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Archive for April, 2011

Apr

2011

Angie’s List IPO: Is Angie’s List stock a buy?

by Fred Mason

The service company reviews site Angie’s List could IPO as early as this year, according to a Reuters report.

While we don’t have solid financial numbers, we do know revenue at the company was up 40 percent last year, and the site expects to the end the year with 1.8 million members (per Reuters). The standard monthly fee for the site varies by geography. Here are the various membership packages available in two random areas (Dayton, where I am, and Brooklyn, New York):

Angie’s List Membership Prices in Dayton, Ohio

Angie’s List Membership Prices in Brooklyn, New York

Prices are nearly three times higher in the New York area and there are significantly more membership packages available:

Hypothetically, let’s say the average member pays $5 a month to access the site. With 1.8 million members, the site could generate $9 million a month or $108 million a year. Once the site’s acquired a long-term paying member, it turns into a cash cow. That’s the beauty of subscription-based membership sites.

Of course, Angie’s List likely pays high membership acquisition costs. You hear and see their marketing campaigns everywhere, and it’s not unusual for subscription-based sites to pay acquisition fees of more than half of what they’ll eventually earn from a new client.

The adult dating site Friendfinder is a great example. Each subscriber costs FriendFinder an average of $47.25 to acquire. Sounds expensive, but each new acquisition spends an average of $80.17 in membership fees.

Subscribers are the name of the game, and I guarantee the single most-watched metric inside Angie’s List headquarters is a daily report on the number of subscribers the site has. If that number is in a strong up-trend, Angie’s List stock is a buy. If it’s flat-lining or even declining, the company will have to lower prices or radically change its approach to avoid a MySpace-like flameout.

Right now, though, it looks like the good times are rolling at Angie’s List. The site’s reach (or percent of global Internet users who visit Angieslist.com) has accelerated since the start of the year:

Source: Alexa.com

The big question, though, is whether Angie’s List has a product that’s worth shelling out for in the face of an ever-growing number of free online review sites. Just about every big player in the country is dipping its toes in the reviews business from YP.com to Yelp to Google Places. That competition makes me nervous, but it’s hard to argue with 40 percent growth in revenue.

Even if Angie’s List remains a small site serving a small niche of clients, it can still pull in cash hand over fist. What it does with that money may decide the stock’s fate. The right acquisitions, partnerships and marketing could turn Angie’s List from a niche site into a must-have for consumers.

THE FACEBOOK OF CHINA?

3 MORE reasons to invest in the RenRen IPO

LOOKING FOR LOVE IN CHINA

Jiayuan.com IPO: 3 reasons to invest in Chinese dating site

IPO CALENDAR

The unofficial tech IPO calendar for 2011

THE GOOGLE OF RUSSIA

Yandex IPO: 5 reasons to invest in Yandex stock

THE FACEBOOK(S) OF CHINA

RenRen IPO’s biggest hurdle might be PengYou

TWEETING IN CHINESE

A Sina Weibo IPO could be in the works as China’s Twitter moves to Weibo.com

Tags: Angies List
Posted in business ideas, Internet stocks, IPOs, private companies, tech stocks | No Comments »

Apr

2011

Jiayuan.com IPO: 3 reasons to invest in Chinese dating site

by Fred Mason

Jiayuan Stock Symbol: DATE
Jiayuan IPO date: May?

The online dating market in China is expected to grow from $75 million in 2010 to $292 million by 2015, according to data from iResearch. That’s good for a compound annual growth rate of 31.3 percent, and Jiayuan.com is positioning itself to take the lion’s share of that cash. In light of the company’s recent IPO filing, here are four reasons to consider adding Jiayuan stock to your portfolio:

1) Capturing the hearts of the Chinese. Jiayuan.com operates the single largest online dating site in China, according to iResearch. All told the site has 40.2 million registered users, 4.7 million of whom have logged in during the past calendar month as of March 31, 2011. Of that 4.7 million, more than 882,000 open their wallets every month to buy virtual “stamps” on the site (more on those stamps below).

2) Freemium model. Unlike most dating sites that only give registered users limited access to the site until they upgrade their account, Jiayuan lets anyone create a profile and browse other full profiles for free. Users can also send messages to anyone they please. There’s just one catch: if the message is the first one sent between two particular users, either the sender or the recipient must pay for a virtual “stamp” to make the message readable. After one stamp’s been purchased, those two users can converse via the site’s messaging platform for free. Stamps cost ¥2 (roughly $0.30).

