• Biography
• Services
• Speaking
• Articles
  • Dropdown
  • Dropdown
  • Dropdown
• Contact

The Fed minutes released this afternoon sent the stock and commodity markets lower (Oil -2%), and continued the slump of Gold and Silver, with the latter closing at $1,564 (-2.5%) and $28.44/oz (-3.4%), respectively.

Silver is Gold on steroids… it exaggerates Gold’s moves up and down, and as a derivative of Gold it does what the yellow Metal does. Accordingly, we focus herein on Gold.

The stocks are also derivatives of the Metals. We own them for their leverage to price moves by the Metals; unfortunately, the leverage works both ways… up and down.

What spooked the markets was Federal Reserve minutes from its end-January meeting showed members’ mixed opinions over continued Quantitative Easing and they would review the asset purchase program at its March meeting.

As we’ve written, this is continued jawboning, the Fed’s 4th and most frequently used policy tool. There is no chance of a significant policy change until the stated 6.5% US unemployment goal is reached, unless inflation exceeds 2%. This is true now while Bernanke is Chairman and likely for long after, given that Obama will not replace him with a policy hawk.

The change in Gold price simply reflects swings in Market sentiment, not the underlying macroeconomic factors that remain bullish for Gold.

As the chart shows, in this 12 year bull market Gold has been down –23% and –29% versus the current –19%, so it could get worse. But, the Metal has always recovered to go higher and the fundamentals have never been better for Gold.

 Source:   John Doody

Editor
Gold and Silver Stock Analyst
http://www.goldstockanalyst.com

It’s my opinion…….

I blinked – and the month of January is gone. Wow!

The US stock market is at 14,000 on the Dow. The S & P 500 and the NASDAQ are equally strong. Then why is consumer confidence still in the tank? Where are the jobs? Why is the national debt still climbing?

Many Americans, who cashed out of the stock market back in 2008, are still sitting on the sidelines. As the stock market continues its upward climb, billions of dollars will flow back in the stock market, i.e. sucker money. Before those fair weather investors have a chance to enjoy significant stock market profits, the stock market may well adjust downwards. The fair weather investors will get scared and sell their stocks once again turning a paper loss into a real loss.

I don’t know when and why the stock market will correct downward.  But some time (or perhaps twice) in 2013 a combination of economic and/or geopolitical situations will put downward pressure, perhaps significant (10 to 40% downwards on the Dow), on the stock market. These interim pull backs are time outs. If history repeats itself, the stock market will continue to build upward until we experience another deep correction (40 to 80% on the Dow). What goes up……

Each successive stock market correction over the last twenty years has been larger than the previous correction. This pattern, we believe, will most likely continue. Remember the math – if “the market” corrects downward by 50%, we need a 100% increase just to break even.

Having said that, I look for stocks to be at higher levels by the end of 2013, particularly in emerging markets.

Our model Growth & income Portfolio continues to have a modest 24% committed to stock. Going forward – we think that this continues to be an appropriate allocation given the inherent risk in stocks. Ours is not a “buy and hold” stock portfolio. While we do stay fully invested most of the time, our stock portfolios are actively managed trying to give investors the best opportunity for growth. Our portfolios are not immune to loss. Up until the 2008 stock market correction, our portfolios held up well relative to previous corrections. However in the 2008 correction, generally no investment strategy escaped the wrath of the correction – including our model stock portfolio. It is this experience that prompts our limited exposure to the stock market.

The Timothy Geithner economic recovery plan, which started four years ago, has a goal of not only economic recovery, but eliminating the boom/bust cycles in our economy.  It is shaping up (if my prediction about the stock market is accurate) to be a failure.

This news item, published on January 30^th can’t help:

The U.S. economy shrank from October through December for the first time since the recession ended, hurt by the biggest cut in defense spending in 40 years, fewer exports and sluggish growth in company stockpiles.

The Commerce Department said Wednesday that the economy contracted at an annual rate of 0.1 percent in the fourth quarter. That’s a sharp slowdown from the 3.1 percent growth rate in the July-September quarter.

Read more: http://www.foxnews.com/politics/2013/01/30/us-economy-shrinks-01-percent-1st-time-in-3-12-years/#ixzz2JTJHA8tK

Small signs of economic recovery abound: good restaurants are full, airplanes are flying full, new car sales are up, some real estate markets are creeping up (especially high value homes), movie attendance is up. But employment growth is stagnant, taxes have gone up, large employers continue to hoard cash – they are not hiring.

