Tim Iacono

The Commerce Department reported(.pdf) that housing starts fell 0.3 percent in October to an annual rate of 628,000 units and permits for new construction (a key leading indicator for the industry)  jumped 10.9 percent to a rate of 653,000, however, as shown below, residential construction remains in a deep funk, current levels of home building now about one-third of what would be considered “typical” for the U.S. housing market (that is, if anyone remembers what “typical” is in this post housing bubble environment).

I wouldn’t be surprised if the 2009-2011 “flatline” shown above is extended for another few years or more. Home builders are now building about one million fewer homes per year than was their pre-housing bubble norm and there are probably about a million foreclosures per year set to hit the resale market and this should extend at least a few more years.

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By Marin Katusa, Casey Energy Opportunities

Let’s begin by positioning the sector. Investing in a pipeline company is similar to investing in a utility: Like electricity providers, pipeline companies operate in heavily regulated environments, and once they are up and running, pipeline operators enjoy stable cash flows from long-term contracts.

In an economy where uncertainty is the new norm and speculation is a more dangerous game than usual, investors are gravitating toward income-generating investments. However, it’s not only the current economy that’s pushing investors toward defensive stocks. As US baby boomers retire, they tend to reduce the risk levels in their investments and move toward steady-as-she-goes, income-generating stocks.

Unfortunately, those two forces also mean that many of these defensive stocks are trading between 14 to 20 times forward earnings, putting them at the higher end of their historical range. More on that in a bit.

Factors We Look For

The entire existence of these companies is premised upon their pipelines, so not surprisingly it’s their assets we investigate first. Here are some questions we ask:

1. How old are their pipelines? This is a slightly controversial question, because the industry has long held that a well-maintained pipeline should last forever. But a recent spate of spills challenges that claim.

Much of North America’s massive oil transportation system is decades old. Specifically, 41% of the oil pipelines in America were built in the 1950s and 1960s; another 15% are even older than that. And many of these old pipelines were built using protective coatings that have since been shown to break down over time.

For example, in July 2010, Enbridge dealt with the biggest spill in the company’s history when a six-foot gash in one of its main crude lines in Calhoun Country, MI let some 20,000 barrels of oil escape. The broken pipe had a polyethylene coating to protect it from corrosion – a common technique in the 1950s and 1960s, but investigators found “surface cracks and indications of corrosion.”

Granted, sensor technology has reduced the frequency of spills from crude pipelines by 35% since the 1980s. But the Enbridge spill may be a harbinger of problems to come. Over the last year in the United States, three natural-gas pipeline explosions have killed 14 people. Furthermore, the National Transportation Safety Board – whose pipeline investigation team comprises just four people – is swamped.

All told, it’s likely that the miles and miles of 50- to 60-year-old pipeline laid out across North America may need major retrofitting in the coming years, meaning major expenses for owners.

2. What plans does the company have for new projects? New projects provide growth and therefore the opportunity for increasing value. However, they also come entangled with long permitting processes that carry no guarantees of success, and a permit denial can mean the loss of significant capital investments. Updated regulations also mean new lines have higher operating costs than older lines.

3. And the universal question, especially these days: How much debt does the company carry? Debt is often a necessity in business, but a company’s debt levels must be reasonable compared with its cash and its expected income.

The Search Is On

So with these characteristics in mind, we set off searching. We compiled a list of all the pipeline companies listed in the United States with a market capitalization of at least US$1 billion. Then we gathered a series of data on each: cash on hand, debt, 52-week price range, price-to-earnings ratio, all the basic information. We also calculated another ratio, known as EV/EBITDA.

EV stands for “enterprise value,” a measure of a company’s value calculated as market capitalization plus debt, minority interest, and preferred shares, minus total cash and cash equivalents. Since it incorporates key information about cash and debt in addition to market price, we consider it a more accurate representation of a company’s value than straightforward market capitalization (share price multiplied by number of shares).

EBITDA is a pretty good indicator of financial performance. It stands for “earnings before interest, taxes, depreciation, and amortization” – in short, earnings before the company’s accountants and tax lawyers start fiddling with the numbers. Put a little more politely, analysts often use EBITDA to compare profitability between companies because it eliminates the effects of financing and accounting decisions, giving a better idea of straight asset performance.