“Given the nominal cost of a virtual stamp, we believe this feature of our business is recession-resistant and serves as a strong foundation of our revenue model,” the company writes in its F-1 filing.

3) No one said love is cheap. According to iResearch, Jiayuan gobbled up 43.7 percent of all the money spent on online dating in China last year. Numbers will likely be stronger this year, too, as the site expands to smaller cities across the country and hosts a growing number of face-to-face “VIP” events for the site’s more affluent users.

Revenue grew by 162 percent last year to ¥167.6 million ($25.4 million). Net losses widened last year to $1.3 million mostly on higher income tax expenses and income allocated to participating preferred shareholders. Jiayuan plans to use proceeds from the IPO to pay accrued dividends to preferred shareholders, which should help the company’s books moving forward.

4) Cultural shifts behind the Great Firewall. Jiayuan outlines several reasons for the expected surge in online dating in China, the most unusual of which is the “growing gender imbalance” in the country. China has the highest male-to-female ratio in the world at 1.133 to 1 (per Wikipedia). Compare that to the United States, which has a ratio of 1.05 to 1. Men may be drawn to online dating in an environment where its difficult to meet unattached women. Other cultural shifts in Jiayuan’s favor? Rapid urbanization and a fast-growing internet population. Just 14 million Chinese singles over 18 visited dating sites in 2009. According to iResearch, that number should exceed 60 million by 2015. Jiayuan’s hoping most of those visitors will come through its site (and hopefully buy a whole lot of virtual stamps in the process).

THE FACEBOOK OF CHINA?

3 MORE reasons to invest in the RenRen IPO

I WANT IN

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IPO CALENDAR

The unofficial tech IPO calendar for 2011

WHAT’S THE POINT?

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THE FACEBOOK(S) OF CHINA

RenRen IPO’s biggest hurdle might be PengYou

TWEETING IN CHINESE

A Sina Weibo IPO could be in the works as China’s Twitter moves to Weibo.com

Tags: DATE, Jiayuan IPO, Jiayuan.com
Posted in Chinese stocks, Internet stocks, IPOs, private companies, tech stocks | No Comments »

Apr

2011

Gold and silver all-time record highs (INFOGRAPHIC)

by Fred Mason

Gold broke it’s 1980 all-time record high of $875 an ounce in 2008. The yellow metal’s now trading north of $1,500 an ounce. Silver surged to a brand new all-time record high of $49.45 an ounce on April 28, 2011. While the “nominal” or “face value” record highs for the metals have been broken, gold and silver are still trading well below their all-time record highs when adjusted for inflation. Check out the infographic below to see how far gold and silver are from their inflation-adjusted highs:

Copy and paste the code below to embed this graphic on your site!

Source: Wall Street Journal.

BLIND LEADING THE BLIND Why has the media gotten silver price forecasts so wrong?	GOLD’S TURN TO SHINE? Gold silver ratio pointing to higher gold prices?
SOCIAL NETWORKING WAR HEATS UP IN CHINA RenRen IPO’s biggest hurdle might be PengYou	ARTIFICIAL MARKETS Silver market manipulation can’t be ruled out
SLOWING DOWN THE SILVER SURGE New silver margin requirements go into effect	THE FACEBOOK OF CHINA? 3 MORE reasons to invest in the RenRen IPO

Tags: gold bullion, gold price, silver bullion, silver price
Posted in gold, precious metals, silver coins | No Comments »

Apr

2011

Yandex IPO: 5 reasons to invest in Yandex stock

by Fred Mason

Yandex Stock Symbol: YNDX
Yandex IPO date: May 24, 2011

After several delays dating back to 2006, Russia’s largest search engine, Yandex.ru, has officially filed for an IPO with SEC. Yandex is currently the most-visited Web site in Russia and the 23rd most-visited Web site in the world (per Alexa). Here are five reasons you should consider buying stock in the Yandex IPO:

1) Dominating Google. There are, in essence, just two major markets that Google’s been unable to crack: China and Russia. Google.ru has made significant strides in recent years, but Yandex.ru still accounted for 64 percent of all the search traffic in Russia last year. Adding $1 billion to the company’s warchest via an IPO should help Yandex maintain it’s lead over the pesky folks in Mountain View, Calif. Yandex generates 1.6 times more pageviews than Google in Russia, according to the following chart from Alexa:

2) Lots of rubles. Yandex’s revenue is on pace to grow 22 percent this year from $439 million to $548 million, and that was good for $134 million in net income last year. Inexplicably, income was down in Q1 2011 to $28.8 million (a number that would give Yandex net income of just $115 million in 2011). Expenses appear to have spiked this year, presumably as the search engine faces increasing competition domestically and abroad. Still, Yandex is the undisputed online advertising leader in Russia, and it generates more revenue than any other Web property in the country, according to the company’s F-1 filing.

