In my column, I used the example of Yamana Gold (NYSE: AUY), showing you how to reduce your cost when buying stocks – and thereby increasing your upside potential if the shares move higher.

Today, we’re going to kick things up a notch and explain how you can cleverly take the same covered call strategy and add a twist, by using deep-in-the-money covered calls. When you do so, you can achieve more consistent returns over time, while also protecting your capital.

Simply put, I’m going to focus on mitigating risk…

Getting Deep-In-The-Money… Even When Your Stocks Fall

With a conventional covered call strategy, you buy regular shares of a stock and then sell a call option against them, whose strike price is higher than the current share price. Your aim is that the shares will move higher and will get called away at expiration for a profit.

While this does happen, it doesn’t occur as often as you might think. Plus, it usually only happens during an upward moving market.

However, with the deep-in-the-money (DITM) covered call strategy I’m focusing on today, we’re not expecting the shares to move higher. In fact, we don’t even need the stock to trade higher in order for us to make money. It can actually go lower (sometimes much lower) and we’ll still make money.

Pretty compelling, right?

In short, what we’re seeking is safety. And to get it, we need to employ a strategy that protects us much more often than not.

Deep-In-The-Money Calls: A 75% Win Rate Over 13 Years

So how about a win/loss ratio of 75%? That’s the performance the deep-in-the-money strategy recorded over the past 13 years that I’ve used it. That means we’ve only lost money or broken even 2.5 times out of 10. At all other times, we’ve made money, usually notching up market-beating returns.

Just yesterday, in fact, in my Strategic Income service, we closed out two winning positions – 13% on Wells Fargo (NYSE: WFC) and 33% on Goldcorp (NYSE: GG) – positions we initiated before the market’s collapse.

Here’s how it works, using the Yamana Gold example again. Recall that in last week’s example, we bought Yamana under $9 and sold the $10 (out-of-the-money) calls against our position.

Using Deep-In-The-Money Covered Calls On Yamana

This time, we’re going to buy the same Yamana shares. But instead of selling the $10 calls, we go deep-in-the-money instead.

• Buy 1,000 shares of Yamana at $9.50 – a total outlay of $9,500.

• Sell 10 contracts of the January 2010 $9 calls (AUY-AL). Trading at $1.75 per contract, you receive proceeds of $1,750 (remember that each contract contains 100 shares, so it’s $1.75 multiplied by 100 = $175. Then $175 multiplied by 10 = $1,750).

• Your cost for Yamana shares is now $7.75 ($9.50 minus $1.75) – a full 18% below the current price. This is the crucial number. If Yamana closes above $7.75, you’ll be profitable.

• If Yamana closes above $9 at expiration, you’ll make 16%. You arrive at this number in this way…$9 (strike price) minus $7.75 (cost) = $1.25 (profit).
  $1.25 divided by $7.75 = 16%.

  If the stock moves higher, your returns are capped at 16%, regardless of where it goes.

• Even if Yamana shares stay at today’s level, you’ll still make 16%. So you have an additional chance of profiting from the trade, versus just one with a straight long strategy, which requires the shares to move higher.

Additionally, you reduce your cost of ownership in Yamana to $7.75.

Basically, you’re saying that you’re willing to own Yamana at $7.75 – 18% below current prices. But if you don’t get the shares at that price, then you want to be paid for trying – something that happens nearly 80% of the time.

Key Points to Remember When Using DITM Covered Calls

Here are a few things to remember whenever using deep-in-the-money covered calls:

• You can execute a deep-in-the-money covered call strategy in any trading account.
• If you do end up with the shares, you can sell additional calls against your position to reduce your cost even further. The goal is to own the shares for zero dollars or even a negative cost over time.
• Always make sure you employ position sizing – i.e. never put too much in a single investment.
• At expiration, if the shares are trading above your strike price, they’ll be automatically taken from your account.

Source: Deep In The Money Covered Calls: Lower Cost, Risk & Win 75% Of The Time

Goldcorp (NYSE:GG) saw its first-quarter profit rise by 27 percent to $290.9 million or $0.40 per share from $229.5 million or $0.32 per share in the same period a year earlier. Gold production rang in at 616,500 ounces marking an 18 percent increase. The major expects to produce about 2.3 million ounces of gold this year at costs of $365 to $400 per ounce. Goldcorp ended the day up C$0.87 at C$36.34.

Lundin Mining posted a first quarter loss of $8.6 million or $0.02 per share with operating earnings plunging to $38.2 million from $182.9 million in the first quarter of 2008. Lower metal prices resulted in a 60 percent drop in sales to $123.4 million. Lundin ended the day down C$0.18 at C$2.57.

