Monday, September 30, 2013

Today's Market: Looking Ahead For These Big Movers Based On Recent News

We are seeing more and more computer glitches as it relates to the systems in place to manage America's financial system. We have had issues in individual stocks, at various trading companies, even at exchanges themselves on numerous occasions, but now we find out that the U.S. government is having glitches too. The Wall Street Journal reports (see article here) that Goldman Sachs saw a multi-billion dollar bid not taken for a Treasury auction and received no allocation for that bid. Obviously that resulted in less demand for the issue and could have impacted rates, etc.

These issues need to get fixed and maybe it is time that the SEC opened up an IT department to oversee the vast network of computer systems and programs which keep the world's financial capital running.

Chart of the Day:

The bottom chart kind of tells the entire story of the current economic situation. Consumers when asked feel better about the present than they did in recent months, but their outlook remains dim because of all of the uncertainty. Until that changes, growth will continue to be slow.


(Click to enlarge)

Source: Briefing

We have no economic news today.

Asian markets finished lower today:

All Ordinaries -- down 0.34%% Shanghai Composite -- CLOSED Nikkei 225 -- down 0.16% NZSE 50 -- down 0.48% Seoul Composite -- CLOSED

In Europe, markets are higher this morning:

CAC 40 -- up 0.10% DAX -- up 0.14% FTSE 100 -- down 0.04% OSE -- up 0.28%

Retail

The big names involved in J.C. Penney (JCP) have changed a lot in the past few months and now Vornado Realty Trust has sold the remaining shares they held from the original position they had in J.C. Penney. This is news, but not all that surprising when one considers that the company had already backed away from the investment in a considerable way earlier this year and had indica! ted their unhappiness with the company. We still dislike the idea of readers investing directly into the name as the risk is still high, but the one thing we would watch is to see if any more big names step into the stock with a bullish stance.

We have long been bullish all things housing and the theme has paid off for readers quite well. It did not get past U.S. though that Pier 1 Imports (PIR) had disappointing numbers yesterday which caused the shares to decline by nearly 14% and volume to spike to 14.6 million shares. The company is still seeing sales growth, but this quarter saw a miss versus Wall Street's consensus numbers. During the conference call management said that the sales issue and profit miss was caused by mismanagement of their advertising which caused store traffic to come in light and forced them to discount merchandise later in the quarter...obviously at steeper discounts than if they had held the sales earlier in the quarter. Full year guidance was lowered, but we are willing to take the same stance here as we did with Bed, Bath & Beyond...a wait and see approach. Still bullish the home goods retailers.

Speaking of subsectors in the retailing industry we are bullish on, how about the drugstores? They all seem to be running on all cylinders and yesterday Rite-Aid (RAD) had a tremendous day. It was the heaviest traded stock on all of the exchanges and saw its shares rise $0.87 (23.45%) to close at $4.58/share. Rite-Aid is the first among the 'Big Three' to report quarterly results so we find it interesting that they saw an increase in same store sales and saw profits driven by generic drugs. We have been told that this is going to be the bottom line driver for the industry via nearly everyone and that it would impact the top line as generics replaced the more expensive branded drugs. We care about earnings growth more than revenue growth, especially when the stall in revenues is due to switching to higher margin product which is purchased for a lower price. The marke! t gets th! is and is pushing all of these names higher. In hindsight we wish we had been more bullish of Rite-Aid earlier, but hindsight is always perfect.

There are a lot of great stories out there in this market, but not too many in the retail sector. Rite-Aid is one of the few though and the drugstore stocks appear poised for more gains moving forward.


(Click to enlarge)

Source: Yahoo Finance

Manufacturing

We did close the trade we had recommended in Tesla (TSLA) recently and when a friend asked U.S. about it and wanted an explanation it led to quite an interesting conversation. As we explained that the company's stock price had increased dramatically and they were working on new stuff that would not be out for a few more years we tried to stress how hard it would be for those new models not to have bugs and other issues. Our friend hit U.S. with a question along the lines of why could the company not be like Apple and string together a couple of big products? He also kindly reminded U.S. that Apple once had the iMac which was followed by the iPod...and if we wanted to see bigger progressions then how about when the company went from iPod to iPhone and then the iPad? It is something we had not really considered in that light, but in that context it does force one to reconsider what expensive is.

Technology

We really dislike fallen internet retail companies, especially those which decide to solve their problems by venturing into new industries/sectors in order to reinvent themselves. The risk is already high with the business model they start out with because margins are razor thin and then they look to use the cash flows from the business which is not working to build a business which is supposed to work. Every time it happens we shake our head and wonder when these guys will learn their lesson.

As far as turnarounds go this! one was ! quick and got the market excited. It has to be an outlier, but we are watching closely as the company tries to be a mini-Amazon.


(Click to enlarge)

Source: Yahoo Finance

Well it seems that Groupon (GRPN) has kind of changed the game with their transformation and turned the company around much faster than we thought possible...assuming that it could be turned around because we were of the thinking that it could not. Although we reversed our bearishness when we perceived that trade having run its course we still had our doubts. The company's reworking of its traditional business, while launching a retailing business and transitioning in new management has erased that negativity and we are going to take this example as a learning experience. Although we were not wrong on a position, it will be a good case study in the event that these transitions become the norm in the business rather than outliers.

Source: Today's Market: Looking Ahead For These Big Movers Based On Recent News

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. (More...)

Hot Dividend Stocks To Buy Right Now

The wealth-building power of compound interest will never cease to amaze me. It's a story of patience and attention to detail, where small, short-term differences add up to massive divergence over decades. And in the end, the biggest winners don't always deliver the fattest share-price returns.

Microsoft (NASDAQ: MSFT  ) CEO Steve Ballmer just announced his own retirement after 13 years at the helm in Redmond. Under Ballmer's reign, Microsoft transitioned from the exceptional growth of the 1990s and early 2000s to today's stable, dividend-paying state. Let's take a look back at the dividend history that Ballmer started.

Microsoft's first dividend was issued just more than 10 years ago, starting at a 0.3% yield. The company issued a large special dividend in 2004, and that payment of $3 per share throws off long-term dividend charts with a massive spike. Microsoft also took a breather from increasing its payouts in 2009, given the sudden pressure on cash flows from the global financial crisis. Other than these unusual adjustments, this has been a veritable dividend aristocrat since that modest first payout:

Hot Dividend Stocks To Buy Right Now: UniSource Energy Corporation(UNS)

UniSource Energy Corporation engages in the electric generation and energy delivery businesses. The company?s TEP segment generates, transmits, and distributes electricity to approximately 403,000 retail electric customers, including residential, commercial, industrial, and public sector customers in southeastern Arizona. It also sells electricity to other utilities and power marketing entities. As of December 31, 2010, this segment owned or leased 2,245 MW of net generating capacity, as well as owned or participated in electric transmission and distribution system consisting of 512 circuit-miles of 500-kV lines; 1,087 circuit-miles of 345-kV lines; 379 circuit-miles of 138-kV lines; 478 circuit-miles of 46-kV lines; and 2,621 circuit-miles of lower voltage primary lines. TEP segment generates electricity from coal, gas, oil, and solar sources. The company?s UNS Gas segment distributes gas to approximately 146,500 retail customers in Mohave, Yavapai, Coconino, and Navajo c ounties in northern Arizona, as well as Santa Cruz County in southeastern Arizona. As of December 31, 2010, this segment?s transmission and distribution system consisted of approximately 30 miles of steel transmission mains, 4,211 miles of steel and plastic distribution piping, and 136,439 customer service lines. The company?s UNS Electric segment transmits and distributes electricity to approximately 91,000 retail customers consisting of residential, commercial, and industrial customers in Mohave and Santa Cruz counties. As of December 31, 2010, UNS Electric?s transmission and distribution system consisted of approximately 56 circuit-miles of 115-kV transmission lines, 271 circuit-miles of 69-kV transmission lines, and 3,599 circuit-miles of underground and overhead distribution lines. This segment also owns the 65 MW Valencia plant, as well as 39 substations having an installed capacity of 1,788,050 kilovolt amperes. The company was founded in 1902 and is based in Tucson, Arizona.

Hot Dividend Stocks To Buy Right Now: Ameron International Corporation(AMN)

AMN Healthcare Services, Inc. provides healthcare staffing and clinical workforce management solutions in the United States. The company?s Nurse and Allied Healthcare Staffing segment provides staffing solutions for hospitals and other healthcare facilities, including medical, surgical, specialty, licensed practical or vocational, and advanced practice nurses, as well as surgical technologists and dialysis technicians. This segment also offers allied health professionals under the Med Travelers, Club Staffing, and Rx Pro Health brand names to acute-care hospitals and other healthcare facilities, such as skilled nursing facilities, rehabilitation clinics, and retail and mail-order pharmacies. These allied health professionals include physical, surgical, respiratory, and occupational therapists, as well as medical and radiology technologists, speech pathologists, rehabilitation assistants, pharmacists, and pharmacy technicians. Its Locum Tenens Staffing segment places physic ians of various specialties, certified registered nurse anesthetists, nurse practitioners, and dentists on a temporary basis as independent contractors with various healthcare organizations, including hospitals, medical groups, occupational medical clinics, individual practitioners, networks, psychiatric facilities, government institutions, and managed care entities. The company?s Physician Permanent Placement Services segment provides permanent physician placement services to hospitals, healthcare facilities, and physician practice groups under the Merritt Hawkins and Kendall & Davis brand names. This segment also offers specialty offerings, including internal medicines, family practices, and surgeries. Its Home Healthcare Services segment provide home healthcare services to individuals with acute-care illness, long-term chronic health conditions, permanent disabilities, terminal illnesses, and post-procedural needs. The company was founded in 1985 and is headquartered in S an Diego, California.