3) More servers, more data, more speed. Yandex will use the proceeds (likely $1 billion or more) from its IPO to invest in new servers and data centers. That should significantly boost the site’s speed and cement its place as the country’s leading search engine.

4) Explosive Internet growth in Russia. Russia’s internet market significantly lags development in the U.S. That puts the country’s internet market in the fat part of its growth curve. As of 2010, just 60 million Russians had access to the Internet. That’s roughly 43 percent of the country’s population. A chart from Yandex shows how quickly Russia’s Internet user base is expanding (via SiberianLight):

5) Investors love search engine stocks. Pure play search engine stocks are something of a rarity. Outside of Yandex.ru, there are really only two others we can look to for comparison: Google Inc. (NASDAQ:GOOG) and China’s largest search engine, Baidu.com, Inc. (NASDAQ:BIDU). Since its IPO in 2004, Google’s shares are up nearly 400 percent (although they still trade below highs set in 2007). Baidu’s up more than 1100 percent since debuting on the NASDAQ in 2005. So long as Yandex can retain its leadership slot in Russian search, history should repeat itself again and give us a winning stock.

THE FACEBOOK OF CHINA?

3 MORE reasons to invest in the RenRen IPO

ALL SHARES ARE NOT EQUAL

Facebook stock powers growth at SecondMarket

WHY WAIT FOR AN IPO?

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THE SKY’S THE LIMIT

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THE FACEBOOK(S) OF CHINA

RenRen IPO’s biggest hurdle might be PengYou

TWEETING IN CHINESE

A Sina Weibo IPO could be in the works as China’s Twitter moves to Weibo.com

Tags: BIDU, GOOG, search engines, Yandex.ru, YNDX
Posted in Internet stocks, IPOs, NASDAQ, private companies, Russian stocks, tech stocks | No Comments »

Apr

2011

5 reasons silver prices will spike in May

by Fred Mason

I’ll admit silver prices had me nervous before the conclusion of the FOMC meeting yesterday. Any hint from Fed Chairman Ben Bernanke that an interest rate rise or a premature end to QE2 was in sight could have caused a massive sell-off in the silver market.

Instead, Mr. Bernanke reiterated his insistence that inflation is tame and interest rates will remain near zero for an “extended period.” With that, the cloud of uncertainty hovering over the precious metals market was parted, and investors re-upped their holdings in gold and silver. Silver spiked $3 an ounce from an intraday low near $45 to more than $48.50 – a gain of nearly 8 percent. I expect more of the same in May, and here are five reasons why:

1) Pedal to the metal for QE2. Mr. Bernanke’s keen to avoid the mistakes Japan made during its “Lost Decade” in the 1990s. Japan embarked on its own quantitative easing then after a sharp contraction in asset prices threatened price deflation. While the idea was sound, the Fed believes Japan’s failure was in ending quantitative easing too soon. That eventually led to stagflation and more QE down the road. The U.S. won’t make the same “mistake.” Never mind the fact that no one knows for certain whether QE can create self-sustaining economic growth. Mr. Bernanke’s signaling he’ll keep forging ahead despite protestations from the Chinese, the Eurozone and scores of smaller, more inflation-vulnerable countries around the world.

Not only will the Fed see QE2 to its conclusion, its reinvesting dividends from its bonds back into the Treasurys market (what Jim Puplava at FinancialSense calls QE2.5). That means inflation’s here to stay – at least through the end of June. That’s bad for the dollar and good for silver and gold.

