementing this indicator our team did extensive research discovering a warning range that deserves respect We of 1 1 or higher as a place to consider reducing positions The SLFSI is not a market timing tool since it does not attempt to predict how people will interpret events It uses data mostly from credit markets to reach an objective risk assessment The biggest profits come from going all in when risk is high on this indicator but so do the biggest losses The C Score is a weekly interpretation of the best recession indicator I found Bob and I recently did some videos explaining the recession history I am working on a post that will show how to use this method As I have written for many months there is no imminent recession concern I recently showed the significance of this by explaining the relationship to the business cycle The evidence against the ECRI recession forecast continues to mount It is disappointing that those with the best forecasting records get so much less media attention The idea that a recession has already started is losing credibility with most observers I urge readers to check out the list of excellent updates from prior posts Readers might also want to review my new which explains many of the concepts people get wrong The single best resource for the ECRI call and the ongoing debate is Doug Short This week s article describes the complete history the critics and how it has played out The article highlights the most important economic indicators used in identifying recessions showing that none have rolled over The Bonddad Blog also has a With the release of personal income we now know the values of all four series thought to guide the NBER s recession dating decisions While all of these series are subject to revisions of course as of now the simple fact is that all four rose in July and three of the four are at post recession records So unless they are revised significantly downward the simple fact is that no new recession started in July Our Felix model is the basis for our official vote in the weekly We have a long public record for these positions This week we switched to neutral We have been bullish since June 23rd with a one week move to neutral a month ago These are one month forecasts for the poll but Felix has a three week horizon The ratings have moved lower and the confidence has deteriorated from last week For more on the penalty box see For more on the system ratings you can write to etf at newarc dot com for our free report package or to be added to the free weekly ETF email list You can also write personally to me with questions or comments and I ll do my best to answer The Week Ahead While there will be fewer reports this week the news will be especially significant The A List is all about jobs The monthly employment situation report F will be important for markets the Fed and the political campaign Initial claims Th which continue to provide the most up to date read on jobs and the economy ADP Th releases private employment data The ECB provides more information on its bond buying plans Th The ISM reports on manufacturing T The B List includes three reports ISM services Th Construction spending W Auto sales W The Democratic convention will also provide plenty of additional discussion about jobs Trading Time Frame Our trading positions continued in fully invested mode last week Felix became more aggressive in a timely fashion near the start of the summer rally Since we only require three buyable sectors the trading accounts look for the bull market somewhere even when the overall picture is neutral As the tape has improved the ratings from Felix have gotten stronger Felix does not try to call tops and bottoms but keeps us on the right side of major moves We had one neutral forecast about a month ago but things never got weak enough to reduce positions The ratings are weaker but there are still several attractive sectors to own Investor Time Frame Sources continue to highlight the overbought nature of pure dividend stocks This week Bespoke for stocks with different yields Dividend investing is fine but you must look past the dividend yield and study the earnings earnings growth rate cash flow balance sheet and payout ratio If you have been following our regular advice you have done the following Replaced your bond mutual funds with individual bonds Sold some calls against your modest dividend stocks to enhance yield to the 10 range andAdded some octane with a reasonable input of good stocks There is nothing more satisfying than collecting good returns in a sideways market If you have not done so it is certainly not too late We have collected some of our recent recommendations in a a starting point for the long term investor Comments welcome Final Thoughts on Employment I am not expecting a strong employment report I ll do my regular monthly preview at mid week Because of the expectation of Fed action the impact of the report may be dampened Real weakness will be seen as confirming Fed action It has been a confusing year even for professionals Traders have been under invested and wrong throughout the year He writes as follows Oh and did I mention that 90 percent of the traders I know are underperforming the S P 500 which is up 12 percent this year There is something lurking out there we cannot continue to have central bank stimulation forever with more debt layered on more debt one trader said to me He too is underperforming I m long 20 percent of what I would normally be long in a market like this I gotta own it because my neighbor owns it that s a silly investment concept but it s worked this year he said He also notes that 90 of traders expect an imminent correction of 10 something that he sees as a contrarian indicator Top strategists are also pretty bearish Bespoke reports on the year end price targets Check out the to see how little these have changed throughout the year Part of the explanation is that traders and strategists both seem to have focused too much on the obvious problems and under estimated the resolve and power of governments and central banks Nearly every commentary on the Fed emphasizes the author s opinion of what policy should be Those of us who focus instead on understanding and predicting policy decisions regardless of our personal views have a real advantage This will get increasingly difficult in the weeks before the election

T

Leap Wireless LEAP JPM Note and AT T T Mobile Fallout Re Spark Takeover Rumors

Leap Wireless International Inc Leap is a wireless communications carrier that offers digital wireless services in the United States under the Cricket brand Leap s Cricket service offerings provide customers with unlimited wireless services for a flat rate without requiring a fixed term contract or a credit check This is an order flow note likely the last of 2011 LEAP is moving on a story today that JPM believes LEAP and or Metro PCS may be the next potential takeover candidates for T after the T Mobile deal failings Here s a news snippet from Bloomberg Leap Wireless International Inc LEAP and MetroPCS Communications Inc PCS may be takeover targets for bigger rivals AT T Inc T or T Mobile USA after the larger companies 39 billion merger plan collapsed JPMorgan Chase Co said The pay as you go carriers could be suitable near term sources of spectrum for a buyer Phil Cusick a JPMorgan analyst in New York said in a note to clients today AT T cited a need for more spectrum as a reason for its attempt to buy T Mobile Source Bloomberg via Yahoo Finance Leap MetroPCS May Be Buyout Targets for AT T JPMorgan Says written by Ville Heiskanen I used to make a market in LEAP on NYSE ARCA back in early 2008 I believe it was a 50 stock back then It s not anymore The company has traded 10 835 contracts on total daily average option volume of just 1 655 Calls have traded on a 25 8 1 ratio to puts with the action in the Jan 9 calls The Stats Tab and Day s biggest trades snapshots are included below The Options Tab below illustrates that the calls are likely mostly opening compare OI to trade size In fact that OI jumped from 1 950 on 12 20 2011 to 3 640 on 12 21 2011 on what look like purchases Today s action looks like purchases too so I m expecting that OI to pop to over 10 000 next Tuesday when trading resumes The Skew Tab snap below illustrates the vols by strike by month Finally the Charts Tab 6 months is below The top portion is the stock price the bottom is the vol IV30 red vs HV20 blue vs HV180 pink We can see a few things here 1 The stock has dropped over the last six months it was over 16 in Jul 2 Over the last several months circles the stock has been sorta stuck in a rut Of late even more so the HV20 has been dipping see the blue line going down in the vol chart 3 The implied has dipped recently as well except for the last few trading days In fact as I m writing this note the IV30 has risen to over 88 5 Still the 52 wk range in IV30 for LEAP is 39 57 119 04 so the vol can go higher If the rumor mill really heats up in early Jan that vol could top 100 again This is trade analysis not a recommendation