5 Best Casino Stocks To Own Right Now: ITT Industries Inc.(ITT)

ITT Corporation designs, manufactures, and sells a range of engineered products, and provides related services worldwide. Its Defense & Information Solutions segment develops tactical communications equipment, electronic warfare and force protection equipment, radar systems, integrated structures equipment, and imaging and sensor equipment, including night vision goggles, as well as weather, location, surveillance, and other related technologies for military and government agencies. It also provides services comprising air traffic management, information and cyber solutions, large-scale systems engineering, and integration and defense technologies; satellite-based imaging payloads for intelligence, surveillance, and reconnaissance solutions; and high-resolution commercial imaging systems with earth and space science applications, climate and environmental monitoring sensors and systems, and GPS navigation and software applications designed for image and data processing and dissemination. The company?s Fluid Technology segment provides water transport and wastewater treatment systems, pumps and related technologies, and other water and fluid control products with municipal, residential, commercial, and industrial applications. Its Motion & Flow Control segment manufactures shock absorbers and brake friction materials for the transportation industry; switch applications for the industrial and aerospace industries; electrical connectors used in telecommunications, computers, aerospace, medical, and industrial applications; and a range of pumps and tailored products for marine, food and beverage, and general industrial markets. The company was formerly known as ITT Industries, Inc. and changed its name to ITT Corporation in July 2006. ITT Corporation was founded in 1920 and is based in White Plains, New York.

Advisors' Opinion:
  • [By Stephen Simpson, CFA]

    This is a logical deal for SKF on multiple fronts. For starters, Kaydon will meaningfully expand the company's U.S. presence - something it could have done on its own eventually, but certainly not without spending money. With that, there is the possibility of using Kaydon's existing U.S. footprint to sell more SKF products and further trouble rivals like RBC Bearings (ROLL) and ITT (ITT).

Hot Dividend Stocks To Buy Right Now: Dreyfus Municipal Income Inc.(DMF)

Dreyfus Municipal Income, Inc. is a close ended mutual fund launched and managed by The Dreyfus Corporation. It invests in the fixed income markets. It primarily invests in municipal bonds. Dreyfus Municipal Income, Inc. is domiciled in United States.

Hot Dividend Stocks To Buy Right Now: RGC Resources Inc.(RGCO)

RGC Resources, Inc., through its subsidiaries, engages in the distribution of natural gas in Virginia. It is primarily involved in the regulated sale and distribution of natural gas to residential, commercial, and large industrial and transportation customers through underground mains and service lines in Roanoke, Virginia, and the surrounding localities. The company also provides non-regulated services. In addition, it offers information technology consulting services, as well as utility and regulatory consulting services to other utilities. The company operates approximately 1,045 miles of transmission and distribution pipeline; owns and operates eight metering stations; and a liquefied natural gas storage facility located in Botetourt County. RGC Resources, Inc. was founded in 1912 and is based in Roanoke, Virginia.

Hot Dividend Stocks To Buy Right Now: JDS Uniphase Corporation(JDSU)

JDS Uniphase Corporation provides communications test and measurement solutions, and optical products for telecommunications service providers, wireless operators, cable operators, network-equipment manufacturers, and enterprises worldwide. The company?s Communications Test and Measurement segment supplies instruments, software, and services to enable the design, deployment, and maintenance of communication equipment and networks. Its product portfolio consists of test tools, platforms, software, and services for wireless and fixed networks. The company?s Communications and Commercial Optical Products segment offers components, modules, subsystems, and solutions that are used by communications equipment providers for telecommunications and enterprise data communications. This segment?s products comprise transmitters, receivers, amplifiers, ROADMs, optical transceivers, multiplexers and demultiplexers, switches, optical-performance monitors and couplers, splitters, and circ ulators, which enable the transmission of video, audio, and text data through fiber-optic cables. It also provides various laser products, including diode, direct-diode, diode-pumped solid-state, fiber, and gas lasers for micromachining, materials processing, bioinstrumentation, consumer electronics, graphics, medical/dental, and optical pumping; and photovoltaic products, such as concentrated photovoltaic cells and receivers for generating energy from sunlight, as well as fiber optic-based systems for delivering and measuring electrical power. The company?s Advanced Optical Technologies segment offers optical solutions for security and brand-differentiation applications; and thin film coatings for a range of public and private-sector markets. This segment also provides multilayer product-security solutions that deliver overt, covert, forensic, and digital product and document verification. JDS Uniphase Corporation was founded in 1979 and is headquartered in Milpitas, Califo rnia.

Hot Dividend Stocks To Buy Right Now: Alliance Resource Partners L.P.(ARLP)

Alliance Resource Partners, L.P. engages in the production and marketing of coal for utilities and industrial users in the United States. It operates nine underground mining complexes, which offer low, medium, and high-sulfur coal. The company also leases land and operates a coal loading terminal on the Ohio River at Mt. Vernon, Indiana; and purchases and resells coal. In addition, the company provides mine products and services comprising design and installation of underground mine hoists for transporting employees and materials in and out of mines; design of systems for automating and controlling various aspects of industrial and mining environments; and design and sale of mine safety equipment, such as its miner and equipment tracking, and proximity detection systems. Further, it offers ash and scrubber sludge removal, coal yard maintenance, and arranging alternate transportation services. As of December 31, 2010, the company had approximately 697.4 million tons of coal reserves in Illinois, Indiana, Kentucky, Maryland, Pennsylvania, and West Virginia. Alliance Resource Management GP, LLC serves as the general partner of Alliance Resource Partners, L.P. The company was founded in 1971 and is based in Tulsa, Oklahoma.

Advisors' Opinion:
  • [By Holly LaFon] nce Resources Partners is a coal producer and marketer primarily in the eastern U.S. Its ROA has been increasing since 2008 and increased to 22.5% in 2011 from 21.4% in 2010. The average return on assets for the oil, gas & consumable fuels industry in the trailing 12 months is 24.47%.

    In 2011, its total assets increased to $1.7 billion from $1.1 billion in 2010. Its net income increased to $389 million from $321 million.

    Factset Research Systems Inc. (FDS)

    Factset researches global market trends and develops analytical tools for investors. Of all of GuruFocus��5-star predictable companies, it has the highest return on assets at 27%. ROA has been increasing over the past several years. The average return on assets for the software industry for the trailing 12 months is 13.07%.

    In 2011, the company�� total assets increased to $657 million from $645 the prior year. Its net income increased to $171 million from $150.

    The All-in-One Screener is a fully customizable stock-searching tool just introduced by GuruFocus. Search for stocks according to your own set of requirements here.

  • [By Matt DiLallo]

    For example, the company has pointed out repeatedly that it's no longer interested in growing its coal business either organically or by way of acquisition. Starting next year, the company will only spend $300 million-$350 million per year in maintenance capital as it turns the coal business into harvest mode. In my opinion, that makes it a great candidate for an MLP structure similar to Alliance Resources (NASDAQ: ARLP  ) . MLPs tend to be valued higher by the marketplace because of the steady income produced; Alliance, for example, currently yields 6%. CONSOL could use the copious cash flows from coal to produce a nice income vehicle if it structured its coal business as an MLP.

Hot Dividend Stocks To Buy Right Now: Pacific Gas & Electric Co.(PCG)

PG&E Corporation, through its subsidiaries, operates as a public utility company that engages in electricity and natural gas distribution primarily in northern and central California. The company also involves in the generation, procurement, transmission, and distribution of electricity; and procurement, transportation, storage, and distribution of natural gas. It owns and operates electricity generation facilities, transmission and distribution lines, and substations; and an integrated natural gas transportation, storage, and distribution system, as well as has underground natural gas storage fields in California. The company serves residential, commercial, industrial, agricultural, public street and highway lighting, and other electric utility customers. As of December 31, 2009, it served approximately 5.1 million electricity distribution customers and approximately 4.3 million natural gas distribution customers. The company also operated 18,650 circuit miles of intercon nected transmission lines and 141,213 circuit miles of distribution lines for electricity; and 42,142 miles of distribution pipelines, 6,438 miles of backbone and local transmission pipelines, and 3 storage facilities for natural gas. PG&E Corporation was founded in 1905 and is based in San Francisco, California.

Advisors' Opinion:
  • [By Richard Stavros]

    The Top Low-Carbon Utilities

    PG&E Corp (NYSE: PCG) Exelon Corp (NYSE: EXC) Entergy Corp (NYSE: ETR) Public Service Enterprise Group Inc (NYSE: PEG) NextEra Energy Inc (NYSE: NEE) Dominion Resources Inc (NYSE: D) Sempra Energy (NYSE: SRE)

    But that is not to say that, over the long term, high-carbon utilities might not be able to crack the technology and cost issues that would make “clean coal” competitive with other low-carbon energy sources. Secretary of Energy Ernest Moniz has said, “No discussion of US energy security and reducing global CO2 emissions is complete without talking about coal and the technologies that will allow us to use this resource more efficiently and with fewer greenhouse gas emissions.”

  • [By David Dittman]

    PG&E Corp (NYSE: PCG), Edison International (NYSE: EIX) and Sempra Energy (NYSE: SRE) are the parent entities of California’s investor-owned utilities.

Sunday, September 29, 2013

5 Stocks Rising on Big Volume

DELAFIELD, Wis. (Stockpickr) -- Professional traders running mutual funds and hedge funds don't just look at a stock's price moves; they also track big changes in volume activity. Often when above-average volume moves into an equity, it precedes a large spike in volatility.

Major moves in volume can signal unusual activity, such as insider buying or selling -- or buying or selling by "superinvestors."

Unusual volume can also be a major signal that hedge funds and momentum traders are piling into a stock ahead of a catalyst. These types of traders like to get in well before a large spike, so it's always a smart move to monitor unusual volume. That said, remember to combine trend and price action with unusual volume. Put them all together to help you decipher the next big trend for any stock.

With that in mind, let's take a look at several stocks rising on unusual volume today.

Blackstone Group

Blackstone Group (BX) is an alternative asset manager and a provider of financial advisory services. This stock closed up 3.8% to $23.70 in Monday's trading session.

Monday's Volume: 9.83 million

Three-Month Average Volume: 4.55 million

Volume % Change: 215%

From a technical perspective, BX gapped notably higher here right above its 50-day moving average of $22.40 with heavy upside volume. This move is quickly pushing shares of BX within range of triggering a major breakout trade. That trade will hit if BX manages to take out Monday's high of $23.78 and then once it clears its 52-week high at $24.31 with high volume.

Traders should now look for long-biased trades in BX as long as it's trending above $23 or above its 50-day at $22.40 and then once it sustains a move or close above those breakout levels with volume that hits near or above 4.55 million shares. If that breakout hits soon, then BX will set up to enter new 52-week-high territory, which is bullish technical price action. Some possible upside targets off that breakout are $30 to $32.

Hilltop

Hilltop (HTH) operates as a holding company for PlainsCapital Bank that provides business and consumer banking services in Texas. This stock closed up 8.7% at $17.96 in Monday's trading session.