2) Industrial demand. It’s hard to deny that a cheap dollar is good for the economy. American exports become more competitive, which helps domestic companies generate better earnings and, in turn, leads to more hiring. So long as global economic growth doesn’t stall, silver will continue to face growing industrial demand. Some estimates claim industrial silver consumption accounts for 60 percent of total silver demand (per Forbes). Couple that with growing demand from investors, and you’ve got a commodity that’s poised to keep ripping higher (at least until high oil prices start denting global economic output).

3) The momentum trade. Inflation expectations drive the price of gold and silver. Right now, though, it’s clear that momentum’s on silver’s side. Gold’s rallied to a series of record highs since the start of the year, but it’s still up just 6.3 percent since Jan. 1. Silver on the other hand has risen more than 55 percent. That’s got a lot of writers and analysts worried that the metal’s price has went parabolic. If that is indeed the case, there could be a lot more room for the metal to run (at least through the end of QE2).

4) No price records yet. While much has been made in the media about the all-time record high of $50 an ounce for silver set in 1980, it’s important to remember that number is nominal. If we adjust silver’s record high for inflation, we get a price of $131.49 per ounce (per the Wall Street Journal). Keep in mind that silver prices were squeezed by the Hunt Brothers’ attempt to corner the market in the 1980s, but I’ve long believed that argument carries too much weight. The Hunt Brothers, after all, weren’t trying to corner the gold market, and gold prices rose nearly as dramatically in 1980. Precious metals fundamentally respond to inflation – a condition that was rampant 30 years ago. The same condition exists today, and it’ll likely get worse before it gets better.

5) Asset allocators eying precious metals. While portfolio managers have long recommended investors allocate 5 percent of their portfolios to precious metals, there are indications that professionals are steering the masses toward bigger bets on gold and silver. Anthony Welch of Sarasota Capital Strategies tells Barron’s he’s heard some advisors recommending investors allocate as much as 20 percent of their holdings in the space. If hedge fund and mutual fund managers follow suit, silver prices could indeed be at risk of climbing too fast. In the meantime, though, the skies look sunny in May.

BLIND LEADING THE BLIND Why has the media gotten silver price forecasts so wrong?	GOLD’S TURN TO SHINE? Gold silver ratio pointing to higher gold prices?
SOCIAL NETWORKING WAR HEATS UP IN CHINA RenRen IPO’s biggest hurdle might be PengYou	ARTIFICIAL MARKETS Silver market manipulation can’t be ruled out
SLOWING DOWN THE SILVER SURGE New silver margin requirements go into effect	THE FACEBOOK OF CHINA? 3 MORE reasons to invest in the RenRen IPO

Tags: Ben Bernanke, gold price, gold price forecast, Hunt Brothers, QE2, QE2.5, silver industrial demand, silver price, silver price forecast
Posted in gold, gold stocks, mining stocks, precious metals, silver coins, silver stocks | No Comments »

Apr

2011

Facebook stock powers growth at SecondMarket

by Fred Mason

Business is booming at SecondMarket.com. The secondary exchange lets high-net-worth investors buy and sell shares in private companies including some of the tech world’s brightest lights; companies like Twitter, Facebook, Zynga and Groupon.

Over the past six months, the number of SecondMarket participants surged 152 percent to 53,000. Most of that’s thanks to interest in buying Facebook stock.

Facebook shares, which trade in weekly eBay-style auctions on the site, accounted for more than 40 percent of SecondMarket’s transactions last month, according to Bloomberg Markets.

While most of us would probably love to get our hands on some pre-IPO Facebook shares, there’s little transparency and even less liquidity on secondary exchanges. That’s one of the reasons we’ve seen eye-popping valuations on Facebook. One of SecondMarket’s largest competitors, SharesPost, cautions investors against blindly buying stock in trendy private companies.

In a single day of trading in January, SharesPost points out one group of investors bought a block of Facebook shares for less than $30 each. The same day, another group of investors spent $60 a share for Facebook stock.

Without access to proper financial statements, investors are taking on significant risk when they wade into secondary exchanges. And now it appears the SEC may be considering relaxing rules to make secondary trading easier. Bloomberg Markets reports that SEC Chairman Mary Schapiro indicated as much in a letter to California Representative Darrell Issa.

Schapiro wrote that she was considering raising the limit on the number of shareholders a private company can have without reporting financial information to the commission. That number’s currently 499. If it’s raised significantly, volume on private exchanges will likely spike as employees at companies like Facebook and Twitter may be given more leeway to sell off shares they’ve accumulated.

