Tag - George Soros

So far this year, the S&P 500 has dropped 3% or more in one session 3 different times. The two previous times, it clawed back some of the losses over the following week. We’ll have to wait and see of there is any upside after yesterday’s big drop.   

The S&P 500 is now testing the lows from the “flash crash” on May 6. This is interesting because it was assumed that trading that day was something of a fluke as computer trading programs went haywire. But now that stocks are back to those levels, we must consider that the drop may not have been a fluke.  

The question now is: can stocks find some strength? Or perhaps a better way to ask the question is: are the sellers done?   

Investors have sold stocks, euros, oil, commodities, even gold. And where investors are selling assets, there is also a portion of the market that is selling assets short: that is, they are buying what they do not own and selling in order to profit by buying the borrowed assets back at lower prices.  

Of course, that buying is known as “short-covering.” I think it’s safe to say that short-covering is responsible for the strength in the euro we’re seeing today. And there will come a time soon, where stocks rally as short positions are covered.   

It’s reasonable to ask why any trader might cover a euro short. After all, there aren’t many traders who will say that the euro has any upside. It would seem that covering a euro short would simply be giving away potential profits.   

But there’s more to it than that. The euro trade is very one-sided right now. And any trader or investor should know that one-sided trades are dangerous. It’s analogous to all the passengers on a boat rushing to one side at once, and the boat tipping over. 

When you’re short a currency, there’s really one thing you fear: central bank intervention. Central banks often have a lot of ready cash, and can enter the currency market and buy their own currency to support its value.    

Intervention is a dangerous game for all involved. A trader can sustain heavy losses fighting a central bank’s actions. On the other hand, if a central bank’s intervention is perceived as weak, it can be overwhelmed by sellers. George Soros once famously beat the UK central bank and made $1 billion in a day.   

Reuter’s is reporting that Eurogroup Chairman Jean-Claude Juncker said “…he did not see the need to take immediate action on the euro's decline…”  

Yes, this is the same guy who said the markets were acting irrationally yesterday.   

Such a statement isn’t likely to instill much fear of intervention in the euro bears. And it probably reflects another important question: can the EU afford to defend its currency?   

While we’re at it, let’s ask: can the EU afford NOT to defend its currency?  

It’s clear we are getting to a critical point in the ongoing EU saga. It seems that investors are wondering if we are seeing the end of Europe as we know it. It reminds me of when investors were wondering if we were seeing the end of America as we know it during the financial crisis of 2008.   

In the past, I’ve discussed how relentless market declines take on the flavor of a “global margin call”, where assets have to be sold to raise cash to offset other obligations.   

I’d say there’s no doubt that a “global margin call” is part of the reason we’ve seen such steep declines. In the current low interest rate environment, many traders have entered into “carry trades.” They borrow at a low rate, and then invest in an asset that will give them a higher return.   

Japan has openly supported the yen carry trade for years. You can borrow yen at virtually 0% and then buy something like oil, or stocks or even Treasuries and make money.   

But when the yen rallies, suddenly the yen carry trade becomes less profitable, or even a losing position. And if the asset you’ve bought as the other side of your carry trade falls in value, well, hello margin call.   

I understand that “slower growth” angle of lower oil prices. But I’m sure some of oil’s decline, and the yen’s strength, is being cause by the unwinding of carry trades.  

TradeMaster Daily Stock Alerts Jason Cimpl advised his readers to cover a few short positions yesterday. They made money on downside moves from Microsoft (Nasdaq:MSFT) and Baidu (Nasdaq:BIDU).   

Jason is also advising his readers that there should be some upside for U.S. stocks coming over the next couple of sessions. Be he also cautions that we are not in a bull trend anymore.   

I have scheduled a special video investment conference to discuss the current market situation and advise readers how they can use the current volatility to add top companies to their portfolios at attractive prices.   

The Profiting from Crisis in Europe video conference is free to attend, and will air on Thursday June 4, at 6 pm.   

You can sign up for this critical event HERE. 

Somebody knows what do about the U.S. dollar rally we've seen lately.

A recent regulatory filing with the SEC on February 16 shows that George Soros' Soros Fund Management has doubled its holdings in the SPDR Gold Trust (NYSE:GLD). Soros is now the 4th biggest investor in GLD. John Paulson's hedge fund, Paulson & Co. owns the most GLD, with 31.5 million shares.