Many of you have heard me say over the years that bonds are more risky than stocks. Is a bond melt down looming? Is a junk bond crisis in the cards? Millions of Americans, in a desperate search for yield, have embraced bonds with a high concentration of money in junk or high yield bonds (generally non-collateralized corporate IOUs that pay higher than average interest rates). Remember this rule of thumb – the value of a bond generally decreases 10% in value for every 1% increase in interest rates. If US interest rates increase by 5% the price of a bond could fall by 50%.

We believe that there is a reasonable chance that US interest rates could start trending up near the 3nd of 2013.

But ask yourself; ask your elected representatives: Why is consumer confidence still in the tank? Where are the jobs? Why is the national debt still climbing?

Be careful out there.

A copy of  Woodward Wealth Management’s Model Growth and Income Portfolio is available for your review. Email your request to: info@woodwardwealth.com.

Al Woodward was recently featured in Colorado Expression Magazine.  To read the full article, click on this link:  http://www.woodwardwealth.com/wp/wp-content/uploads/2012/12/CO-Expression-Article-Dec-2012-formatted-for-website.pdf

Last week was a tough one for Gold stocks. Investors continue responding to the minority Fed members “head fake” (from Dec 12, 2012’s meeting minutes released on Jan 3, 2013) that the current Quantitative Easing (QE3) program of buying $85 billion bonds/month could end in 2013. Through Friday, the GSA Top 10 are down 5% and the benchmark XAU and HUI Gold Stock Indexes down 9% and 10% respectively.

Fooling the Market is one of the Fed’s policy tools. Without any actual action, Gold price has lost 1% YTD and 10 year Treasuries have popped above a 2% yield. Some tightening has taken place with the Fed doing nothing. The Fed meets this week and its next statement will be out Weds, Jan 30.

While set up as majority rule, the 12 member Open Market Committee that sets Monetary Policy is, in practice, one voting Giant (Chairman Bernanke) and eleven Dwarfs.    From the Dec meeting’s minutes, three Dwarfs favored ending QE3 and their views got all the Market’s attention in January. (See note below.) But, the Giant’s words in FOMC’s December 12 statement were:

“the Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee’s 2 percent longer-run goal”

It’s clear to GSA that QE3 will continue until unemployment falls to 6.5% so long as inflation stays under 2.5%, i.e. QE-Forever, as workers don’t have the skills employers want.

Stock prices generally center around a company’s intrinsic value, with day-to-day or week-to-week fluctuations being little more than “noise” around the long term trend. Despite publicity-seeking commentators warning of lower Gold prices ahead, no credible forecaster would predict this so long as the world’s largest Central Banks (US, ECB and Japan) pursue expansionary policies.

Plus China, the world’s largest Gold producer at 30+ million ounces a year, keeps all domestic production for itself and continues to import more of the Yellow metal. The Chinese Central Bank has not reported its Gold reserves since stating it held a trivial 33 mil oz in April 2009. Clearly the Chinese are accumulating to diversify out of the Dollar, and it would do them no good to tell the Market they are adding Gold.

If China was to update its holdings and report the 100 mil oz increase we think possible, what would that do for Gold? The change in sentiment from negative to positive would probably sent Gold to $2,000/oz and Gold stocks, currently 30% Undervalued on our metrics (reported on Page 1 of every issue of GSA-Pro) would likely zoom to Overvalued.

The GSA Top 10 is a carefully selected portfolio of four growth Gold miners with a clearly defined pipeline of future mines, two growing royalty earners, and all six pay dividends. The four non-producers have full independent feasibility studies showing the ounces are economic and/or they are in mine construction with targeted first production dates.

We remain comfortable with our long term expectations for a higher Gold price and for the GSA Top 10 to outperform the bullion and all the Gold Stock Indexes. We are sitting tight (but not enjoying the ride!)

Note: Here’s an assessment of how the 2013 voting members of the FOMC are perceived: http://www.thefinancialist.com/our-dovish-fed-the-fomcs-new-voting-members/”>

——————————————————————————————

Rubicon: Today, 1/28/13, updated all on construction at its future 180K/yr Phoenix project. Originally due to start prod by end-13, Co delayed to 2Q14 as works on optimizing its Preliminary Economic Assessment in six areas, ranging from extending shaft (from now 2,000’ depth to 3,300’) to more easily drill deeper high grade intercepts, and expand Mill beyond planned 1,250K t/day to produce more than the current 180K oz/yr target.