Monday's Volume: 2.29 million

Three-Month Average Volume: 414,214

Volume % Change: 436%

From a technical perspective, HTH gapped up sharply higher here back above its 50-day moving average of $16.52 with strong upside volume. This move pushed shares of HTH into breakout and new 52-week-high territory, since the stock closed above some previous resistance at $17.63.

Traders should now look for long-biased trades in HTH as long as it's trending above Monday's low of $17.07 and then once it sustains a move or close above its new 52-week high at $18.23 with volume that this near or above 414,214 shares. If we get that move soon, then HTH will set up to enter new 52-week-high territory, which is bullish technical price action. Some possible upside targets off that move are $20 to $23.

Star Bulk Carriers

Star Bulk Carriers (SBLK) provides worldwide transportation of drybulk commodities through its vessel-owning subsidiaries for a range of customers and minor bulk cargoes including iron ore, coal, grain, cement and fertilizer. This stock closed up 7.9% at $10.58 in Monday's trading session.

Monday's Volume: 243,000

Three-Month Average Volume: 64,367

Volume % Change: 228%

From a technical perspective, SBLK jumped sharply higher here right above some near-term support at $9.47 with above-average volume. This stock has been uptrending strong for the last two months and change, with shares moving higher from its low of $5.37 to its recent high of $11.53. During that move, shares of SBLK have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of SBLK within range of triggering a near-term breakout trade. That trade will hit if SBLK manages to take out its 52-week high at $11.53 and then once it clears some past resistance at $11.98 with high volume.

Traders should now look for long-biased trades in SBLK as long as it's trending above near-term support at $9.47 and then once it sustains a move or close above those breakout levels with volume that hits near or above 64,367 shares. If that breakout triggers soon, then SBLK will set up to enter new 52-week-high territory, which is bullish technical price action. Some possible upside targets off that breakout are its next major overhead resistance levels at $14 to $15.

Invacare

Invacare (IVC) designs, manufactures and distributes a line of health care products for the non-acute care environment, including the home health care, retail and extended care markets. This stock closed up 2.3% at $16.73 in Monday's trading session.

Monday's Volume: 218,000

Three-Month Average Volume: 143,188

Volume % Change: 75%

From a technical perspective, IVC jumped higher here right above some near-term support at $16 with above-average volume. This move briefly pushed shares of IVC into breakout territory, since the stock flirted with some past resistance at $16.81. This move is also close to pushing shares of IVC above the upper-end of its recent sideways trading price action, that has seen IVC trade between $14.92 on the downside and $16.81 on the upside.

Traders should now look for long-biased trades in IVC as long as it's trending above its 50-day at $15.75 and then once it sustains a move or close above Monday's high of $16.84 with volume that's near or above 143,188 shares. If we get that move soon, then IVC will set up to re-test or possibly take out its next major overhead resistance levels at $18.24 to $19.15.

Portland General Electric

Portland General Electric (POR) is a vertically integrated electric utility engaged in the generation, purchase, transmission, distribution and retail sale of electricity in the state of Oregon. This stock closed up 2.1% at $28.21 in Monday's trading session.

Monday's Volume: 1.89 million

Three-Month Average Volume: 732,569

Volume % Change: 145%

From a technical perspective, POR gapped up modestly higher here right above its recent low of $27.57 with strong upside volume. This stock has been downtrending badly for the last month and change, with shares dropping from its high of $33.26 that low of $27.57. During that downtrend, shares of POR have been consistently making lower highs and lower lows, which is bearish technical price action. That said, shares of POR could be setting up to see an end to its recent downside volatility in the short-term. Shares of POR could easily rebound here off oversold levels, since its current relative strength index reading is 39.74.

Traders should now look for long-biased trades in POR as long as it's trending above that recent low of $27.57 and then once it sustains a move or close above some near-term overhead resistance at $28.50 with volume that's near or above 732,569 shares. If we get that move soon, then POR will set up to re-test or possibly take out its next major overhead resistance levels at $29 to its 200-day at $29.45. Any high-volume move above those levels will then give POR a chance to tag its 50-day at $30.09 to more near-term overhead resistance at $31.

To see more stocks rising on unusual volume, check out the Stocks Rising on Unusual Volume portfolio on Stockpickr.

-- Written by Roberto Pedone in Delafield, Wis.

Saturday, September 28, 2013

Start Getting Ready for the Collapse of the U.S. Dollar

It's been a wild year for the greenback. While the falling U.S. dollar of last week can be blamed on the U.S. Federal Reserve's surprise decision not to taper its bond buying, for most of the past two years, the dollar has been rising.

In fact, before the FOMC meeting last week, the dollar was up 12% since mid-2011.

And yet while the factors contributing to a rising U.S. dollar are likely to continue for a while, investors also need to be aware of several long-term threats to the dollar that eventually will fatally weaken the currency.

It's important for investors to understand exactly why the dollar is falling at times and rising at others, because the strength of the currency affects virtually every investment in one way or another.

Here's a piece-by-piece look at what's been going on this year with the dollar, and what investors can do to profit from it.

The Falling U.S. Dollar: A Reaction to the Fed

Most experts (with this very notable exception) had assumed the Fed would announce a start to the quantitative easing (QE) taper, a reduction of about $10 billion from its $85 billion a month of bond buying.


That would have been helped strengthen the dollar by reducing some of the liquidity that the Fed has been pumping into the U.S. economy. When the Fed instead stood pat, the currency markets reacted negatively. The dollar index fell 1%, to 80.060, a seven-month low, the day of the Fed announcement.

That excess Fed liquidity - the central bank has added $3 trillion to its balance sheet since the 2008 financial crisis - is actually one of the long-term threats to the U.S. dollar, as we'll see shortly.

The falling U.S. dollar reaction to last week's Fed decision, however, will be short-lived.

Before long, we'll return to a rising U.S. dollar, at least for a while.

Here's why it's inevitable that the dollar will soon resume its upward trajectory...

Why We'll See a Rising U.S. Dollar

One of the biggest reasons a rising U.S. dollar is in our future is because the nation has a clean track record of making good on its debts.

"The U.S. has never defaulted," said Money Morning Chief Investment Strategist Keith Fitz-Gerald. "The world may hate our guts, but when all hell breaks loose, they all love our dollar."

Meanwhile, virtually every major central bank in the world has adopted the same easy money - and currency-debasing - policies as the U.S. Federal Reserve.

That, and the fact that the dollar remains the world's reserve currency (the currency used by all nations to buy commodities), makes the U.S. dollar "the best-looking horse in the glue factory," Fitz-Gerald said.

But there's one more recent wrinkle to the dollar's situation that has helped make it stronger against other major currencies.

It's the U.S. shale oil boom.

For decades, the United States has imported a great deal of oil and has paid for that oil in dollars. That money is used by other nations to pay off debts and buy commodities denominated in U.S. dollars.

But the shale oil boom has reversed the trend. The United States has begun to cut back on oil imports as domestic production increases.

That, in turn, is reducing the number of U.S. dollars flowing out into the global economy, creating a shortage of dollars and pushing its value higher.

"An asset like oil collateralizes the currency itself," Fitz-Gerald said. In other words, with some real asset to back at least some of it - in this case, oil - U.S. dollars are more valuable relative to other fiat currencies like the euro and the Japanese yen.

But even these advantages won't be enough to overcome the rot in the foundation of U.S. fiscal policy that eventually will doom the dollar.

Why the U.S. Dollar Is Doomed

Decades of irresponsible behavior by the government will eventually bring a falling U.S. dollar. In fact, bad policies have already dinged the dollar's value against other major currencies by 50% over the past 28 years.


The Fed's money printing: The trillions the Federal Reserve has created as a result of its quantitative easing represent perhaps the biggest threat to the dollar. We haven't yet witnessed the damage of QE because much of the money is sitting quietly in the reserves of the big banks. But when they decide to unleash all those dollars, we'll get massive inflation.

Loss of reserve currency status: One of the great props to the U.S. dollar is its status as the world's reserve currency, but the Fed's actions and a desire for a less U.S.-centric global economy mean the world has started to consider alternatives. Even if not completely replaced, the dollar will at least have competition - most likely in the form of the Chinese yuan. Unfunded liabilities: Forget the $17 trillion of debt the federal government owes. Fitz-Gerald is more worried about Washington's $222 trillion of unfunded liabilities. That includes the true cost of future Social Security and Medicare payments, as well as interest on the national debt. The need to pay for this is a strong incentive to further debase the dollar, that is, print more of it to pay off the debts, which in turn reduces that value of all existing dollars. The derivatives time bomb: The big banks like to make big bets. If the bets work out, they rake in billions; if not, the government will bail them out with billions. But there are $1.2 quadrillion worth of derivatives out there, far more than the global gross domestic product of $71.8 trillion. And it's leveraged anywhere from 10-to-1 to 50-to-1. When it blows up it will destroy the entire global financial system in a way that will make the 2008 financial crisis look like a rounding error.

"They've created this hydra around the U.S. dollar," Fitz-Gerald said. "All of it has to come home to roost at some point; we just don't know when."

What Investors Should Do Now

Fitz-Gerald says that while investors need to stay vigilant regarding the fate of the U.S. dollar, for now they should try to protect themselves while wringing what profit they can from the rising U.S. dollar.

That means investing in multinational companies, which are less vulnerable to the dollar's gyrations because they have a lot of exposure to foreign currencies. They also have exposure to the growth of emerging markets.

And a rising U.S. dollar means it's smart to be in dollar-denominated investments - but with protective stops just in case.

For several other moves investors should make to prepare for a falling U.S. dollar, Money Morning has prepared a special report - which you can get free here.

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Thursday, September 26, 2013

Nasdaq focus on resiliency, "robustness" in wake of outage

nasdaq, nyse, stocks, trading, technology, electronic trading, equities, options Nasdaq CEO Robert Greifeld says exchange needs to focus on defensive driving after three-hour outage. Bloomberg News

Nasdaq OMX Group Inc. halted trading for three hours yesterday to protect the integrity of markets as a technology malfunction left some investors without stock quotes, Chief Executive Officer Robert Greifeld said in his first public remarks since the incident.

The exchange operator was in constant communication with rivals during the outage and decided to halt trading of listed stocks to prevent “information asymmetry” among traders, Greifeld said in interviews at Nasdaq's offices with Bloomberg Television's Betty Liu and Andrew Ross Sorkin on CNBC. Greifeld said he supports developing a backup data feed to prevent the issue from happening again.