Great Panther Resources is reporting some nice numbers along the Recompensa vein at its Topia mine in Mexico. Channel sampling has indicated that 133 metres of strike length averages 16.87 grams gold per tonne, 175 grams silver per tonne, 3.8 per cent lead, and 3.17 per cent zinc across an average width of 0.24 metres. Great Panther ended the session at C$0.49 for a C$0.025 gain.

After posting stellar gains, taking a little money off the table is probably a prudent move. With the job numbers for the United States due out, it could be an interesting session on Friday. We shall see.

Source: Resource Stock Roundup:Friday, May 08th, 2009

Here he shows us covered call strategy investing and how it works.

This from Karim:

Just what is the best way to profit in a stock market like this?

Our mission here is not only to show you the sectors, industries, and stocks that are set up to fare well, and the trends you can play to your advantage, but to also show you how to profit from them in more advanced, sophisticated ways than ordinary investors.

And when I say “advanced” and “sophisticated,” I don’t mean “complex to understand” and “difficult to execute.” Far from it.

In recent columns, we’ve talked about investing in water, gold investments, the real estate market, and much more (check out our Smart Profits Report archives if you’ve missed anything).

The bottom line is that amid all the bailout and stimulus talk… the volatility… the fear… the constant doom and gloom… we continue to stress that there are ways to negotiate brutal bear markets – ways that can still bring in strong profits.

Covered call investing is one of them…

Covered Calls: The Perfect “Cover” For An Imperfect Market

We realize that times are tough. No doubt about that. But we’re not sitting around complaining about it. Our focus, as always, is purely on showing any investor how to take profits from any market.

And we’ve demonstrated that in recent weeks, due in no small part to our covered call strategy.

Now, before I go any further… I understand that options strategies can sometimes spook investors. They seem complicated, especially since most people are used to just buying and selling stocks.

But our job is to educate you… helping you become a smarter investor, able to take bigger profits…

2 Key Elements That Will Help You Beat Wall Street…

In some ways, Wall Street is like the world’s biggest casino.

The devious types who make their living there don’t want you to know about the tips and techniques that can help you win.

They’re perfectly happy for you to remain in the dark, unwilling to teach you about hedging your bets. They just want you to make them and grab your money.

Now, in some cases, I’ll be the first person to admit that hedging your bets is a flat-out bad idea. However, this is not one of those cases. And I’ll tell you why…

This type of market, complete with its daily volatility and blow-ups, requires that you expand your investing acumen. And this is where we come in, giving you the two key elements you need…

1. The necessary know-how.
2. The specific trades to take end-game profits.

Covered Call Buyers vs. Covered Call Sellers… Who Wins?

Using options does not mean gambling. If you’re relatively new to the options world, that’s the first fallacy you need to put aside. Options actually work very logically. With every buyer, there’s a seller.

The Buyers: 9 times out of 10 – especially with short-term options trading – buyers lose out. And with good reason: It’s like trying to predict where a stock will go in a couple of weeks or months – something that nobody is entirely capable of doing.

The Sellers: Options sellers, on the other hand, usually make money because they’re basically betting on this lack of supreme knowledge. Huh… how does that work? Simple…

While they acknowledge that they can’t predict where an index or stock will go with pinpoint accuracy, they at least want to try by making a well-informed, educated estimate. And they want to get paid for trying and waiting around. In particular, with deep-in-the-money covered call selling or put-selling, they want to own the underlying shares, but at a price that they specify.

I’ll give you an example…

Using Covered Calls To Invest In Gold

As we’ve written about here before, we liked gold investments when no one else did. So we put our money where our mouth was and bought shares in Goldcorp (NYSE: GG), a major gold producer.

But we were also aware that gold prices would likely remain volatile for a time, keeping shares from reaching our targets right away.

So what to do?

Easy. We bought the shares and sold call options against our position. This not only reduced our cost, but also gave us a quasi-dividend and increased our chances of a win.

In the end, our shares didn’t get called away from us at options expiration. But that was fine with us. We got another opportunity to lower our cost and increase our potential for a win by selling more calls.

We did the same with a recent trade in the Xcelerated Profits Report – and I’ll be doing it again very shortly. In this market, it’s how you play the game that counts. It’s all about risk management.

The Covered Call Investment Strategy – A Gateway To Safer Profits

In case you don’t know, we have the resources for you to learn about the covered call investment strategy (and several others, for that matter) in more detail on our Smart Profits Report website.

Scan our archives. It’s all free and essential reading if you’re serious about investing. We provide step-by-step instructions on how to execute various trades, as well as the rationale behind them.

And if you find something you really like, why not take your investing to the next level?

Source: Kiss Goodbye To “Ordinary” Investing: Why Smart Investors Use Covered Calls

This from Karim:

President Obama has all-but sealed the fate of the U.S. dollar.

In doing so, however, his policies – no matter whether they’re forced upon him or deliberate – have opened the floodgates for gold and gold stocks.

In fact, they’re setting the stage for the biggest rally in gold’s history.