I discussed Soros gold investment in a recent Daily Profit. Soros believes gold is likely to become a "bubble asset." Low interest rates and concerns about the global economic recovery would be the driving catalysts. But as we know, bubbles occur when buying begets buying.

Gold is currently trading around $1,095 an ounce. Price estimates from Goldman Sachs and HSBC call for gold prices to rise to the $1,235 to $1,300 range. But I think Soros' position suggests he thinks it could rise even higher than that.

And that's the thing about bubbles. Once they start, it's hard to say how high prices can run.

Now, as you know, I'm usually a fundamental investor. I like to buy reasonably valued companies that are taking advantage of important economic or consumer related trends. At the same time, I believe gold should be part of any portfolio, especially now.

As you can see from this U.S. Dollar Index chart, the dollar has put in an impressive rally. Much of the reason for this has to do with weakness in the euro due to debt problems with Greece. (We can include potential problems with Spain, Ireland and Portugal as well.)

At some point in the not too distant future, the U.S. dollar will weaken. And that's going to send gold, and other commodities higher. Potentially much higher. Gold alone could easily move 20% higher. And that will mean significant price movement for gold mining stocks.

Last week, we saw blowout earnings from Newmont Mining (NYSE:NEM). The company reported $1.14 in per share earnings, when analysts were expecting $0.79 a share. It's clear that analysts are underestimating how much money gold miners are making with gold at its current price. When gold prices move higher, earnings for gold mining companies are going to go through the roof.

I've uncovered a gold mining stock that trades for $3.35 a share that could be one of the cheapest gold mining stocks on the planet. At $3.35 a share, the company's gold is being valued at approximately $250 an ounce. That's quite a discount!

Earnings are expected to be $0.12 a share for fiscal 2010. That gives this company a P/E of 14. But here's the thing – given the current price of gold, and the potential for a significant move higher for gold prices, the earnings estimates for this gold mining stock are ridiculously low.

That $0.12 a share estimate is more likely to be around $0.20 a share. That suggests the stock should move 66% just to be fairly valued. And if a bubble for gold prices starts like Soros and others expect, this stock will do even better. For more on this undervalued gold stock, click HERE.

The next catalyst for the U.S. dollar could come any day. Already, stocks are moving higher in anticipation of a bailout package for Greece. A bailout could come at any time. And that will send the euro higher and the U.S. dollar lower.

I expect gold prices to move quickly once the U.S. dollar starts selling off. Now is the time to add exposure to gold.

It was just last Thursday that we discussed "talking one's book" and made special mention of George Soros. If you missed that issue of The Daily Profit, talking one's book means advocating a belief in public that supports one's trading position, regardless of whether you actually believe it's true.

So it's interesting that Soros has a piece in today's Financial Times where he states that "The survival of Greece would still leave the future of the euro in question." He goes on to say that the aid package for Greece won't work for Spain, Italy, Portugal or Ireland.

Now, if we check the chart we can see that the U.S. dollar has been rallying. Part of the reason for this has been weakness of the euro due to debt problems in European countries.

The recent spike higher by the dollar was a response to the Fed's discount rate hike. And quite frankly, it looks unsustainable. I think we can assume that Soros is short the euro, and he may even be trying to cover that short right now, in anticipation of a rally for the euro.

Of course, a rally for the euro would send the U.S. dollar lower. That, in turn, will be good for U.S. stocks, gold, and oil.

Of course, subscribers of TradeMaster Daily Stock Alerts' We prepared for this move in the dollar after Jason Cimpl said the currency bottomed on December 4th.

Jason's accurate market forecasts have put his readers in position for a sweet string of profits in February. They've banked 19.5%, 15.5%, 7.2%, 6.5%, 6%, 5.4% and 4.5% and only taken one loss, a measly -1.3%. Nice work, Jason.

The Coal Rally

Bloomberg reports that coal prices will average $59.28 a ton in 2010, a 17% increase over the average price for 2009. Much of the reason for this gain is China's voracious appetite for coal. In 2009, the country imported 130 million tones, 300% more coal than it did in 2008.

So it's no wonder that coal stocks have been rallying. But nothing beats the 47% move over the last week by the Chinese coal stock I recently recommended to Energy World Profits readers.