The ratio of the two – EV divided by EBITDA – compares a company’s value with its ability to service its debt. Value versus debt – that incorporates the key factors we outlined. Like all metrics, it’s not perfect – for example, EBITDA does not take into account the cash required to fund working capital nor to replace old equipment. But for infrastructure-heavy companies – like the pipeline owners we are assessing – EV/EBITDA is one of the better screening tools that we have available.

So here are our options, in a chart showing their EV/EBITDA ratios:

We’re looking for a low ratio, because a low EV could mean a company is undervalued, while a high EBITDA indicates good profitability and ability to service debt. With that knowledge, which one stands out? The problem is that none of them do! These companies are virtually all trading at the sector average or above. We’d like to see an EV/EBITDA ratio in the range of 6 to 8. The lack of deviation is in fact remarkable, but unfortunately for us that means there are no good deals.

The best-ish options are Holly Energy Partners (NYSE.HEP), Kinder Morgan Energy Partners (NYSE.KMP), and Sunoco Logistics Partners (NYSE.SXL). If any of their share prices slip appreciably in the ongoing economic storm, we’ll re-evaluate these (and look at other metrics) to see whether one of them becomes attractive. For now, they’re all too pricey, and we recommend you steer clear.

[With the days of cheap oil numbered, energy companies that power the world offer some of the best investment opportunities moving forward. Read this free report to discover how you can get started.]

Crude oil was THE commodity to trade back in 2007-2008 when prices rocketed above $145 per barrel then dropped like a rock all the way back down to $35 per barrel leaving many investors and traders either greatly rewarded or dead broke.

Since then the focus of the world has moved to gold and silver as currencies spiral out of control with more and more reasons why individuals and entire countries should focus on owning physical metals rather than eroding currencies.

Just because a commodity is not under the direct spot light does not mean you can’t trade it or make money from it. With that said here is my analysis on how to trade oil if $100 per barrel is reached in the coming trading days.

Let’s take a look at the charts…

Long Term Weekly Oil Futures Chart

Here you can see how oil is trading round the $100 level. When the price is trading below it then $100 will act as resistance and when oil is above then it becomes support.

How To Trade Oil ETF

Intermediate Term Daily Oil Trading Chart:

This is more of a close up look at oil and the $100 price point. Notice how oil has moved higher for an entire month without any real pullbacks and that it has a clean support trend line underneath. If oil sees some big sellers step in here at the $100 – $104 level then I expect the green support trend line to be broken. If that takes place oil could quickly and easily drop back down to the $90-$92 area.

How To Trade Crude Oil

How to Trade Oil Using an Oil ETF

This chart shows a long (bullish) oil ETF along with its price by volume levels. I like to review the price by volume analysis from time to time when nearing a major support or resistance level on a chart.  For those who have difficulty finding support and resistance levels then this indicator/volume analysis tool will take most of your guess work out of the equation.

To make a long story short, the longer the volume bars on the left side of the chart are then the more people either bought or sold crude oil at that price. Keep in mind that it does not matter if they bought or sold here… the key to remember is that there are a lot of new positions here and that is where people exit their positions at breakeven because they held such a large draw down over the past few months and just want their money back.

Most traders and investors who trade off pure emotions (fear/greed) would have held a losing position through the August – October selloff and are now going to be more than happy to exit the trade at breakeven and move on to the next emotional roller coaster. It’s this type of trading which allows the non-emotional traders who thrive off of price action and mass psychology to catch price swings in the oil market.

The chart below clearly shows that oil is entering into resistance level and a pullback is becoming more likely each day. Those looking for an etf how to trade oil should look at buying SCO ETF. This oil ETF goes up in value when oil loses value.

How To Trade Oil ETFs

How to Trade Oil and Oil ETFs Conclusion:

In short, oil is becoming overbought meaning it has moved up to far too fast and should have some profit taking shortly. The fact the oil is reaching a century number ($100) I feel there will be a couple days of selling starting soon. Traders looking to play this support trendline breakdown should look at trading SCO oil etf.

If you would like to receive my Free Weekly Trading Analysis Join Now: www.GoldAndOilGuy.com

Chris Vermeulen

David Banister- www.MarketTrendForecast.com

Back on October 3^rd, I penned a public article forecasting a major low in the SP 500 to occur around 1088.  The SP 500 had been declining from the 1370 highs this May and was in the 1130’s and nearing its final descent in a corrective pattern.  The next day, the market bottomed intra-day at 1074 and closed north of 1100.  Since that time, we have rallied impressively to a high of 1292, with a strong pullback to 1215, and now what I believe is the finally rally to a major top formation.