Over the past several months, we’ve told you why you should buy gold and highlighted one of the best gold indicators you can use to determine when to buy gold. But today, we’re simply going to show you how to profit from the yellow metal…

Three Reasons Why Gold Is Headed Higher

Okay, so Obama hasn’t specifically said, “Buy physical gold,” but  he’s certainly saying it with his actions instead. Here’s why the metal is headed higher…

1. The Printing Press: The U.S. government is printing a massive amount of money every day. In fact, we’re up to $2 trillion since last November. But here are the questions we should be asking…

~ Where’s this money coming from?
~ What is supporting this huge flow of new money?

America can print money today because the world believes that one day we’ll pay it back. But we haven’t paid down our debt in decades! In fact, over the past 30 years, our debt has increased 10-fold. (We have paid the interest though and that is better than most countries).

However, each new dollar we print is like adding a tiny little bit to the price of gold. And we are printing trillions of dollars.

1. The Currency Fear Factor: Gold is going higher because people are frightened that they won’t allow themselves to fall into the dollar/yen/pound/euro trap again.

For example, did you know that gold is at new highs against the Pound and Euro? Because those two currencies have fallen sharply against the dollar, the price of gold in both currencies is much higher than the last time gold was at this level (about this time last year).

1. More Educated Investors: With the huge amount of upheaval that the economy and stock market has faced over the past year or so, we now have a greater number of educated investors, who can plainly see that gold is the asset to hold. We wondered out loud why this wasn’t the case back in October, as investors seemed to ignore the dire news coming out each day and gold prices were stagnant. They’re not ignoring it now – and readers who took our advice to buy gold are doing very well.

But because more investors have jumped on the gold bandwagon now is exactly why you should not be buying gold right now.

That is, of course, unless you’re using a strategy that allows you to make some money or reduce your cost if the shares move down. I’ll give you an example in a minute…

Mind The Gap: Why You Should Set A Buy Alert At The $800 Level

Since mid November 2008, gold prices have pretty much moved up in a straight line.

Be warned: Like any investment, this cannot last forever.

Gold will sell off for a variety of reasons: Because they need money more than jewelry… because China and India are a little bit poorer… because investors sell for technical reasons.

Gold needs to fill a gap on a chart that goes back to the $800 level. And that is when you should buy gold. But not physical gold. Let me explain…

When Gold Hits $800 Again, Here Are Four Gold Investments You Should Buy

Rather than buying physical gold – as many people like to do – you should instead buy shares in gold mining companies. This includes…

~ Goldcorp (NYSE: GG)
~ Yamana Gold (NYSE: AUY)
~ Barrick Gold (NYSE: ABX)
~ Newmont Mining (NYSE: NEM)

You could even buy a silver-based play like Silver Wheaton (NYSE: SLW).

Here’s the thing with physical gold: Unless you’re counting on it to come in handy during something like a government coup where you need to flee the country (in which case, you’d better take a donkey with you, as it will be a heavy load), there are disadvantages to owning physical gold. Ones that result in less money for you.

For example, physical gold is difficult to store. It doesn’t pay dividends. And you can’t apply professional investment strategies like covered call writing to gain additional income.

Most importantly, gold shares move up by a factor of between two times and three times more than the percentage move for gold. So if gold prices move up by 10%, you can expect gold shares to move 20% to 30%, depending on what their cost is.

Everyone Is Buying Gold… But Not Everyone Is A Pro: Here’s The Pro Way To Profit From It

Okay, so once you’ve bought some gold mining shares, how do you start milking the investment for bigger profits than most other investors? I’ll show you…

The bottom line is that not only do you want to capture the price appreciation of your gold shares, you also want to sell call options against your stock to reduce your cost and take money off the table. Here’s how it works…

Let’s say you buy shares of Silver Wheaton for $7. Using a covered call strategy, where you sell one call option for every 100 shares you own, you can get back almost 6% in cash over the next seven months – and still have the chance to more than double your money.

Think of it as a free dividend that no one else knows about.

That’s the kind of stuff we do all the time in my Strategic Income service and every so often in our Xcelerated Profits Report (XPR) newsletter.

Gold Is Going Higher… Let It Take You Along For The Ride

The bottom line is this: Gold is going to move higher. Ultimately, much higher.

There will be opportunities to buy the metal along the way – and you’re going to hear a lot of people crowing about those opportunities.

But what they probably won’t tell you is that there’s a way of not just buying gold, but buying it through a simple strategy that pays you back and also mitigates some risk.

Understand though, that gold is not going to shoot to the moon tomorrow. That’s why we’ve taken a defensive posture on two of the gold stocks I mentioned above. One is a covered call play on Goldcorp, and the other is a spread play on Yamana Gold that has allowed us to take 95% of our money off the table, yet still left us with the chance to make over 4,000% on the money we have at risk.