“The general theme we're focused on going forward is that we have to improve our defensive driving ability,” Greifeld told Bloomberg TV. “This system has been around for 20 years, it works and it works remarkably well. Then things happen in the external environment that causes a problem.”

A faulty connection between the two biggest operators of U.S. stock exchanges brought half of the world's largest equity market to a standstill, the second time this week U.S. trading was shaken by a computer malfunction.

Connectivity was disrupted between NYSE Arca (NYX), where about 11 percent of American share volume occurs, and the data processing subsidiary of Nasdaq Stock Market, home to 2,150 U.S. companies, according to a person with direct knowledge of the matter. That led Nasdaq to freeze thousands of stocks from Apple Inc. to Facebook Inc. (FB) that trade on about 50 markets from Kansas to New Jersey for more than three hours.

Resiliency, Robustness

“We have to make sure no matter what happens, the system stays up and the system has a resiliency and a robustness that we did not exhibit yesterday,” Greifeld said on Bloomberg TV.

President Barack Obama was told about the malfunction and Mary Jo White, the chairman of the Securities and Exchange Commission, plans to convene market officials to discuss ways of making trading more reliable. Just three days ago, Goldman Sachs Group Inc., which made $5.8 billion from stock trading in 2012, flooded options markets with unintentional orders.

“For three hours not a single person in the world could trade any Nasdaq-listed stock,” Manoj Narang, the chief executive officer of Tradeworx Inc., a high-frequency trading firm in Red Bank, New Jersey, that designed a system to monitor markets for the SEC, said in a phone interview. “That's not acceptable, especially for something as simple as a quote feed not working.”

Electronic Markets

The disruption is the latest to signal unreliability in electronic markets just as individual investors who withdrew from stocks after the global economic crisis have shown signs of embracing equities. About $30 billion poured into exchange-traded funds that own U.S. shares in July, the most since 2008 and the second-highest ever, according to data compiled by Bloomberg since! 2000.

Failures are increasing as global markets get more fragmented. U.S. equity trading, which began on Wall Street more than two centuries ago and was dominated by the New York Stock Exchange for most of that period, has become dispersed among more than 50 electronic platforms accessible around the world.

It's the latest challenge for Greifeld, the 56-year-old leader of Nasdaq OMX, which was criticized for mishandling the initial public offering of Facebook in May 2012. Nasdaq agreed to pay $10 million to settle SEC charges related to the IPO as regulators cited “poor systems and decision-making.”

Exchange Fragility

While Nasdaq's closure yesterday kept brokers from executing client trades and raised fresh concerns about exchange fragility, investors praised the decision to stop activity before chaos snowballed.

Nasdaq's own shares, which were covered by the halt, fell 3.4 percent to $30.46 in New York yesterday. That was the biggest drop in four months and trimmed the 2013 advance to 22 percent. The stock rose 0.6 percent at 10:58 a.m. in Frankfurt trading today.

The Nasdaq Composite Index (CCMP), which didn't move during the outage, gained 1.1 percent to 3,638.71 yesterday. The Nasdaq 100 Index of the biggest companies listed on the exchange climbed 1 percent to 3,101.82.

“It's a good thing to halt the data before the trades go crazy because it could have easily turned into a flash crash,” said James Angel, a finance professor at Georgetown University in Washington. “It certainly doesn't make them look good when their market went down but they pulled the switch before the market went crazy.”

Transactions Frozen

Nasdaq froze transactions in all of its shares just after noon, stopping the buying and selling on its platform and dozens of others where the securities trade. Bad connectivity between an exchange that wasn't identified and Nasdaq's securities information processor, or SIP, led to a “degradation in the ability of the SIP to dissemi! nate cons! olidated quotes and trades,” according to a Nasdaq release.

The exchange was NYSE Arca, according to the person with direct knowledge, who asked not to be identified because the matter is private. Rob Madden, a Nasdaq spokesman, declined to comment on the matter, as did Rich Adamonis, a spokesman for NYSE Euronext.

Nasdaq and NYSE, which almost all U.S. companies use to go public, each operate SIPs. The units receive quotes and trades from around the country and disseminate them in three groups, known as tapes. NYSE operates the Tapes A and B and Nasdaq runs Tape C.

Can't Trade

“In order for the trade to be consummated, it has to hit the tape,” said Sayena Mostowfi, senior analyst at Tabb Group LLC based in New York. If it doesn't, “you can't really trade,” she said. “That's why the entire market goes out.”

The Nasdaq SIP processed about 85.4 million quotes and 6.25 million trades per day in the fourth quarter of 2010, according to a consolidated exchange data report. NYSE's handled 311.3 million quotes and 20.1 million trades daily in the same period. During peaks, Nasdaq saw an average of 58,585 quotes and 14,030 trades a second.

Nasdaq's malfunction shows that not enough redundancy is built into the quote processing system, according to Jerome Dodson, president of San Francisco-based Parnassus Investments, which oversees about $9 billion. His firm submitted equity trades around noon New York time that weren't completed.

“The traders said: 'There's nothing filling! There's nothing filling!'” said Dodson, who oversees the Parnassus Fund that has beaten 93 percent of its peers in the past five years. “No doubt there should be a backup system.”

Strain Signs

Signs of strain appeared shortly after 10 a.m. when NYSE Arca began alerting traders to problems, saying it was having issues routing orders in certain Nasdaq-listed securities, according to emails the exchange sent to subscribers. Although the exchange said it resolve! d the iss! ue within about 10 minutes, live orders for those securities were canceled 20 minutes later and quoting didn't resume until 11:16 a.m., status updates show.

About 30 minutes later, Nasdaq sent an alert that its SIP was having “momentary interruptions” disseminating quotes, and exchanges began halting Nasdaq-listed security data shortly after noon. NYSE Arca stopped at 12:14 p.m. at the request of Nasdaq, according to alerts.

Nasdaq equity indexes didn't update during the outage and volume in stocks listed on the New York Stock Exchange also dwindled as liquidity dried up around the country. As happened after Goldman Sachs's mishap, traders said losing access to so many stocks would expose trading positions to losses.

'Real Fear'

“The real fear is that we get stuck wearing some kind of risk because of an interruption that is not of our doing,” Max Breier, a senior equity derivatives trader at BMO Capital Markets Corp. in New York, said in a phone interview. “Any halt in information or ability to trade is going to hinder our ability to manage our risk and take positions.”

Obama was briefed on the disruption by his chief of staff, Denis McDonough, according to an e-mail from Josh Earnest, deputy White House press secretary, to reporters traveling with the president in upstate New York.

A meeting of exchange leaders will be convened in Washington to “accelerate ongoing efforts to further strengthen our markets” by the SEC's White, according to a government statement.

The SEC and the Commodity Futures Trading Commission have stepped up scrutiny of trading since the so-called flash crash of May 6, 2010, when $862 billion in equity value was erased in 20 minutes before prices recovered. The CFTC, the top U.S. derivatives regulator, is poised to announce a range of potential methods for overseeing automated and high-frequency trading, according to four people with knowledge of the matter.

Direct Edge

The decision to freeze stocks halted dozens of! other ma! rkets around the country that trade securities. Exchanges from Bats Global Markets Inc. in Lenexa, Kansas, to Jersey City, New Jersey-based Direct Edge Holdings LLC published notices saying they were following the main exchange.

Nasdaq “has to recommit to making sure they are delivering their core value proposition, which is reliable, transparent and effective market making,” Brad McMillan, chief investment officer for Waltham, Massachusetts-based Commonwealth Financial Network, said in a phone interview. His firm has more than $71 billion under management.

“If it gets to the point of, 'Oh, yeah, Nasdaq went down again, and that's not news,' that's when they lost their ability to deliver their core function.”

Volume Drops

The disruption resulted in the second-fewest shares changing hands on U.S. exchanges in at least five years during a full-day session. About 4.4 billion shares traded yesterday, 30 percent below the three-month average. Volume was lower only on Oct. 8, 2012, excluding holiday trading, according to data Bloomberg began compiling in 2008.

About 740 million exchange-listed shares changed hands during the three hours through 3:20 p.m. in New York following the suspension, or a third of the total transactions over the first three hours, data compiled by Bloomberg show.

American stock markets regularly shut down as share volume rose in the late 1960s before computers were in widespread use. According to the Depository Trust & Clearing Corp.'s website, exchanges closed every Wednesday and shortened trading hours as daily share volume of 10 million to 12 million shares meant “brokers were literally buried in paperwork.” Volume has averaged more than 6 billion shares a day in 2013.

Squirrel Shutdown

Yesterday's outage was longer than an approximately 40-minute shutdown in 1994 that was triggered when a squirrel chewed through a power line in Shelton, Connecticut, disrupting electricity near a Nasdaq computer facility in Trumbull. That same yea! r, a comm! unications-software error shut the exchange for two-and-a-half hours. Another squirrel was to blame for a 1987 outage that lasted 82 minutes, according to a New York Times report at the time.

Investors in China were whipsawed by a computer malfunction last week. State-controlled brokerage Everbright Securities Co. reported a trading loss of 194 million yuan ($32 million) and apologized to investors after errors in order-execution systems on Aug. 16 sparked the biggest intraday swing in China's benchmark index since 2009.

Yesterday's halt “is not a Nasdaq issue, this is a much broader issue,” Sal Arnuk, a partner and co-founder at Themis Trading LLC in Chatham, New Jersey, said in a phone interview. “This is a black eye and an egg on the face of the structure of all the exchanges.”

(Bloomberg News) Like what you've read?

Adviser using her business skills in the statehouse

vote, legislation, ohio, adviser, election, politics, politician

As Ohio struggled with high unemployment and a decline in education funding, and contemplated raising property taxes to close budget gaps, Heather Bishoff thought she could help her state navigate what looked to her like a perfect storm.

So last year, Ms. Bishoff, co-owner of The Bishoff Financial Group Inc. in Worthington, decided to run for the state Legislature. She pulled off an upset, winning as a Democrat in a Republican-majority district. Now that she's in the capitol, she can utilize some of the skills she developed in the investment advice business.

Ohio “needed to take into consideration the short-, medium- and long-term impact of the decisions we're making — something financial planners do every day,” Ms. Bishoff said at the Financial Services Institute Inc.'s Financial Advisor Summit in Washington today. “At the end of the day, we're there to be good stewards of Ohians' money.”