This current rally is part of a normal retracement of the 1370 highs to 1074 lows that similarly occurred in the 2008 rally off the first major market drop.  One would expect this rally to take a few months to complete from October 4^th and likely peak sometime between now and Christmas in the 1292-1320 ranges as outlined below.

First you must understand that my forecasts are largely based on human behavioral patterns and not economic news or European headlines.  The crowd commonly buys and sells in the same fear and greed swing patterns over and over again throughout history.  Once you understand these patterns, you can make pretty strong educated guesses on the direction and pivot highs and lows within a few percentage points.  Other than those wave patterns, there are other indicators I use to confirm what I think I’m seeing, so let’s review:

1.  The bullish Percent Index readings are now at 72%, which typically is an area that marks a rally high in the markets.  These indicators tell you how many of the SP 500 stocks have bullish point and figure charts.  Typically a reading over 70% is way overbought and all bulls are on board, and a reading below 30% is the opposite.   The market bottomed this summer twice on August 8^th and October 4^th as these readings were sub 30%.  The market topped in July at 1356 as this reading was over 70%. With my wave patterns and this reading now again over 70%, it’s a strong warning of an imminent reversal.
2. Sentiment Indicators are now back to full on bullish.  In the most recent AAII survey, we have nearly 46% of those polled bullish, up from an extreme low of 24% in early October near the market lows.  In addition, the Bears in this survey are at a near extreme low of 24% of those polled, leaving the ratio at almost 2 to 1 bulls.  This is another warning flag.

The Bullish Percent Index chart is below with some notations:

Stock Market Forecast

Longer term, my best view right now is that this is a counter-trend bounce off the 1074 lows that will give way to another big down leg.

Here is my reasoning:

First, look at the SP 500 chart. I show the congestion zone from 1275-1300.  My Fibonacci and wave targets have been 1292/93-1306 for a few weeks; we hit 1292/93 once and fell hard.  The market is trying to work back up there in this final E wave up I think.  So far 1274-76 were hit (One of my targets) and we will see if it can run to 1292/93 and the final is 1306-08.

Stock Market forecast Prediction

This is a B wave rally or wave 2 rally off the 1074 lows. We are in a bear cycle bounce.

From March of 2009 (I forecasted a market low on Feb 25th 2009), the market rallied from 666 to 1370 in 3 clear waves, ABC. Those are corrective patterns of a bear market. The market topped at .786% of the 2007 highs to 2009 lows at 1370 with Bin Laden’s death, a seminal event.

Since then— 5 waves down (impulsive) to 1074 marked a 38% retrace of the Bear rally that went from 666 to 1370.

This is a counter-trend rally from 1074 to 3 potential pivot areas. 1292 (which I forecast and already hit), 1306-1308, and max 1320. 1306-08 is probably the max in my views.

Why?

A wave: 1074-1233 wave A from October 4th lows.  (I forecasted a bottom on October 3rd)

B wave:  1233-1195 wave B (A mild .236% retrace of A wave)

C wave: 1195- 1292, 1308, 1320 wave C  (Where wave c is either .618, .71, or .786 of wave A (159 points 1074-1233))

This recent pattern in a more microcosmic view is much like the ABC rally from 666 to 1370. There the A wave was huge and went from from 666 to 1221.  The B wave 1221-1010; and then the C wave 1010-1370.  That C wave was only 64% of the A wave.  All of those pivots, 1010, 1221, 666, 1370 etc. have Fibonacci relationships to prior market highs and lows.

I’m looking for this current counter-trend rally to mimic the nature of the 2009-2011 ABC Rally.  That means this final pattern up now we are in from 1195 pivot would be much less substantial than the rally from 1074-1233.  That is why I look for 1292-1306 ranges (same forecast I had weeks ago) as a top between now and Christmas at best.  At any time this market could top and crack, so I’m laying it out as best as I can.

Bottom Line: Market is trying to complete a counter-trend rally which so far peaked at 1292/93 and is struggling to get back up there or maybe a tad higher before the markets lose strength.  Many indicators short term are peaking as well, and everyone should be on guard.  If you’d like to be forewarned of major tops and bottoms in Gold, Silver, and the SP 500 with outside the box thinking, check us out at www.MarketTrendForecast.com for a great offer.

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I recently recieved this from my friend Adam Hewison of INO.com and wanted to pass this along:

Hi SMN Readers,

I wanted to share a surprising stat with you:

A recent study from the University of California reports that over 92% of traders will be wiped out by financial institutions this year. Think about that for a second…you would probably have a better chance of getting your money back if you threw it into a burning building or put it in a blender!