The question is: Are you just going to “buy gold” because everyone else is? Or are you going to really profit from gold like the pros do?

Source: Obama Says, “Buy Gold”… Three Reasons Not To Listen

We now have a government that wants to dictate how we live, work and earn money. Tax cheats can aspire to running the IRS, with the recently confirmed Timothy Geitner as their model. In addition, it seems that a large enough majority of the country wants the government to provide healthcare for everyone, as well as manage our banks.

All of which begs the question… What’s next?

There’s no need to speculate since we already know the outcome. With an annual deficit of over a trillion dollars, the government and the American people will have to face a choice: either accept a lower standard of living or fork over some extra cash in the way of higher taxes.

Guess which one we’ll choose.

The easy answer of course, is taxes. That is unless we want to become the next Weimar Republic. If you don’t remember it from your history books, that’s part of the point. Suffice it to say, it didn’t work out.

Too Much Convenient Cash Is Going To Make Gold Soar

That’s the problem in a nutshell, and there is a solution for the individual investor. Justified or not, the more money we print to prop up the various institutions, the less valuable that same money is going to be.

Naturally, that will make precious metals more valuable, so continue adding to your gold holdings whenever it pulls back. Because there will be pullbacks. Take yesterday when gold broke the $900 barrier before pulling back again.

Gold stocks tend to be a leading indicator for the price of bullion, such as late last year when the shares hit 52-week lows only to bounce back sharply, gaining 50% across the board.

That time, readers of The 400 Report, Xcelerated Profits Report, and Strategic Income, all participated in the rally through ownership of low cost producers. There was money to be made, and bottom line: we made it thanks to our plays on Goldcorp (NYSE: GG) and Yamana (NYSE: AUY).

And there are more profits to be made in the long run.

You should also be buying up municipal bonds, through high quality muni ETFs if you can.

That might sound like strange advice considering that last year everybody was terrified of municipalities going under. But with the new government promising to pump money into everything, there’s little worry of that happening now. The Obama administration has already signaled aid to the states as a cornerstone of the new stimulus package.

If you’re in the 25% to 35% bracket, you can rack up yields of over 9% in high quality muni funds. Look to Nuveen or Blackrock to buy into high quality (AA, AAA and insured) funds.

The Index of Leading Economic Indicators Tells All

With all of the changes being made, it’s obvious that we’re in uncertain times. But there was an interesting ray of light yesterday when the Index of Leading Economic Indicators (LEI) turned up instead of pointing down. Take it as you will…

The LEI stands out as a predictive indicator, as it factors in jobless claims, factory orders, housing starts, money supply and consumer sentiment to predict what will happen over the next 6 to 9 months.

Jobless claims just skyrocketed yesterday in what the media quickly dubbed as Bloody Monday, housing prices continue to fall despite an occasional upturn here and there, consumers still aren’t spending what they used to, and factory orders are unsurprisingly down thanks to the slew of economic bad news.

In fact, there is only one factor that I can see which is actually increasing… Money supply! Yup, the LEI went positive because we bailed it out just like everything else.

Source: How Do You Say “Higher Taxes” In French?

This from Whiskey and Gunpowder:

The Inauguration is over. It’s PRESIDENT Obama now. So let’s get back to work.

What can we discern about the incoming Obama administration? I had a long talk with an old friend who is a self-described “rabid Democrat.” Let me rephrase that. He’s a rabid Democrat in the way that Pittsburgh Steelers team owner Dan Rooney is a rabid football partisan. This friend of mine loves his Democratic Party. Just as Mr. Rooney wants his Steelers to win the Super Bowl, this guy’s focus in life is for his political tribe to do what’s right for the country. This friend of mine is also privy to the inner circles of Democratic politics. He’s just plain plugged in. He’s on a first-name basis with many on Team Obama.

So what’s on Obama’s plate? “Well, the first thing the new group has to do is stabilize the banking system,” he told me. “Things are still precarious with the banks. Liabilities exceed assets by a large margin. We will probably see more bank failures — small and even some large banks. That would hurt worldwide investor confidence and lead the stock markets down. We could test the old lows of last fall.”

This Democrat insider then got into other issues. “The housing crunch still has more rope to hang out, as well. A lot of the problem is isolated in a few states and regions of states — California, Arizona, southern Florida, the New York City metropolitan area, Massachusetts and a few other places. But it affects a lot of people. We’re dealing with populous, overbuilt places. We are also on the cusp of a lot of failures of government entities, from localities and school districts to counties. We’re going to have a lot of municipal bond defaults. We’re going to see municipal bankruptcies. Some large states are insolvent. California can’t meet payroll.”