While representing a district of 125,000 people, Ms. Bishoff continues to run the operations side of her firm. Her husband, Wm. Eric Bishoff, is the branch manager and handles the client work.

She's available to her constituents at all times, while juggling state duties with business obligations. Staying connected to her work gives her a unique perspective among legislators.

“I want to be reminded of the challenge of running a business,” Ms. Bishoff said. “That's what I bring to the table at the statehouse.”

At the FSI session, she encouraged other financial advisers to run for office. One of the big drawbacks that keeps many of them out of the arena is the danger of turning off clients by participating in politics.

Ms. Bishoff and her husband are confident that their firm has not suffered.

“The clients that we have, they know us,” Ms. Bishoff said. “We care about them. They care about us. It's kind of like we're an extended family. I don't think we've lost clients because of campaign stuff.”

Still, Mr. Bishoff had some concerns, even though he encouraged his wife to run, because about 98% of their clientele is Republican. Prospective clients would probably lean right, too.

He heard from people who said that they hadn't voted Democratic or made campaign contributions to Democrats. But the tide began to turn after they interacted with Ms. Bishoff.

“When they got to meet her and talk to her, it's not, 'She's a Democrat'; it's, 'She's a small-business owner and she gets it,'” Mr. Bishoff said.

For Ms. Bishoff, it's not the politics of public life but the service that inspires her. She said it is rewarding to help constituents cut through the Ohio bureaucracy.

“It is the best customer service job I've ever had,” Ms. Bishoff said.

In politics, she prides herself on being a centrist while the country becomes more deeply divided along partisan lines.

“I don't want to be a politician; I want to be a legisl! ator,” Ms. Bishoff said. “The silent majority — they're in the middle.”

How to cultivate right mindset to be a successful investor

The investor and his mind

Sigmund Freud made a name for himself by interpreting dreams through the use of his knowledge of psychoanalysis. He succeeded in deciphering the various quirks inside the human brain which influenced their behavior. Had Freud tried to interpret the dreams of investors, perhaps a new dimension could have been added to the subject of investor behavior.

Freud did not entirely dishearten though, he had indeed dwelt on the subject.  People, over the years, have used his studies for various reasons like the exploration of the causes behind the global economic collapse and the general understanding of the subtleties of behavioral finance.

Investment consultants and financial pundits have not only tried to understand the vagaries of the money market, they have also devoted considerable time and attention to investor behavior study. Both have been equally volatile and predictably unpredictable.

This article seeks to take a peek into the investor's mind and also strives to make readers aware about those behavioral patterns which can be detrimental to their financial health. Emotions are an integral part of our behavior and it is no different for investors.

The commotion caused by emotion

Emotions often lead to a situation where the investor deviates from the pragmatic route and acts contrary to their natural self. Their mood swings are influenced by greed and headstrong decisions. When things look rosy, investors' rush in to encash the bonanzas, on the flip side, when the markets are glum, they withdraw into their shell.

Another common investor behavior pattern, commonly referred to as the 'herd behavior', is about trying to emulate others who have made more money in the market.

However, the prudent investor is one who follows the dictum of Rabindrnath Tagore 'ekla chalo re' which means that '… at times people have to traverse the path alone..'. These investors move ahead due to their single minded determination and aversion to being swayed by emotions.

Investors who come up winners against odds tend to study the market carefully, they gather a fair idea from the signs in the market- whether investment at a particular point of time is conducive or not, if the lenders and general investors are showing eagerness and other factors like ease of entry of new funds and widths of credit spreads.

'Too much of anything is bad'- it is said, and this perception holds for investors too. The height of both optimism and pessimism can lead to situations which can lead to monetary loss in one hand and loss of opportunities on the other hand.

The Science of Prudence

Financial prudence is something which cannot be quantified, it has to be observed and assessed. The economic crisis of 2008 was preceded by activities indulged in by investors which reflected high levels of risk propensity and low levels of prudence.

In this context, Warren Buffet's words reflect his wisdom "The less prudence with which others conduct their affairs, the greater the prudence with which we must conduct our own affairs". It is not without reason that Buffet is considered to be  one of the most successful investors of our times.

Risk aversion is a behavioral phenomena which is not constant. It is linked to a lot of extraneous factors and investors need to carefully weigh all the options before arriving at a decision, be it a buy or sell decision. High risk aversion could result in a lot of good 'buy' opportunities go untouched and low risk aversion could lead to purchases which turn out to be catastrophic.

The mystery of history

"Where is the knowledge we have lost in information?", lamented noted poet T S Eliot. This is indeed true, even Albert Einstein stated that "The only source of knowledge is experience" and "Information is not knowledge".

We often tend to miss the greater picture by directing our attention towards bits of information, which can be utterly misleading. The totality of an event can only be known by becoming aware of its history.

"Those who forget their history are condemned to repeat them"- is an axiomatic statement which has been endorsed in history. The sequence of events leading to a major economic downturn can slowly fade from memory as the gap between such events sometimes span over decades.

However, for a serious investor, it is imperative to remember such instances and draw from its experience and knowledge. However, the moot point remains that even though investors possess the necessary knowledge they tend to act more out of their faith and belief. What they know to be true in most cases turn out to be untrue.

It is more about that fact that people believe what they want to believe and that could be anything but the truth. The devil in the mind raises its head and overshadows logic and prudence, greed takes over and leads the investor astray.

'Safety' to 'growth', a poorly traversed road

Elasticity and volatility have much in common. It can stretch either way. Market volatility can reach for the stars and head towards the pit depending on the economic situation.

Equities and investments in equities are a fairly recent phenomenon and has been around for about 65 years or so. After a sluggish take off, equities gained momentum between 1960 and 1972, and then again between 1982 to 1999.

After its initial popularity, the inevitable happened, a plethora of equity in the market led to a saturation. Equity performances nose dived, prices reverse spiraled rapidly and the investor's spirit took a beating leading to a loss of interest in equities. This was triggered in 2000.

The situation hardly improved during the next three year period and people began to abandon equities for more secure investment options. There was a paradigm shift from the previous drive for 'growth' to a more sedate "safety and income" stance.

Investors ignored equities between 2000 to 2003. During 2003 stock market started recovering slowly. Any thing which slowly grows will not capture the attention. Investors continue to ignore this slow growth in 2003 and 2004. Only in 2005 when stock market rised sizably, investors started noticing it and started investing in it. They have missed the initial rally in the market.

Instead of swinging between safety and growth, investors need to determine an asset allocation ratio based on their risk appetite and required rate of return. They need to stick to this asset allocation ratio regardless of the crash or rise in the stock market. This will reduce their overall risk and build their wealth.

If you could practice the above steps that will help you cultivate the right mindset to be a successful investor.

The author is Ramalingam K, CFP CM is the Chief Financial Planner at holisticinvestment.in, a leading Financial Planning and Wealth Management company.

Tuesday, September 24, 2013

Money Matters

What Should Be Included in the Money Supply
We have come across a few articles discussing money and credit recently, and want to add our two cents. Before we begin, we want to briefly discuss the definition of money.

It is useful to have a fairly strict definition of the general medium of exchange. That helps one to avoid confusing money with e.g. credit instruments. The definition set forth by Rothbard (in the monograph 'Austrian Definitions of the Supply of Money'), which follows the guidelines laid down by Mises in the 'Theory of Money and Credit' is as follows:

"Money is the general medium of exchange, the thing that all other goods and services are traded for, the final payment for such goods on the market."

Armed with this definition, one can determine what should considered part of the money supply in the narrow and broader sense. In the modern-day fiat money system, standard money consists of banknotes and coins, i.e., currency. These banknotes once used to be receipts redeemable for definite quantities of the market-chosen metallic money (gold and/or silver), but were over time deprived of this character by government intervention. It should be pointed out that declaring that something is legal tender is not enough to make that something into money. Unless the money concerned is widely accepted in exchange, such a declaration won't suffice. However, the state-issued scrip is also the only type of money accepted in payment of taxes, which creates strong demand for it. Furthermore, the gradual manner in which gold was replaced by fiat money contributed greatly to the latter's acceptance by market actors. However, we don't want to discuss the merits of gold as money here or the historical developments that have led to the adoption of fiat money, but rather what money currently is.

In addition to standard money (notes and coins) there are money substitutes (deposit money) which can be exchanged for standard money on demand. Some of these are covered money subs! titutes, which means that bank reserves held with the central bank exist with respect to them. The remainder are 'uncovered' money substitutes, also known as fiduciary media. These likewise confer a claim to standard money to deposit holders, but they are not covered by bank reserves (therefore bank customers need 'fiducia' – trust – that they will indeed be paid on demand).

In practice, these three types of money (standard money, covered and uncovered money substitutes) together form the money supply, as they are all generally accepted as final payment for goods and services.

The broad Austrian money supply measure TMS-2 is constructed based on this definition (there is a narrower money supply measure TMS-1 which excludes savings deposits; although savings deposits are generally available on demand in the US, it makes sense for analytical purposes to observe the narrower measure as well, as it is subject to more frequent turnover). The measure therefore excludes e.g. money market funds, because including them would amount to double-counting. If one buys units in a money market fund, the fund employs one's money in turn to buy commercial paper or other short term debt instruments such as t-bills. The money will move into someone else's account and thus be reflected in total outstanding bank deposits. While it is very easy to cash in money market fund units, they cannot be used directly in payment – they must first be sold for money.

A complete list of what is included in the TMS measures as well as other money supply measures, including a more extensive discussion of the topic and links to various useful references can be found here: "Money Supply Metrics, the Austrian Take", by Michael Pollaro.

As a general remark, we are referring specifically to the US banking system and the dollar money supply in this article. In other countries, both commercial banking practices and the modus operandi of central banks are not exactly the same as in the US, even th! ough all ! modern fiat money systems are quite similar in their basic outlines (as an example: in many countries, 'savings deposits' refer only to money that is in time deposits and hence is not available on demand).

Measuring Money in New Ways?
One of the articles we have recently come across is "Monetary Inflation Prospects" by Alastair Macleod. Mr. Macleod attempts to 'quantify the prospects for inflation', this is to say, the prospects of money losing a lot of its purchasing power at some point in the future (as expressed by a noticeable rise in CPI or similar official index numbers). There is in principle nothing wrong with watching the growth rate of the money supply in order to get an idea whether a large future loss of the purchasing power of the money concerned can be expected, even though that is not necessarily the most pernicious effect of monetary inflation. That dubious distinction belongs to the fact that monetary inflation tends to distort relative prices in the economy. This distortion upsets economic calculation and leads to malinvestment of scarce capital, which is the central feature of the boom-bust cycle.