This really made me think; what are so many traders doing wrong that would cause people to throw away their hard earned money, deplete savings accounts and risk their financial future?

Could they be doing too much? Over-thinking trades? Have an overly complex trading plan?

It seems to me that if you follow a few simple rules to put the odds in your favor and stick to basic money management practices these 92% failure rates should be impossible!

Now, I’m not new to this, in fact I have been in the trading industry for nearly 40 years. I was a former floor trader and managed risk exposure for a large multinational corporation.

If the market has taught me one thing it’s that you CANNOT fight the overall trend and win!

When I got into the education side of trading back in 1995, I found this to be one of the hardest things to teach. Students would get the overall idea, but wouldn’t be able to easily establish the trend consistently on different time frames. This problem led me to develop a tool that would easily show students the direction and strength of the trend for any symbol. You may have heard of the tool we call “Trade Triangles.”

Once I realized how successful and simple they were for students, I knew we were on to something. Since then, we have been constantly tweaking our system to provide entry and exit points when the trend is favorable for the trader.

Here’s what a few recent “Trade Triangle” users had to say:

-        “The Trade Triangles have taught me a life-long lesson as to how to perceive the rhythm of the market place.” – Bill Z. VA.

-        “I trade equities, options, Forex and futures. Your trade triangle technology really helps identify the trends.” – Dan D. CA.

-        “I am amazed at the confidence that your service has provided for me and the Trade Triangles have given me. It has solved my biggest question, ‘Which way is this market going?’” – Darran G AU.

There are dozens of testimonials from Trade Triangle users here.

Now, whether you are one of these 92% of traders heading off a cliff or not, I think you owe it to yourself to take a look at my “Trade Triangle” technology. This technology, when coupled with my other cutting edge indicators and charting tools in my exclusive MarketClub, can truly put the odds in your favor and confidence back into your portfolio. In fact, during the ‘08-‘09 market meltdown, the triangles pointed to 624% return during the worst economic crisis since the great depression…all while others were watching their portfolios dwindle!

Because I believe MarketClub and “Trade Triangles” are something that every trader can use, I wanted my tools to be accessible to everyone. No matter whether you are a CEO or a local paper boy, you should be able to afford a tool that can help your financial future! You deserve to see if this is the tool for you so I am extending a 30 day trial for ONLY $8.95! That’s about 30 cents a day!

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Don’t miss this chance to see what MarketClub’s tools can do for you, click here to learn more today!

All my best,
Adam Hewison
Founder and creator
INO.com and MarketClub.com

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GoldMoney founder James Turk interviews When Money Dies author Adam Fergusson, who discusses the parallels and differences between the Weimar inflation and the situation in the US and Europe today. “I don’t see how any of these [Western] economies can grow their way out of the extraordinary debts that they have.”

At the recent Casey/Sprott Summit When Money Dies, nearly 30 renowned financial experts – such as John Hathaway, Richard L. Hanley, Chris Martenson, Mike Maloney, Rick Rule, Doug Casey, and many more – presented their assessments of the ongoing global debt crisis and solutions for smart investors. Learn how to protect your assets and make exceptional returns, even in the midst of economic turmoil as we’re seeing it today… in more than 20 hours of audio recordings on CD or MP3, including the experts’ top stock picks.

Submitted by Finance Addict via by Tyler Durden

Hard Evidence: Bailed-Out Banks Take More Risk

Politicians, Treasury Secretaries, etc. would have you believe that “moral hazard” is something we should only worry about in the abstract, in the future, when they’ve moved on to another job. But now a study confirms with hard facts: moral hazard–it lives.

Researchers have asked for some time whether and how bailouts might affect banks’ risk-taking. Would they run wild, aware of the high likelihood of being bailed out again if they ran into trouble? Or would they ease off precisely because they’d now be assured of lower financing costs and long-term survival, and therefore would want to avoid doing anything that might cause regulators to take that valuable banking license away? More daring or more discipline?

Each of these camps had its underpinnings yet the question was a difficult one to study. Why? Because, generally speaking, the developed Western countries didn’t really do bank bail-outs. [Insert smirk here.]

But then came 2008 and its bailout-palooza. And so, thanks to hundreds of billions of taxpayer dollars and an alphabet-soup of bank welfare programs, this question can now benefit from the availability of real-life, empirical data. (Cloud, silver lining and all that.)