And there’s more from this guy. “The next big wave will be that consumer spending dries up. This will lead to a failure of retail businesses all over the country. It’s going to be a huge unwinding. We spent the past 25 years spending more than we could afford. Now we as a nation have to pay some big bills. It’s time to save. It’s a good thing, in the big scheme, for people to save. But it’s going to put a lot of pain into the retail sector of the economy. We’ve overbuilt retail, and everything that goes with it. Too many stores. Too many buildings. Too much inventory. Too much shipping capacity. Too many containerships unloading too much stuff made in China and elsewhere. And a lot of people are going to lose jobs. I mean a lot of people. Everywhere.”

“The Next Two Years Are Going to Stink”

Here’s more from the Democrat insider. “The next two years are going to stink for the economy. Obama will face one financial crisis after another. He’s going to hate Wall Street. He’s going to hate bankers. Every time he turns around, the money people are going to be screwing him. He’ll try to fix one problem, and five more problems will spring up like weeds. (“Only five?” I asked.)

“The coming financial issues will test the ability of the legislative branch to act with integrity in the face of a media-driven clamor. States will be lining up to borrow money from the feds just to pay unemployment compensation, let alone to fund Medicaid and road maintenance. It will test the legal system as well. Expect more petty crime and a lot more bankruptcy. But fewer people will get divorced. Who can afford that anymore?

“And think about the foreign policy issues that the financial crises will cause. Just think in terms that when U.S. prosperity declines, it takes the world down with it. The economic contraction is going to set some societies back by decades. Will people take that lying down? Or will they riot in the streets and burn down the capitol building? Expect a rash of failed states. We’ll be surprised at some of the names that fall off the map. Wow, we might look back and wish for the days when the world hated us just because we invaded Iraq. Now they’ll blame us for stealing their future.”

“The Republicans will make political hay out of it. Unless they are totally incompetent, which you can’t rule out. Democrats will probably lose seats in the House and Senate in the 2010 elections, as well as in state legislatures and governorships. But Obama will be working his own game of building consensus. He’s from a new generation of politician. He’s not nearly as in-your-face confrontational as the Democrats of the 1960s and 1970s era, the Kennedys and Waxmans and Barney Franks. Obama will build coalitions out of whomever he can get on board. You might not like him on issues like gun control or abortion, but you’ll deal with him on tax cuts and energy investment.”

Where Do You Go From Here?

So where do we go from here? Well, here’s my post-Inaugural advice. Build up some cash reserves. Got that? Hold Cash! Cash in the mattress. Cash in the bank. Certificates of deposit. Don’t try to get too fancy. Just save some cash where you can get hold of it in case you need it pronto.

Next, buy precious metals like gold and silver. Bullion coins or bars are my favorites. But it never hurts to buy a few quality numismatic coins as well. Don’t get spooked out of precious metals if we see a price dip in the near to medium term. The dollar is in serious trouble, and eventually the precious metals will come back. Precious metals are a way of preserving your purchasing power over the long term.

As for stocks, in the near future, we could see some severe market declines. Initially, this might look like large trading spikes up and down. Unless you are a serious trader, be careful about trying to “play” the swings. Don’t be afraid to sell any stock that makes you nervous. You have to be able to sleep at night. Along these lines, I’ll keep addressing the OI portfolio in future updates.

There are certain investment ideas that will probably work over the long term, like really good precious metals miners. Kinross Gold (KGC: NYSE) and Goldcorp (GG: NYSE) come to mind. The point is that you want well-capitalized miners with solid reserves and good production facilities.

Source: Inside The Obama Huddle: Housing, Banking, Life and Crisis

But starting at that 3:00 a.m. time, gold went on a nice little tear…through the London open, and lasted until shortly after London closed for the day…11:00 a.m. Eastern. Three attempts were made to corral the price…the first at 7:00 a.m., the second at around 8:45…and success came shortly before 11:30 in New York. Physical selling was reported to be the cause…this tidbit from the usual NY commentator. By the time that Globex trading was through at 5:15 Eastern time yesterday, the gold price was back under control…for the moment.

Silver’s ride on Tuesday was very similar to gold’s. It was obvious that the boyz weren’t going to allow it to rise much either…although it certainly gave it the old college try. By the end of the day all the lovely gains in the gold and silver shares had pretty much evaporated, with the HUI even being down on the day. Globex gold volume was extremely heavy yesterday…almost a record…with volume (net of switches) around 180,000 contracts.

