Biotech Buyouts

They say March comes in like a lion and goes out like a lamb. We’ll see about that. March started with a strong rally that’s added +50 points, or 4.4% to the S&P 500. That’s as good a monthly performance as you’ll find. Perhaps too good…   

 

Stocks have come so far, some are now wondering, what’s left? And after today’s ADP Employer Services employment report showed that private companies cut payrolls by 23,000 in March. That’s a far cry from the gain of 40,000 economists were expecting from this report. And it raises the fear that Friday’s release of the Labor Department’s Nonfarm Payroll report will come in far short of the expected 190,000 jobs growth.  

 

Of course, the government’s report will include census workers, so it’s likely to better than the ADP report. But still, the market is left waiting for jobs growth. 

Two Words and Two Charts That Can Make You Rich

When you have a trend that
continually manifests itself over a period of many years, in many different
markets, you can make low-risk investments when that trend is outside of its
normal range. There are about as many
mean-reversion trends as there are commodities, and I’ll examine many of them
as they become relevant, but for now, I’m going to focus on one of the easiest
to understand and potentially most profitable.

I’m talking about the
gold-silver ratio. The modern mean (ever
since the 1870s when the U.S.
government de-monetized silver and went to the gold standard) has been a ratio
of 55.

So, in modern history, it’s
taken 55 ounces of silver to buy one ounce of gold. Before that, the ratio was much lower – in the
16 range. That’s much closer to the
ratio of silver to gold in the earth’s crust – and as I’ll discuss in a minute,
it could revert to that ratio again.

The Two Kinds of Gold Investments

If you want to get rich from gold, the physical
bars and coins won’t ever do that for you. Physical gold is great as a store of value. That’s all. The best we can realistically hope for is that it will stay one step
ahead of inflation, and protect our principle. Physical gold has never, ever paid a dividend. There’s no compound interest. No cash-flow.

If you want to get rich, you have to stick your neck out a
little and buy stock in small gold companies. It’s said that only one gold venture in a thousand will ever get any
gold out of the ground – so it’s vitally important to buy the best of
breed. A junior gold company that can
actually mine gold and bring it to market can multiply gold’s gains many times
over.

Unfortunately, most junior gold companies go belly
up. And even worse: most of the
geologists and marketers in the junior gold business are glorified con-artists. They might not have any gold at all, but they
hope they can bump up the share price and sell their shares for a huge
payday. Or they’ll hope to cherry pick
some drilling results and sell their stake to a bigger mining outfit before
anyone’s the wiser. Mark Twain famously
said, “A gold mine is a hole in the ground with a liar standing next to it.”

Greece’s Debt Faux Pas

This morning, I find myself wondering how long investors can continue to support cash raising activities. That’s probably not the best way to pose the question. Perhaps after I set the stage, the question will make more sense. 

Yesterday, Greece started selling 7-year bonds to raise cash to cover its debt issues. The yield was to be 6%. But then, Greece got greedy and tried to drop some 12-year notes on the market.  

 

Now, Greece was warned not to try and add supply to its offering because the market wasn’t ready for it. So I don’t know what Greece was thinking when it decided to ignore this advice and float the 12-year notes. But Greece will pay the price. Nobody wanted the 12-year notes. Investors only bought about half of what was offered. That drove the yield on the 7-year notes to 6.3%. 

The GamePlan, II

Friday was a repeat of Thursday. Stocks made a nice move higher in the morning and then lost in the afternoon. This type of intra-day reversal often opens the door to the sellers to take stocks significantly lower. But that didn’t happen.   

 

Instead, we just saw the S&P 500 test the 1,165 support/resistance point two more times. This action suggests the rally still has some upside potential, even though it’s moved in practically a straight line since early February.   

 

Now that all parties appear to have agreed upon an aid package for Greece, it will start raising the $71 billion it needs to get through the year. Greece is selling 7-year notes at 6% interest.

Profit from the Oil Crack Spread

Today, I’m going to discuss one of the most elemental ways
that “they” hedge their bets, and how you can use it in your own portfolio to
profit every time.
First, there are a few important facts you should know about
crude oil and the petroleum products we get from it.
You might notice that spikes and dips at the gas pump
don’t necessarily track exactly with spikes and dips in the price of crude
oil. That’s because only half of all
crude oil gets turned into gasoline. The
other primary products are diesel fuel, jet fuel and heating oil.
As you might imagine, demand for different petroleum products
fluctuates seasonally. Heating oil
prices rise in the winter. You might
think that the southern hemisphere’s “winter” would even out the fluctuations,
but the northern hemisphere has 90% of the world’s population – so it’s the
northern winter that drives heating oil prices.

Oil is a Coiled Spring

Stocks were following the game plan nicely yesterday. The dollar was down against the euro, and stocks and commodities were rallying nicely.  

 

It all fell apart when European Central Bank president Jean-Claude Trichet called the inclusion of the IMF in the Greek bailout plan “very bad.”   

 

I see his point – this was a great opportunity for Europe to come together and handle the Greek debt matter in-house. Of course, we know Germany was resisting. And in the end, Germany got its way. 

Germany and the euro

The S&P 500 moved back down for retest of 1,165 support/resistance point yesterday. That important level held, but it’s interesting to see what lead to the retest.   

 

Basically, yesterday’s decline was the result of currency values. The U.S. dollar rose against the euro as more signs of dissension in the European Union add uncertainty to the future of the euro.  

 

The root cause of the dissension, the ongoing debt issues in Greece and now in Portugal, is somewhat irrelevant. Greece will get the bailout loans it needs. And whether they come cheaply from the IMF or a bit more expensive from the EU central bank, they will come.   

 

The overriding issue is that Germany is demanding IMF involvement. Other European countries see this as an internal matter for the EU to solve. From that perspective, we can see the Greek debt solution as a chance for the EU to demonstrate its cohesion.  

 

And Germany is throwing a monkey wrench into the whole thing. 

50% Off

That was quite a show Maguire Properties (NYSE:MPG) put on yesterday after it reported 4th quarter earnings. It opened down, around $2.50 a share, and then marched steadily higher for the rest of the day to close at $3.54.   

 

Maguire’s cash reserves are rising after it walked away from a few underwater properties and sold a couple others. Investors seem to be saying the stock is on more solid ground now – volume was monstrous.  

 

While I’d love for Daily Profit readers to have participated in yesterday’s gains, I stand by my recommendation to take your profits on the stock before earnings. Earnings are a big uncertainty. Maguire could just as easily have dropped yesterday. There’s always risk when investing, and perhaps more so with a stock like Maguire. It would have been irresponsible of me not to have you take profits before earnings. 

Health Bill Profit Opportunity

Yesterday morning was the bears’ big chance. Futures were down, resistance at S&P 500 1,165 had held and there was a steady stream of seemingly negative news. Greece was still a question mark, trade relations between the U.S. and China was getting tense, and the controversial health care bill had just passed. There was enough uncertainty in the air to drive the S&P 500 to an early test of support at 1,150.   

 

That was the moment. 1,150. And the sellers couldn’t take it lower. In fact, the bulls took control and pushed the S&P 500 back above 1,165. As I wrote last week, there is very little resistance between 1,165 and 1,200. I think the odds are good that we see S&P 500 1,200 in the near future.   

 

Now, I want to switch gears and discuss the Nasdaq a little, because it’s been outperforming the other major indices by a wide margin. The S&P 500 is up 2.8% for the year. The Nasdaq, on the other hand, is up 4.3%.