Mr. Macleod is however mainly interested in finding out what the dangers for money's objective exchange value, i.e., its overall purchasing power, are. For this purpose he has constructed yet another measure of the money supply, which he calls the 'Fiat Money Quantity', or FQM for short. He defines it as follows:

"The FMQ is comprised of the sum of cash and coin, plus all accessible deposits, plus our bank's deposits held at the central bank."

However, adding up these magnitudes makes actually no sense – the deposits held by banks at the central bank cannot be counted as part of the money supply. Although these bank reserves represent the cash assets of banks, they are mirrored by covered money substitutes in the form of deposit money on the liability side of bank balance sheets.

Imagine that a bank that has just run out of vault ca! sh is fac! ed with a withdrawal demand from a customer who wants to exchange his deposit money for currency. In that case, the bank would ask the Fed to transform part of its reserves into cash currency and then hand it over to the customer. Both the bank's reserves at the Fed and the customer's deposit at the bank would be drawn down by a similar amount, while currency in circulation would increase by the same amount as well. The commercial bank's balance sheet would shrink and so would bank reserves deposited at the Fed, but the amount of money in the economy would remain the same (incidentally, from the point of view of the Fed, merely the composition of its liabilities would be altered).

It should be noted here that in the US monetary system, for many years bank reserves have only been very loosely connected with the money supply. A decisive change took place when sweeps were introduced in the mid 1990s. These allow banks to sweep unused money held in demand deposits into so-called money market deposit accounts overnight. Once there, said money masquerades as savings deposits, which are not subject to reserve requirements. This is why it was possible for the money supply to expand markedly from the mid 1990s onward without bank reserves growing concurrently. Conversely, the massive rise in bank reserves due to 'QE' since the 2008 crisis has not led to a proportional expansion in money and credit (i.e., the type of expansion that would theoretically have been possible by applying the 'reserves multiplier').

Shadow Banking and Credit Expansion

This brings us to another article which we have become aware of due to a missive about the 'shadow banking' sector published at Zerohedge. It starts out by noting that there are complaints that the Fed's QE operations have deprived the so-called shadow banking system of 'high quality collateral'. However, this immediately raises the question: relative to when?

After all, the supply of federal debt has increased by roughly $8 trillion since 2008 when! QE was f! irst started (total federal debt has grown from about $9 trillion in 2008 to $17 trillion today. Due to the unresolved debt ceiling debate the official number has been 'stuck' at a level below $17 trillion for a while now, but it will immediately rise to that point once the new 'ceiling' has been negotiated).

As Ramsey Su has pointed out in these pages, the Fed is on track to buy up nearly all new issuance in the mortgage credit space this year, but even so there is a vast stock of outstanding agency debt of which the Fed holds only slightly over $60 billion these days. For all intents and purposes, agency debt is nearly equal to federal debt. Ginnie Mae's debt has always been federally guaranteed, while Fannie Mae and Freddie Mac debt is de facto federally guaranteed ever since these entities have entered 'conservatorship'. For an overview of the amounts involved see here.

(click to enlarge)

Even though the Fed has bought a large amount of existing treasury debt, even more new debt has been issued by the government - click to enlarge.

As a general comment on this: we do not believe that the shrinking of the shadow banking system's overall balance sheet has much to do with a lack of collateral. It has probably far more to do with new regulations regarding bank capital and leverage ratios, as well as the limits placed on the proprietary trading operations of banks. Since banks have for instance sharply reduced their inventory of corporate bonds and are no longer the active market makers they once were, there is less collateral traffic overall. Moreover, the crisis has bankrupted a number of banks and other players in the shadow banking industry, leading to a commensurate decline in the associated portfolios. Some of these portfolios contained inter alia large amounts of synthetic securities. Such synthetics like e.g. CDS contracts require the posting of acceptable collateral fo! r margin ! purposes.. Consider in this context that the CDS market on sovereign debt in the euro area has been virtually 'killed' by government fiat.

We would generally agree though that financial innovation leads to 'a lowering of the demand for money', 'financial deepening' and 'supports financial globalization', as the IMF's Manmohan Singh wrote with regard to the topic.

The article at Zerohedge is referencing an article by one Peter Stella, "Exit Path Implications for Collateral Chains". Although Mr. Stella is well informed regarding the technicalities surrounding QE, he comes to a number of conclusions that strike us as downright absurd.
At one point Mr. Stella implies that something is very different about money and credit creation in modern times as opposed to how it was done previously:

"When it comes to reducing excess reserves, the 'how' matters as much as the 'when' and 'how much'. Understanding this point requires mastery of the brave new world of shadow banks and re-hypothecation – a world that either did not exist or was truly in the shadows when most of us were taught about money and credit creation."

We can hereby reassure 'most of us' in at least one respect: the existence of the shadow banking system has not changed the process of money creation in the slightest. It has led to more intensive credit intermediation, especially credit intermediation directly connected to trading in financial markets (in a way it can be regarded as a symptom of the increasing financialization of the economy), but money is still created the same way as prior to the ascendance of the shadow banking system. Before we get to the details, let us look at a few more points Mr. Stella makes:

"If Rip Van Winkle awoke today after a five-year nap, he would see only one key development in the Fed's balance sheet – securities holdings higher by $2.9 trillion and deposits of depository institutions (banks) higher by $ 2.2 trillion.
If he asked how this happen! ed, Rip wo! uld be given a very simple answer.

The Fed bought securities to lower interest rates; it paid for them by creating bank reserves.

That is, the Fed credited the securities seller's commercial bank with a deposit at one of the 12 Federal Reserve Banks, and the commercial bank then credited the seller's account. On net, privately held securities were exchanged for Fed deposits.
If pressed further as to why banks are holding enormous reserves at the Fed, Rip would get an equally simple answer: Banks have no choice.

It is – for all intents and purposes – technically and legally impossible for a bank to transfer deposits at a Federal Reserve Bank to a nonbank.

Reserves in the US are defined to comprise bank deposits held at one of the 12 Federal Reserve Banks (plus qualifying vault cash).

Fed deposits may be transferred only to entities entitled to hold Fed accounts.

This is a key point when thinking about the various exit paths ahead. Fed deposits are not fungible outside the banking system, but Treasuries are.

(emphasis added)

Now, all of this is technically correct, except that the amount of money in the economy has actually increased by nearly twice as much (it appears to us that Stella errs with regard to the size of the money supply in 2008, judging from the accompanying chart; possibly because he double counts by including certain credit instruments).

Mr. Stella then writes:

"The stock of marketable, highly liquid, AA+ collateral fell by trillions (disappearing into the Fed's portfolio, i.e. System Open Market Account).
The stock of assets available only for interbank trade (bank reserve deposits at the Fed) rose by trillions."

(emphasis in original)

This is also technically correct, but once again, it is a big so what in light of the fact that the funded debt issued by the US treasury has likewise increased by trillions over the same stretch. Mr. Stella then implies that a 'lack of collateral' due to Q! E represe! nts an obstacle to credit creation by banks and non-banks alike. First of all, non-banks cannot create credit ex nihilo anyway – they can only act as credit intermediaries. Secondly, here is what this alleged 'lack of collateral' actually looks like in reality:

(click to enlarge)

Treasury and agency securities held by US commercial banks: up by more than 50% since 2008. What lack of collateral? - click to enlarge.

Banks have monetized a lot of treasury debt since 2008, mainly because private sector credit demand has waned (especially on the part of households; the same is not true for corporations) and because their own balance sheets are still hiding a lot of skeletons that they are currently not required to mark to market. Moreover, banks are no doubt mindful of the new regulations regarding capital requirements and bank leverage ratios that are being introduced.

Given that corporate bond issuance of every quality has also risen to a record high (by leaps and bounds), we ask again, where exactly is this shortage of collateral? As an aside, if one worries about a lack of credit growth one should occasionally consult the chart of total US credit market debt owed, which after a brief interruption in 2008/9 has soared to a new record high – at a pace far exceeding the growth in economic output:

(click to enlarge)

Total US credit market debt owed is currently at a new record high of $57 trillion - click to enlarge.

Mr. Stella is quite correct that the level of bank reserves represents neither a constraint to bank lending nor an inducement to increase bank lending (and that banks have no control over the level of reserves) – see also our comment on the extremely loose (de facto non-existent) connection bet! ween rese! rves and the money supply above. We have seen some writers complain that reserves are sitting idle and are not lent out by the banks, but this is simply nonsense. Mr. Stella rightly notes that reserves can only be lent and borrowed between banks in the interbank market.

As an aside to this, in China required reserves are actually a major component of the PBoC's monetary policy tool box (it uses them to regulate the extent of domestic monetary inflation that results from its foreign exchange rate manipulation and reserves accumulation), so the importance of reserves is not the same everywhere.

However, Stella's deliberations regarding bank reserves lead him down a theoretical garden path, as his following comment reveals. It seems to us that he comes to an absurd conclusion mainly as a result of conflating money and credit (hence the importance of properly defining money):

"There is a great irony in the journalistic history of monetary policy. What many are calling central bank "money creation" "helicopter money" or "rolling the printing presses" may – in combination with tighter leverage ratios – lead to a tightening of bank credit and deflationary pressures. And all this is occurring while the spectre of uncontrolled credit expansion and monetary debasement are being decried countless times by those who have not recognized that yesteryear's monetary paradigm is defunct."

(emphasis in original)

We thought we had heard everything, but this is the first time we have been informed that money printing might actually create deflation. It is no doubt true that tighter leverage ratios will have an impact on future bank credit creation. However, although bank credit expansion has almost screeched to a halt this year, the money supply has continued to inflate at a rapid pace. The broad true money supply TMS-2 is up more than $500 billion over the past year, 81% since 2008 (having risen from $5.3 trillion in early 2008 to about $9.5! trillion! today) and up around 230% since the year 2000, when it stood below $3 trillion. In recent months US money supply growth has actually begun to re-accelerate once again (as the quarterly annualized growth rate has increased relative to the year-on-year growth rate). The term deflation describes a shrinking, not a growing money supply.

(click to enlarge)

Broad US money supply TMS-2 since 2008: from $5.3 trillion to $9.5 trillion - click to enlarge.