Despite the ‘wonderful’ day on Tuesday (to go along with Friday’s), the gold price still isn’t out of the woods yet. It should be obvious to you that there is a gargantuan ‘gold war’ going on out there with the Fed (acting through select bullion banks…primarily JPMorgan) going short against all longs. And it’s been a success as far as the Fed is concerned. Back in 1981, the gold price hit $850. That’s where it is at this writing…28 years later. The Point and Figure chart looks promising, but we need a substantial breakout from here to turn this chart around…$895 looks like the magic number. Here’s the chart…updated from Friday.

click to enlarge

Gold open interest on Friday was only up 3,937 contracts to 317,735…which is not a lot considering the $30+ move that gold had. A rising gold price with a small open interest increase means one thing…only a handful of players were prepared to go short against these longs…something that did not happen on Tuesday, unfortunately. In silver, o.i. was up a more substantial 1,543 to 87,023 contracts. I would expect both Monday’s and Tuesday’s o.i. numbers will be combined when reported later this morning. Considering the volume…gold in particular should be a rather large number.

In gold news, here’s a story posted at expressindia.com…Mumbai…”(gold) demand has fallen to 50-100 kgs per day from 1-2 tonnes per day in August 2008 due to a lack of buying interest and higher prices, Bombay Bullion Association (BBA)’s President Suresh Hundia told PTI here.” Reuters…”On Friday, JPMorgan (NYSE:JPM) downgraded Goldcorp (NYSE:GG), Kinross (NYSE:KGC) and Agnico-Eagle (NYSE:AEM) to neutral from overweight, and Pan American Silver (NASDAQ:PAAS) to underweight from neutral.” [One should expect nothing less from JPMorgan – Ed] And the Bank of Russia reported on their website yesterday that they had increased their gold bullion reserves by another 300,000 ounces in December…and now sit on 16.7 million fine troy ounces of the stuff. Despite all their currency problems, they’re still smart enough to know that they should turn worthless paper into precious metals at every opportunity. So should you!

In ‘other news’…where does one begin! It should be obvious to anyone with a pulse that the entire world’s financial system is imploding right before their eyes. The Royal Bank of Scotland and the Halifax Bank of Scotland…as well as Barclays…are at the centre of a U.K. banking and monetary implosion…which followed through in New York yesterday, with JPM, BAC, C, GS and WFC getting absolutely blown out of the water. The Guardian (Brussels) “Europe’s car industry faces collapse without rapid intervention from EU governments.” [Note the photos of acres of unsold cars from all over the world. Click here. – Ed]. Bloomberg (Singapore)…”Asian central banks will cut interest rates and pursue competitive devaluations of their currencies in the first half of the year.” Bloomberg (Singapore)… “ ‘Time to Sell’ Treasuries, Biggest Korean Fund Says”…A rally that sent U.S. Treasuries to their best year since 1995 is coming to an end, South Korea’s National Pension Service, the country’s biggest investor, said.” Bloomberg (Madrid)…Spain’s Credit Rating Dowgraded by S&P as Slump Swells Budget Gap.” Bloomberg (Moscow) “Ruble Drops to Pre-1998 Crisis Low on 6th Devaluation This Year.”

Because of the long weekend and the international banking crisis, I’ve got four stories today. The first is the usual weekly essay from silver analyst, Ted Butler. He reflects on silver’s supply, which may be a lot less than is generally thought, less even than Butler himself has thought. His commentary is headlined “Real Silver Availability” and the link is here.

The next story is from last week, but it came out too late for Saturday’s commentary. Hank Paulson did not leave his post without a final shot at China. In this Bloomberg story, “a Chinese central bank official attacked reported comments by U.S. Treasury Secretary Henry Paulson that China’s high savings rate helped trigger the global credit crisis.” Paulson’s logic is similar to that of a teenager pleading to a judge for clemency because he is an orphan after he killed both of his parents. The story, entitled “China Central Bank Attacks Paulson’s ‘Gangster Logic’…and the link is here.

From The Telegraph in London comes this story entitled “Help Ireland or it will exit euro, economist warns”…”If Ireland continues hurtling down this road, which is close to default, the whole of Europe will be badly affected. The credibility of the euro will be badly affected. Then Spain might default, Italy and Greece,” said Mr. McWilliams, a former UBS (NYSE:UBS) director and now prominent broadcaster. McWilliams has broken the ultimate taboo by evoking threats to precipitate an EMU crisis, which would risk a chain reaction across the eurozone’s southern belt.” The link is here.

In a story reprinted from the Economic Times in London, the heading reads “U.S. and U.K. on Brink of Debt Disaster”…”The remaining option is to tolerate, even encourage, a faster rate of inflation to improve debt-service capacity. Even more than debt nationalization, inflation is the ultimate way to spread the costs of debt workout across the widest possible section of the population.” The story is linked here.