 
Ran Duchin and Denis Sosyura of the University of Michigan looked at the U.S.’ Capital Purchase Program. You may recall that this became the centerpiece of TARP once Hank Paulson decided that the money would be better spent directly buying into the banks as opposed to overpaying them for dodgy asset-backed bonds. (Mind you, other parts of TARP were spent overpaying for dodgy asset-backed bonds.)

The CPP lasted a little more than a year and invested $205 billion of taxpayer funds into various qualifying institutions. Not every bank that filled out the 2-page application was successful in gaining access. Others were approved but ultimately decided not to take the funds (probably because of the attached restrictions on pay and on paying out dividends.) In the end, 707 financial institutions received the funds.

Duchin and Sosyua looked at a sample of 529 public firms that were eligible for CPP and slotted them into categories based on whether they applied, whether they were approved and whether they ultimately took the money. They controlled for non-random selection (via measures of the banks’ financial condition, performance, size and crisis exposure); for changes in national and regional economic conditions; and finally for potential distinctions in credit demand.

They then viewed the banks’ CPP participation status in comparison with their subsequent risk appetite as demonstrated by (1) their consumer mortgage credit approvals or denials (viewed on a risk-profile controlled, application-by-application basis); (2) their participation in syndicated corporate loans for riskier credits and; (3) the risk profile of their investment asset portfolios. What did they find?

For mortgages the bailed-out banks increased their risk–

“after CPP capital infusions, program participants tilted their credit origination toward higher-risk loans by tightening credit standards for the relatively safer borrowers and slightly loosening them for riskier borrowers.”

–while at the same time ensuring that they didn’t trip off any alarms

“This pattern would be consistent with a strategy aimed at originating high-yield assets, while improving bank capitalization ratios, since the key capitalization ratios do not distinguish between prime and subprime mortgages.”

Likewise, for corporate loans

“the fraction of CPP recipients in loans to borrowers with lower credit ratings has increased after CPP compared to nonrecipients.”

Finally, not only did the CPP recipients buy more investment securities than non-bailout recipients, but also riskier ones at that!

“[T]he total weight of investment securities in bank assets increased by 5.3% after CPP relative to non-recipient banks. More importantly, the increase in the allocation to investment securities at CPP participants was primarily driven by higher allocations to riskier securities, which increased at CPP banks by 6.2% after CPP relative to nonrecipients.”

Looking specifically at CPP recipients vs. those who applied but were rejected from the program, the authors found that the average yield on the bailed-out banks portfolios increased by 9.4%!

“Overall, the analysis of banks’ investment portfolios suggests that CPP participants actively increased their risk exposure after being approved for federal capital. In particular, CPP recipients invested capital in riskier asset classes, tilted portfolios to higher-yielding securities, and engaged in more speculative trading, compared to nonrecipient banks with similar financial characteristics.”

Moving from this granular level to a bank-wide basis, the authors found that the CPP banks increased asset risk (using ROA & earnings volatility as proxies) while decreasing their leverage (perhaps because they knew that regulators would be keeping an eye on this metric in addition to the capitalization ratio.)

What does all this mean and how should this shape actions in the future?

The bail-out itself increased our chances of having the bail the banks out all over again. Moral hazard is no longer in the realm of the abstract. Further, my guess is that the bailed-out banks took on more risk so that they could earn enough to speed repayment of the aid and therefore escape the onerous strings attached. So perhaps the limits on executive compensations, dividends, etc. in a perverse way increased our chances of having to bail the banks out all over again.

Finally, as the data on the mortgages show, banks are very good at gaming the system to make the figures work in their favor. How on earth do we get around this? Capital requirements like those contemplated for SiFis now seem to me grossly inadequate. Perhaps the answer is a Tobin tax that would force banks to pre-fund their eventual bailouts. And I say eventual because I don’t believe for a second that Dodd-Frank will do anything to enable wind-downs–when the next crisis comes the TBTFs will likely be bailed out. And we can start the whole messy process all over again.

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• A 19-year-old trader who borrowed $1,600 to start trading, and became a millionaire by the time he was 26.
• A 52-year-old contractor who went from making $50,000 a year at his full-time job, to making millions from his $11,000 trading account… and
• A trader who started with about $5,000 and 12 years later ended up with $15 million using the same basic approach.

• They’re all using the same trading strategy.
• They’re all in sectors with the same market conditions.
• They all turn a tiny account into over a million dollars; in some cases, over ten million dollars.