I've got a $14 target for the stock, which would mean another 90% gain. For more click HERE.

Finally, I want to mention the commercial real estate company Maguire Properties (NYSE: MPG). As you know, I've been watching this stock as a contrarian play on the commercial real estate sector.

I recommended it back in October and Daily Profit readers were treated to some nice gains (one reader wrote to say he doubled his money). I recommended the stock again when it hit $1.50 a few weeks ago. After a decent move, it dropped back to $1.50, where it has languished for two weeks. I'm starting to get nervous...

You see, $1.50 is a strong support level for the stock. But there's been some positive news for commercial real estate lately, and Maguire hasn't budged. That's not a good sign.

I'm not panicking, but Maguire needs to move higher, and soon. I'll keep you posted...

You've heard me call out big-name investors who are "talking their book" in the past. An investors is "talking his or her book" when he/she states an opinion as fact for the sole purpose of helping a particular trade.

We've seen Warren Buffett do this. Last year, it was widely known that he was massively short the U.S. dollar. And he continued to say he thought the dollar was collapsing, even as it hit important support. Then we learned later that Buffett was covering his dollar short, all the while extolling its weakness.

Obviously, Buffett, in true P.T. Barnum fashion, was attempting to use his influence to talk the dollar down while he covered. He only needed to fool people for a short time as he exited the trade.

Last month at the Davos conference in Switzerland, George Soros did his version of talking his book. He made headlines when he said "The ultimate asset bubble is gold."

I always view statements like these with skepticism. And sure, recent SEC filings reveal that at the same time Soros was saying gold was a bubble, his Soros Fund Management was buying 6.2 million shares of the SPDR Gold Trust ETF (NYSE: GLD) for $663 million.

Looking at this 6 month chart of GLD, it's a reasonable guess that Soros was buying between $105 and $110 in December (you may need to zoom in on the chart in order to see all the information). Gold is on the verge of breaking above that range now.

It would be easy to think that Soros was simply pulling a fast one on unsuspecting investors. But this is a case where it pays to know a little more about the man and his methods. Here is a Soros quote from the early '90s:

"Economic history is a never-ending series of episodes based on falsehoods and lies, not truths. It represents the path to big money. The object is to recognize the trend whose premise is false, ride that trend, and step off before it is discredited."

I love that quote, even though it's a bit cynical and perhaps depressing. But what he is saying should be a revelation to any investor, because it requires the investor to maintain a sense of skepticism.

I also want to emphasize that companies do make money, they grow, and their stock prices will reflect this. In other words, there are fundamental reasons for stocks to move. But Soros is talking about making the big money.

As late as 2007, Soros was calling the housing boom a bubble. I also think we can assume he made a lot of money during the housing bubble in the sectors that were supporting the housing bubble, like commodities. And there's no doubt he was well-positioned when the bubble burst.

The Cheapest Gold Stock?

So what do we do with the information that he's now buying gold explicitly because gold is bubble fodder? We assume that he sees the potential for a big move in gold. Gold moves for two reasons: a weak U.S. dollar and inflation fears.

Given the Fed's desire to keep interest rates low, we can imagine that inflation could become an issue. And U.S. dollar weakness is also not outside the realm of possibility.

Soros isn't the only one moving into gold. Hedge fund manager Henry Paulson and even China have been buying gold. It may be a good time to take a position.

SmallCapInvestor PRO members are holding a $3.50 gold mining stock that's so cheap it's like buying gold at $120 an ounce. For more on this stock, click HERE.

20% in Two Days

On Tuesday morning, TradeMaster Daily Stock Alerts' Jason Cimpl told his readers to buy Netlist (Nasdaq: NLST) at $3.58 share. They sold it yesterday at $4.29 for a sweet 20% gain in less than 2 days.

For today, Jason is looking for two things from the stock market:

First, I want to see late day buying. This means that pull-backs are being bought and prices are likely to move higher.

Second (and more important) selling volume has to be low. Heavy volume selling is not a strong signal that the market is preparing to make higher highs, the opposite is then true for selling with low volume. If we do not get a pull-back today, then I'm looking for technology to show leadership on increasing volume - this will show me that this week's rally has legs.

And I'm sure that will mean more trading gains for his readers.