The markets have more power than all the tin-horn politicians on the planet earth. The markets have more power than the Fed and all the central banks of the world taken together. Remember, the Fed’s inflation and interest rate manipulations will work only as long as the markets go along with the Fed. The minute the markets see that the Fed’s machinations aren’t working, then we’ll get our first taste of true deflation, and the Fed’s power will have evaporated. – Richard Russell

Two other stories that didn’t make the cut today were separate stories out of England and the USA about how both country’s central banks were about to turn on the printing presses and monetize their respective debts. It’s their only way out now…unless they want to revalue the gold price ..and it doesn’t look like that’s in the cards at the moment. John Exeter’s inverse liquidity pyramid is posted above. We’ve gone from “Small Business” to “Paper Money” in an unbelievably short 18 months…and now the Fed is trying its best to prevent the final resolution to gold. They’re fighting a losing battle. Now it’s only a matter of when…and how high. Buy physical gold and silver and take possession, as I get the distinct feeling that we’re nearly out of time. And it might be worth considering taking a few months’ worth of living expenses out of the bank while you’re at it.

See you on Thursday.

Source: And Then There’s This…Wednesday, January 21st, 2009

You shouldn’t be one of them – at least not if you took our advice to buy gold stocks, as we’ve suggested for some time now.

If so, you’ve likely enjoyed double- and triple-digit returns since September. And there’s more to come for gold. But be careful. The price of gold and gold shares will not move up in a straight line. Here’s why…

Massive Stimulus = Three Huge Rallies In The Next 12 Months

Over the next few months, the talk will be of deflation, not inflation. Actually, what people should be talking about is “disinflation.” That means the slower growth in prices, not necessarily the technical definition of deflation, which is when prices actually fall and are expected to fall further.

Monetary policy does not have immediate effects. But the Fed’s new policy to buy any and all securities by way of its massive balance sheet should act as a major stimulus to the market by mid-summer.

Add to this a massive stimulus package, which will be announced on January 21, as soon as President-elect Obama is behind the desk at the Oval Office… and you have the makings for three major rally points in the coming 12 months.

Rally #1: Gold and silver

Rally #2: Commodities

Rally #3: Financial and insurance stocks

Let’s see why…

Gold

Gold will rally because of the very simple fact that the Fed and governments around the world cannot print so much money without debasing their respective currencies.

This is not idle conjecture. It will happen.

Paper is infinite… gold is not. And the balance could send gold – and gold shares – to the moon in coming years.

What should you do?

Wait for the inevitable pullbacks in gold and gold shares to load up. We’re talking about companies like Goldcorp (NYSE: GG) here.

These pull backs will come when the numbers that come out in the coming months, which will continue to point to more slowdown.

Remember, monetary policy takes time to trickle down, usually 6 to 9 months.

Commodities

Commodities will rally on the back on infrastructure spending and demand for oil and gasoline, which will be ignited by government policy and the increased consumption by consumers as low prices act as an incentive to use more oil.

What should you do?

Selectively invest in infrastructure shares and to buy oil and oil related companies. In this area, we’re looking at General Electric (NYSE: GE), which also just reaffirmed its 2008 profit forecast and 2009 dividend payment plan, as well as refiners like Tesoro (NYSE: TSO).

Financials

Finally, financial stocks will benefit (those that have survived, of course), as the government buys more of their assets, thus cleansing their balance sheets and income statements in future quarters.

What should you do?

In bailing out Citigroup (NYSE: C) shareholders, the U.S. Treasury sent a strong signal that it will not allow major failures and it will not penalize shareholders either.

Banks will also benefit from the spread between their borrowing costs at the Fed window, which will be low for some time to come, and the rate at which they lend the money out (when they start lending again in earnest).

Don’t expect great results in the first or second quarter, but look for opportunities to buy financials on major dips. Consider re-financing your mortgage, too, as you may see sub-4% mortgage rates in the near future.

The Smart Profits Bottom Line

The moves by the Fed and foreign governments are unprecedented.

They are lowering interest rates and printing money – not just to stimulate economic growth, but also to fight off a Depression.

Will they succeed? Most likely, yes. And that means you’ll want to be on the right side of the reflation that will occur in the months and years ahead.

At the Xcelerated Profits Report, we’ve taken positions in all three of the above-mentioned sectors in order to grow wealth. So can you – and we’ll show you how to do it like the pros do. Faster and with less risk than the regular crowd. For more information, click here.

Source: Federal Reserve Slashes Interest Rates Again… Why You Should Go For Gold, Commodities, And Financials

This from Today’s Financial News:

The old saying that cash is king is not as true as it used to be. With so many investors fleeing the turbulent markets, billions of dollars in cash are sitting on the sidelines, with investors looking to stash their stockpiles in any safe place they can find.

The American government has been the go-to repository. As the safest of them all, Treasury bonds are seeing huge demand. But with demand comes increased prices, and with increased prices comes dwindling interest rates.

The privilege of loaning your cash to Uncle Sam is no longer a profitable one. Give the government a few thousand bucks for the next few years and it will hand you a couple of nickels to rub together. As the value of the dollar declines because of these low interest rates, the situation only promises to get worse.

That is why hordes of investors are turning away from the bond market and once again tossing some money into the gold market. Gold prices made significant moves last week and are on the rise once again this week. As I write, gold is trading for close to $840. That means the precious metal has tacked on roughly $100 since its November lows.