How and Why the Money Supply Grows

Regardless of the existence of the 'shadow banking system' (i.e., various non-banks that are involved in credit intermediation), there are only two ways in which additional money can be created ex nihilo in a fractionally reserved fiat money system: either via credit expansion on the part of commercial banks, or directly by the central bank. Non-banks cannot create money. The process by which commercial banks create money is indeed linked to concomitant credit creation: only when banks make new loans are new demand deposits created from thin air.

However, as we have seen, money supply growth has continued at a vigorous pace, in spite of the fact that bank lending has actually nearly flat-lined so far in 2013:

(click to enlarge)

US Banks, total loans and leases – almost no growth in 2013 to date – click to enlarge.

So why has the money supply continued to grow and by what mechanism has it done so? The Fed buys securities from the so-called primary dealers. When the sellers of the securities are banks, only bank reserves are created and no addition to the money supply occurs. However, when a non-bank third party sells securities through a primary dealer to the Fed, then both additional bank reserves and an equal amount of additional deposit money are created! .

M! r. Stella himself mentions further above that the account of the seller is credited by the commercial bank, but apparently doesn't think the implications through any further. Deposit money created in this manner is a perfect money substitute – the only respect in which it differs from the bulk of deposit money commercial banks normally create by lending is that it is 100% covered by bank reserves.

QE therefore increases the money supply – and an increase of the money supply is the very definition of inflation.

Mr. Stella seems to imply that only the 'release of collateral' from the Fed's balance sheet will reignite the inflation of money and credit by the private sector. We believe that quite on the contrary, a cessation of QE by the Fed would strongly increase the probability of outright monetary deflation. He is certainly correct that more stringent capital requirements and tighter leverage ratios due to new banking regulations are likely to keep banks from expanding credit (for a while, anyway). Moreover, the household sector is still deleveraging, and even though this is more than outweighed by government and corporate debt growth, it represents a headwind with regard to credit demand.

The 'shadow banking' system may indeed, as Manmohan Singh has put it, serve to 'lubricate' the financial system with its vast collateral chains of re-hypothecated assets. A smooth functioning of this system likely does lower the demand for money. However, the decline of the collective balance sheet of the shadow banking system is a result of the crisis, not of QE or a 'lack of collateral'.

We would in fact argue that without QE, the process of system-wide deleveraging would already have progressed much further and a lot of unsound credit would have been purged from the system. Instead, the money supply has been massively inflated and new asset bubbles have been created in the process. Judging from recent events, the Fed is now in a box of its own making – it did not even dare ! to slight! ly reduce the pace of QE at its September meeting, in spite of widespread expectations that it would do so. The financial system as a whole appears extremely fragile and like a drug addict, has become dependent on continual monetary pumping. We certainly would agree with Mr. Stella that QE has done a lot of economic harm an continues to do so – but certainly not because it is an obstacle to inflation.

Charts by: Federal Reserve of Saint Louis Research

Source: Money Matters

Monday, September 23, 2013

Top Medical Stocks To Watch Right Now

Although business headlines still tout earnings numbers, many investors have moved past net earnings as a measure of a company's economic output. That's because earnings are very often less trustworthy than cash flow, since earnings are more open to manipulation based on dubious judgment calls.

Earnings' unreliability is one of the reasons Foolish investors often flip straight past the income statement to check the cash flow statement. In general, by taking a close look at the cash moving in and out of the business, you can better understand whether the last batch of earnings brought money into the company, or merely disguised a cash gusher with a pretty headline.

Calling all cash flows
When you are trying to buy the market's best stocks, it's worth checking up on your companies' free cash flow once a quarter or so, to see whether it bears any relationship to the net income in the headlines. That's what we do with this series. Today, we're checking in on Greenway Medical Technologies (NYSE: GWAY  ) , whose recent revenue and earnings are plotted below.

Top Medical Stocks To Watch Right Now: Terumo (TRUMY.PK)

TERUMO CORPORATION operates in four business segment. The Hospital Products segment is engaged in the manufacture, purchase and sale of hospital medical equipment, pharmaceuticals, peritoneal dialysis and diabetes related products, and the rental of hospital medical equipment and home medical products. The Cardiac and Vascular Area segment is involved in the manufacture, purchase and sale of catheter systems, artificial heart and lungs, as well as artificial blood vessels, the manufacture and sale of therapeutic coils for cerebral aneurysm, sampling equipment and kits for platelet-rich plasma and concentrated bone-marrow cell, and large-bore sheaths. The Blood System segment is engaged in the manufacture, purchase and sale of blood transfusion-related products. The Healthcare segment manufactures and sells healthcare related products. As of March 31, 2012, the Company had 79 subsidiaries and 2 associated companies.

Top Medical Stocks To Watch Right Now: Hemispherx Biopharma Inc (HEB)

Hemispherx Biopharma, Inc. (Hemispherx) is a specialty pharmaceutical company engaged in the clinical development of new drugs therapies based on natural immune system enhancing technologies for the treatment of viral and immune based chronic disorders. Hemispherx focuses on two core pharmaceutical technology platforms Ampligen and Alferon N Injection.The commercial focus for Ampligen includes application as a treatment for Chronic Fatigue Syndrome (CFS) and as an influenza vaccine enhancer (adjuvant) for both therapeutic and preventative vaccine development. Alferon N Injection is a United States Food and Drug Administration (FDA) approved product with an indication for refractory or recurring genital warts. Alferon LDO (Low Dose Oral) is a formulation under development targeting influenza. It has three subsidiaries BioPro Corp., BioAegean Corp., and Core BioTech Corp. The Company's foreign subsidiary is Hemispherx Biopharma Europe N.V./S.A.

Ampligen

Ampligen is an experimental drug, which is undergoing clinical development for the treatment of Myalgic Encephalomyelitis/Chronic Fatigue Syndrome (ME/CFS). Over 1,000 patients have participated in the Ampligen clinical trials representing the administration of more than 90,000 doses of this drug. The Company is also engaged in ongoing, experimental studies assessing the efficacy of Ampligen against influenza viruses.

Alferon N Injection

Alferon N Injection is the registered trademark for the Company's injectable formulation of natural alpha interferon. Interferons are a group of proteins produced and secreted by cells to combat diseases. The Company's natural alpha interferon is produced from human white blood cells. Alferon N Injection [Interferon alfa-n3 (human leukocyte derived)] is a highly purified, natural-source, glycosylated, multi-species alpha interferon product.

Alferon LDO (Low Dose Oral)

Alferon LDO [Low Dose Oral Interferon Alfa-n3 (Human Leukocyte Derived)]! is an experimental low-dose, oral liquid formulation of Natural Alpha Interferon and like Alferon N Injection should not cause antibody formation, which is a problem with recombinant interferon. It is an experimental immunotherapeutic that works by stimulating an immune cascade response in the cells of the mouth and throat, enabling it to bolster systemic immune response through the entire body by absorption through the oral mucosa.

The Company competes with Pfizer, GlaxoSmithKline, Merck, AstraZeneca, Baxter International, Fletcher/CSI, AVANT Immunotherapeutics, AVI BioPharma and Genta.

Top Stocks To Invest In: Dyadic International Inc (DYAI)

Dyadic International, Inc. (Dyadic), incorporated in September 2002, is a holding company. The Company is a global biotechnology company. The Company has operations at the United States and the Netherlands. Dyadic uses its technologies to conduct research and development (R&D) and commercial activities for the discovery, development, manufacture and sale of enzymes and proteins for the bioenergy, industrial enzyme, and biopharmaceutical industries. The Company derives all of its revenues from the licensing of its technologies, the sale of its enzymes and conducting research and development (R&D) activities for third parties. The Company operates in two segments: the United States operations and The Netherlands operations. The United States segment includes a subsidiary in Poland.

The United States operating segment is a developer, manufacturer and distributor of enzyme products, proteins, peptides and other bio-molecules derived from genes and a collaborative licensor of enabling technologies for the development and manufacturing of biological products and use in R&D. The Netherlands operating segment is also a researcher and developer of enzyme products, proteins, peptides and other bio-molecules derived from genes and, to date, has mainly invested in R&D activities.

Dyadic�� R&D activities focus on its fungal strains and associated technologies. Dyadic uses its Trichoderma and C1 fungal strains in the production of its industrial enzymes. Dyadic manufactures and sells liquid and dry enzyme products to global customers for use within the animal feed, pulp and paper, starch and alcohol, food and brewing, textiles, and biofuels industries.

Dyadic also utilizes a technology platform based on its patented and C1 fungus (the C1 Platform Technology), which enables the development and manufacture of proteins and enzymes for diverse market opportunities. The C1 Platform Technology can also be used to screen for the discovery of novel genes and proteins. The C1 Platf! orm Technology also has the potential of developing and producing other biological products such as antibodies, vaccines, proteins and polypeptides for the biopharmaceutical industry.

Top Medical Stocks To Watch Right Now: NeoStem Inc (NBS)

NeoStem, Inc., incorporated on September 18, 1980, operates in cellular therapy industry. Cellular therapy addresses the process by which new cells are introduced into a tissue to prevent or treat disease, or regenerate damaged or aged tissue, and consists of a separate therapeutic technology platform in addition to pharmaceuticals, biologics and medical devices. The Company�� business model includes the development of novel cell therapy products, as well as operating a contract development and manufacturing organization (CDMO) providing services to others in the regenerative medicine industry. Progenitor Cell Therapy, LLC, the Company�� wholly owned subsidiary (PCT), is a CDMO in the cellular therapy industry. PCT has provided pre-clinical and clinical current Good Manufacturing Practice (cGMP) development and manufacturing services to over 100 clients advancing regenerative medicine product candidates through rigorous quality standards all the way through to human testing.

PCT has two cGMP, cell therapy research, development, and manufacturing facilities in New Jersey and California, serving the cell therapy community with integrated and regulatory compliant distribution capabilities. Its core competencies in the cellular therapy industry include manufacturing of cell therapy-based products, product and process development, cell and tissue processing, regulatory support, storage, distribution and delivery and consulting services. The Company�� wholly-owned subsidiary, Amorcyte, LLC (Amorcyte) is developing its own cell therapy, AMR-001, for the treatment of cardiovascular disease. AMR-001 represents its clinically advanced therapeutic product candidate and enrollment for its Phase II PreSERVE clinical trial to investigate AMR-001's safety and efficacy in preserving heart function after a heart attack in a particular type of post Acute Myocardial Infarction (AMI) patients.