Co has spent $85 mil on the $214 mil Project to date, and now has $171 mil cash. Says if it decides to implement all the changes will likely increase Project’s cost. A new independent resource estimate, based on 330,000’ of drilling since the last in late 2011, is due by end 1Q13. A decision on any changes will follow in 2Q13.

On balance, this is good news. New Pres/CEO LaLonde is clearly drawing on his many years of underground mining experience at Goldcorp, including being manager of nearby Red Lake mine (GG’s flagship). His pay package has a big stock option component and he must see this short term delay resulting in a bigger long term payoff. Investors should too and take advantage of today’s price weakness to top up positions if underweighted RBY.

——————————————————————————————
John Doody
Editor, GoldStockAnalyst.com
http://www.goldstockanalyst.com

With the onset of the New Year comes new changes in the tax law, the so-called American Taxpayer Relief Act.  Should you care?  Let’s see how the changes might affect your tax situation in year 2013.

First off, you have probably already noticed a smaller paycheck, if you are a “W2” employee.  That’s because the payroll tax deduction that has been in effect for the last 2 years has expired.  So while the payroll tax for the last 2 years has been 4.2% for the employee share, starting in January 2013, it increases back to 6.2% for the first $110,000 in earnings.

Perhaps more importantly, overall income tax rates have increased for those of you in the higher tax brackets.  Certain aspects of the “Bush Tax Cuts” have been made permanent, meaning the 33% and 35% rates, but only up to certain threshold levels.  Amounts of income above the threshold level will now be taxed at the 39.6% rate. Check out the following table to see where your income tax bracket will fall.  These same threshold levels are used in other aspects of the new tax law as well, which we will discuss further in this series of blog reports on the new tax law.

Table A: Amounts of Income Above these Threshold Levels will be taxed at 39.6% starting 1/1/2013

Another important change with the new tax law is the treatment of long-term capital gains.  For taxpayers with lower incomes, the tax treatment on long-term gains stays the same, at a 15% level.  However, for those with incomes above the thresholds listed in Table A (above), the long-term capital gains rate increases to 20%.  Plus there is a new Medicare surtax of 3.8% on investment income – we’ll discuss this in more detail later.  But added to the increased long-term capital gains rate, you will actually have a capital gains tax rate of 23.8% if your income is above the defined thresholds.

On the plus side, the tax treatment of qualified dividends will remain the same.  Currently, the qualified dividend rate is equal to the long-term capital gains rate.  So if your income is below the above thresholds, your qualified dividend rate will be 15%.  Income above the thresholds will result in a qualified dividend rate of 23.8% (including the Medicare surtax).  This tax treatment is the same as 2012, even if the rates are higher.  It could have been worse – the original proposal was to have qualified dividends taxed at the Ordinary Income Tax Rate.  Of course, that rate is now at 39.6% for the higher income levels!  So yes, it could have been much worse.

Now for the “hidden” taxes – that is, the increased tax bill that results from the “phase-out” of personal exemptions and limitations on itemized deductions that occur as income rises above certain (different) thresholds, as shown in Table B below.

Table B: Threshold Levels for Exemption Phase-out and Itemized Deduction Limitations

You might hear this part of the tax law referred to as “PEP and Pease”.  “PEP” is the portion of the law regarding Phase-out of Personal Exemption.  With PEP, your personal exemptions are reduced by 2% for every $2500 of income above the threshold for single taxpayers and by 2% for every $1250 for married taxpayers filing jointly.  While this PEP provision does increase taxes for higher income taxpayers, it would have been an even worse tax bite if the “Fiscal Cliff” had not been avoided, for now at least.

The second part of the hidden tax increase is known as Pease, after Congressman Pease, who pushed for the limitations.  With Pease, if your income is above the threshold amounts, itemized deductions are cut by 3% of AGI up to a maximum of 80%.  Certain deductions such as medical and investment expenses, are not included in the limitations.  Again, had the former tax laws been allowed to “sunset” and thus go over the “fiscal cliff”, threshold amounts would have been much lower, and more taxpayers would have been affected by these hidden taxes.

Below is a table that summarizes the various income tax changes and the related threshold levels.

Table C: Summary of Threshold Levels

Look for our next blog in this series, where we will discuss the Medicare Surtax and other healthcare-related tax law changes.