Hurricanes are tough to predict

If you want to know which way gold prices are headed, it depends on who you ask. Some analysts say, $1,000, $1,500 or even $2,000 an ounce is just around the corner. Others say the fundamental value in gold is waning fast and bearish investors should watch for $600 or even $500 per ounce.

As the world’s economy strengthens, the bears will be right. But in the meantime, the declining dollar, the high-risk equities market and fears of government supported inflation are going to propel gold’s prices dramatically higher.

There are multiple ways to take advantage of the price hikes. The simplest would be to buy a gold-based ETF like SPDR Gold Shares (NYSE:GLD).  But if you want to magnify the potential gains, use the leverage created by investing in a gold miners like Goldcorp (NYSE:GG) or Barrick Gold (NYSE:ABX). Their current valuations look quite cheap if gold starts to soar.

But with so much uncertainty in the economy and the government ready to re-write the economic textbooks, investors must be aware of the increasing risks. In an ill-informed attempt to “jolt” the American economy back into high gear, the government could easily force gold prices off their track and into a canyon of deep declines.

Source: The Gold Debate Heats Up

More from David at The Sovereign Society:

Dividend-paying stocks used to offer a way to “play it safe.” Especially during bear markets, the regular paychecks could help “soften the blow.” But not anymore.  The truth is; dividend investors are getting hammered.

The Wall Street Journal calculated that 36 companies in the Standard & Poor’s 500-stock index have cut or suspended dividends this year, removing $33.3 billion from investors’ pockets.

And of the 7,000 or so publicly traded companies that report dividend information to the S&P, 138 decreased their dividends during the third quarter… a 15-fold increase from the same period last year.

And since these floodgates have been flung wide-open, many more companies will now join the trend and feel it’s alright to cut their dividends. Remember, stock dividends are not contractually guaranteed. So with a wave of a CEO’s hand, they can disappear.

The Secret of “Guaranteed Dividends”

But today I’m going to teach you how you could get those same companies to “guarantee” to pay you a dividend. And not just 4% or 5%… but 10%, 15% even 30%.

Better yet these “dividends” will be paid to you not quarterly or semi-annually but monthly. Cash will be delivered to your account on the same day every month, month after month… “Guaranteed”.

What I’m talking about are Structured Investments and specifically a widely used product in the financial industry known as Reverse Convertible Notes.

For those of you not familiar with Reverse Convertible Notes (RCN’s), they’ve been around for years. Widely used in Europe but usually offered to only the wealthiest of U.S. investors, RCN’s are now finally available to the retail investor.

Reverse Convertible Notes are securities that offer individuals a predictable, steady stream of income. They pay a high coupon – much higher than the return you would receive on fixed income securities.

Here’s an example…

Let us suppose you like General Electric (NYSE:GE). The stock is currently trading at about $15.00 per share, which you think is a steal. Even if the stock market drops further and pulls GE down with it, you’re OK with a $15 purchase price plus its 8.2% dividend yield.

But what if I told you I could get you a better deal on GE? I can offer you a “cash dividend yield” of 19.3%… and if the stock falls all the way back to $9.75… you could care less. You didn’t own the shares anyway.

Well that’s the power of Reverse Convertible Notes.

Here’s another great example:

Goldcorp (GG) – You want yield, you need cash every month and you’re a gold bug. We’ll there’s an RCN currently being offered that will pay you a 20.80% annualized cash “dividend check” for the next three months. Worst case… you’ll own the shares of Goldcorp at this incredibly depressed price and still get the dividend.

That’s pretty much a win-win deal if you ask me.

The Disclaimer

Now before you get excited and rush out to buy the first RCN you can get your hands on, I must tell you that these products can sometimes be complicated. You have to be careful with your issuers, and I’ve seen a 60-page prospectus on a single RCN before. So you always want to do your homework, and – most of all – make sure you get some good advice on which of these RCNs is the best investment for you.

For example, it’s taken me a solid 14 months of research to get to the bottom of this little-known income-boosting market. But it’s starting to pay off. Just last week, I found a way to squeeze a fat 10% return out of Wal-Mart – without buying a single share of stock. And that’s the lowest return I’ve encountered so far!

And if you want to be able to capture this kind of profit without all the time and energy leafing through prospectuses and talking to brokers, then I’ve got something for you. It’s called Accelerated Income, and it’s a service that I started to make the whole process easier on you the investor.

In Accelerated Income I tell you about some of the best values in the marketplace and how you can get them. I cut through all the finance-speak and tell you about the product’s advantages and disadvantages in plain English. Despite their best efforts, these investments aren’t rocket science… and they don’t have to seem like it.

Source: Don’t Get Burned by Wall Street’s “Cut-and-Run” Routine