Through the Company�� subsidiary, Athelos Corporation (Athelos), the Company is collaborating w! ith Becton-Dickinson in early stage clinical development of a therapy utilizing T-cells, collaborating for autoimmune and inflammatory conditions, including but not limited to, graft vs. host disease, type 1 diabetes, steroid resistant asthma, lupus, multiple sclerosis and solid organ transplant rejection. The Company�� pre-clinical assets include its Very Small Embryonic Like (VSEL) Technology platform. The Company has basic research and development capabilities, manufacturing facilities on both the east and west coast of the United States.

Top Medical Stocks To Watch Right Now: RXi Pharmaceuticals Corp (RXII.PK)

RXi Pharmaceuticals Corporation (RXi), incorporated on September 8, 2011, is a development-stage company. The Company is a biotechnology company focused on discovering, developing and commercializing therapies addressing medical needs using RNA interference (RNAi)-targeted technologies. As of July 12, 2012, RXi was focusing on its internal therapeutic development efforts in fibrosis. RXI-109 is its RNAi product candidate, which is a dermal anti-scarring therapy that targets connective tissue growth factor (CTGF). The Company�� therapeutic platform consists of two main components: RNAi Compounds (rxRNA) and Advanced Delivery Technologies. RNAi compounds include rxRNAori, rxRNAsolo and sd-rxRNA, or self-delivering RNA. On April 26, 2012, it completed the spin-off transaction from Galena Biopharma, Inc. (Galena).

In January 2011, the Company announced research results in collaboration with Generex Biotechnology Corporation, and RXi�� wholly owned subsidia ry Antigen Express, Inc., in developing vaccine formulations for immunotherapy. In January 2011, it announced initial results as part of its collaboration with miRagen Therapeutics, Inc. in creating microRNA mimics, or artificial copies of microRNAs, using the Company�� sd-rxRNA technology. In February 2011, it announced the initiation of RXi�� development program for RXI-109.

Top Medical Stocks To Watch Right Now: Cerus Corporation(CERS)

Cerus Corporation, a biomedical products company, engages in the development and commercialization of the INTERCEPT Blood System. The company?s INTERCEPT system is designed to inactivate blood-borne pathogens in donated blood components intended for transfusion. It markets the INTERCEPT system for platelets and plasma primarily in Europe, the Russian Federation, and the Middle East. The company is also developing INTERCEPT Blood System for red blood cells or red blood cell system, which is designed to inactivate blood-borne pathogens in donated red blood cells for transfusion. Cerus Corporation has collaboration agreements with Baxter International, Inc.; and BioOne Corporation, as well as the United States Armed Forces. The company was founded in 1991 and is based in Concord, California.

Sunday, September 22, 2013

Top 10 Casino Stocks To Buy For 2014

WikiMedia Commons.

The 2002 book Bringing Down the House told the true story of how six MIT math geniuses mastered blackjack card counting and took Las Vegas for millions. It had money, sex, drugs, and power. People loved it.

But part of the story often went misunderstood. The card-counters didn't win every hand of blackjack, or anything close to it. The casino normally has a slight edge over players. The MIT crew's strategy tipped those odds just barely in their favor. That meant they still lost a lot of bets. "Even the most complex systems seemed to aim at an overall edge of around 2 percent," author Ben Mezrich wrote.

But that tiny edge was all the crew needed to succeed, provided they played long enough.�When the odds are even slightly in your favor, you will win over time,�even if you lose often in between.�

Top 10 Casino Stocks To Buy For 2014: Penn National Gaming Inc.(PENN)

Penn National Gaming, Inc. and its subsidiaries own and manage gaming and pari-mutuel properties in the United States. It operates approximately 27,000 gaming machines; 500 table games; and 2,000 hotel rooms in 23 facilities in 16 jurisdictions, including Colorado, Florida, Illinois, Indiana, Iowa, Louisiana, Maine, Maryland, Mississippi, Missouri, New Jersey, New Mexico, Ohio, Pennsylvania, West Virginia, and Ontario. The company was formerly known as PNRC Corp. and changed its name to Penn National Gaming, Inc. in 1994. Penn National Gaming, Inc. was founded in 1982 and is based in Wyomissing, Pennsylvania.

Top 10 Casino Stocks To Buy For 2014: Pinnacle Entertainment Inc.(PNK)

Pinnacle Entertainment, Inc. owns, develops, and operates casinos, and related hospitality and entertainment facilities in the United States. It operates casinos, such as L'Auberge du Lac in Lake Charles, Louisiana; River City Casino and Lumiere Place in St. Louis, Missouri; Boomtown New Orleans in New Orleans, Louisiana; Belterra Casino Resort in Vevay, Indiana; Boomtown Bossier City in Bossier City, Louisiana; and Boomtown Reno in Reno, Nevada. The company also operates River Downs racetrack in southeast Cincinnati, Ohio. As of May 26, 2011, it operated seven casinos and one racetrack. The company was formerly known as Hollywood Park, Inc. and changed its name to Pinnacle Entertainment, Inc. in February 2000. Pinnacle Entertainment, Inc. was founded in 1935 and is based in Las Vegas, Nevada.

Best Blue Chip Companies For 2014: MGM Resorts International(MGM)

MGM Resorts International, through its subsidiaries, primarily owns and operates casino resorts in the United States. The company?s resorts offer gaming, hotel, dining, entertainment, retail, and other resort amenities. It also owns and operates golf courses and a golf club. As of December 31, 2010, the company owned and operated 15 properties located in Nevada, Mississippi, and Michigan; and has 50% investments in 4 other casino resorts in Nevada, Illinois, and Macau. In addition, MGM Resorts International has an agreement with the Mashantucket Pequot Tribal Nation, which owns and operates a casino resort in Connecticut, to carry the ?MGM Grand? brand name. The company was formerly known as MGM MIRAGE and changed its name to MGM Resorts International in June 2010. MGM Resorts International was founded in 1986 and is based in Las Vegas, Nevada.

Advisors' Opinion:
  • [By Lisa Abramowicz]

    ��t�� allowed companies such as ourselves to continue to access the capital markets,��Dan D��rrigo, the executive vice president and chief financial officer of Las Vegas-based casino company MGM Resorts International (MGM), said in a Sept. 17 telephone interview. During the crisis, ��e still had access but at much more costly rates to our company,��he said.

Top 10 Casino Stocks To Buy For 2014: (XTRN)

Las Vegas Railway Express Inc. focuses to re-establish a conventional passenger train service between the Las Vegas and Los Angeles metropolitan areas. It plans to establish a ?Vegas-style? passenger train service. The company is based in Las Vegas, Nevada.

Top 10 Casino Stocks To Buy For 2014: Boyd Gaming Corporation(BYD)

Boyd Gaming Corporation, together with its subsidiaries, operates as a multi-jurisdictional gaming company in the United States. As of December 31, 2011, the company owned and operated 1,042,787 square feet of casino space, containing approximately 25,973 slot machines, 655 table games, and 11,418 hotel rooms. It also owned and operated 16 gaming entertainment properties located in Nevada, Illinois, Louisiana, Mississippi, Indiana, and New Jersey. In addition, the company owns and operates a pari-mutuel jai-alai facility located in Dania Beach, Florida, as well as a travel agency in Hawaii. Further, it holds a 50% controlling interest in the limited liability company that operates Borgata Hotel Casino and Spa in Atlantic City, New Jersey. Boyd Gaming Corporation was founded in 1988 and is headquartered in Las Vegas, Nevada.

Advisors' Opinion:
  • [By Roberto Pedone]

    One gaming player that's rapidly moving within range of triggering a big breakout trade is Boyd Gaming (BYD), which owns and operates gaming entertainment facilities located in Nevada, Mississippi, Illinois, Louisiana and Indiana. This stock has been blazing a trail to the upside so far in 2013, with shares up sharply by 115%.

    If you look at the chart for Boyd Gaming, you'll notice that this stock has been uptrending strong over the last month and change, with shares moving sharply higher from its low of $11.27 to its intraday high of $14.38 a share. During that move, shares of BYD have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of BYD into breakout territory above resistance at $13.79 a share, and it's quickly pushing the stock within range of another big breakout trade.

    Traders should now look for long-biased trades in BYD if it manages to break out above its 52-week high at $14.50 a share with high volume. Look for a sustained move or close above that level with volume that hits near or above its three-month average action of 2.34 million shares. If that breakout triggers soon, then BYD will set up to enter new 52-week-high territory, which is bullish technical price action. Some possible upside targets off that move are $18 to $20 a share.

    Traders can look to buy BYD off any weakness to anticipate that breakout and simply use a stop that sits right below some near-term support at $13 a share. One can also buy BYD off strength once it takes out $14.50 a share with volume and then simply use a stop that sits a comfortable percentage from your entry point.

Top 10 Casino Stocks To Buy For 2014: Wynn Resorts Limited(WYNN)

Wynn Resorts, Limited, together with its subsidiaries, engages in the development, ownership, and operation of destination casino resorts. The company owns and operates Wynn Las Vegas casino resort in Las Vegas, which includes approximately 22 food and beverage outlets comprising 5 dining restaurants; 2 nightclubs; 1 spa and salon; 1 Ferrari and Maserati automobile dealership; wedding chapels; an 18-hole golf course; meeting space; and foot retail promenade featuring boutiques. Wynn Las Vegas casino resort also features approximately 147 table games, 1 baccarat salon, private VIP gaming rooms, 1 poker room, 1,842 slot machines, and 1 race and sports book. It also owns and operates an Encore at Wynn Las Vegas resort, a destination casino resort located adjacent to Wynn Las Vegas that features a 2,034 all-suite hotel, as well as a casino with 95 table games, 1 sky casino, 1 baccarat salon, private VIP gaming rooms, and 778 slot machines. In addition, the company operates Wyn n Macau casino resort located in the Macau Special Administrative Region of the People?s Republic of China. Wynn Macau casino resort features approximately 595 hotel rooms and suites, 410 table games, 935 slot machines, 1 poker room, 1 sky casino, 6 restaurants, 1 spa and salon, lounges, meeting facilities, and retail space featuring boutiques. Further, it operates Encore at Wynn Macau resort located adjacent to Wynn Macau. Encore at Wynn Macau resort features approximately 410 luxury suites and 4 villas, as well as casino gaming space, including a sky casino consisting of 60 table games and 80 slot machines, 2 restaurants, 1 luxury spa, and retail space. The company was founded in 2002 and is based in Las Vegas, Nevada.