That would probably drive up Facebook shares higher – even without an accurate look at the company’s earnings and financial prospects. It doesn’t seem to matter right now, though.

“People aren’t buying Facebook for its revenues in 2010,” Wedbush Inc. analyst Lou Kerner tells Bloomberg Markets. “They’re buying it for what it’s going to be doing in 2015. We believe if it were public, it would be worth in excess of $100 billion.”

People want Facebook shares, and SecondMarket’s one of the few places they can get them – no matter what the price may be.

THE FACEBOOK OF CHINA?

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How to invest in Facebook

WHY WAIT FOR AN IPO?

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THE FACEBOOK(S) OF CHINA

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TWEETING IN CHINESE

A Sina Weibo IPO could be in the works as China’s Twitter moves to Weibo.com

Tags: Facebook, Facebook IPO, SecondMarket, SharesPost
Posted in Internet stocks, private companies, tech stocks | No Comments »

Apr

2011

Top 11 best cloud computing stocks

by Fred Mason

We’ve come a long way from floppy disks. We have laptops, smartphones and iPads in our hands, and we want to access the same data across all three platforms. More importantly, we don’t want to have to waste time transferring data across platforms.

Enter the cloud – an ineffable server farm in the sky that safely stashes away our data, backs it up and spits it back at us on demand. It’s the next evolution in computing, and it promises to make a lot of companies from start-ups to Dow components a whole lot of cash in the years to come.

Research firm Forrester estimates the cloud computing market will balloon from $41 billion this year to $241 billion in 2020 (per the Wall Street Journal). Clearly, there will be some big winners in the space. Here’s our guess at the Top 11 best cloud computing stocks of 2011 and 2012 in no particular order:

1) Citrix Systems, Inc. (NASDAQ:CTXS).
YTD Performance: +12.8 percent
Citrix surged to a new 52-week high on Monday. With a market cap of $14 billion, it’s one of the largest (nearly) pure-play cloud computing stocks on the market. The company also peddles some of the white collar world’s most well-known cloud software in GoToMeeting and GoToMyPC.

2) Amazon.com, Inc. (NASDAQ:AMZN).
YTD Performance: +1.2 percent
Amazon, which counts Reddit, Foursquare and Quora among its clients, got into the cloud game early, and the company appears committed to maintaining a leadership position in the space – even at the expense of short-term profits. Just last month, Amazon launched its so-called “Cloud Drive.” Targeted at everyday consumers, the online storage space gives users a place to stash MP3s for access anywhere they’ve got a Web connection.

3) Acme Packet, Inc. (NASDAQ:APKT).
YTD Performance: +44.6 percent
Q1 was good for Acme Packet. The company reported record revenue north of $59 million and raised its guidance for the rest of the year. Acme delivers voice, video and multimedia for enterprise-level clients including big dogs like Verizon (NYSE:VZ).

4) ChinaCache International Holdings Ltd. (NASDAQ:CCIH).
YTD Performance: -15.7 percent
A fairly new cloud computing offering out of China, ChinaCache hasn’t gotten much love from the street since its debut on the NASDAQ in October. Shares have fallen 35 percent since then. If a rising tide lifts all boats, though, ChinaCache should do well. IDC predicts China’s cloud computing industry will clock a compound annual growth rate of 23.8 percent through 2014.

5) International Business Machines Corp. (NYSE:IBM).
YTD Performance: +14.8 percent
IBM has listed cloud computing among it’s top four revenue-growth initiatives (alongside analytics, emerging markets and digitizing infrastructure). The company’s putting its money where its mouth is, too. CEO Sam Palmisano said he plans to use about $20 billion on acquisitions through 2015 with a big chunk of that change allocated specifically to cloud computing (per WRALtechwire). If IBM can’t convince an enterprise-level company to adopt the cloud, no one can.

6) SAVVIS, Inc. (NASDAQ:SVVS).
YTD Performance: +41.2 percent
Word on the street is Savvis might be ripe for the plucking – especially after investors watched Verizon gobble up competitor Terremark Worldwide for $1.4 billion earlier this year. Savvis focuses exclusively on IT solutions for businesses and government agencies.

7) Aruba Networks, Inc. (NASDAQ:ARUN).
YTD Performance: +67.1 percent
Aruba’s emphasis on mobile networks makes its growth prospects particularly attractive. Goldman Sachs reiterated its Buy rating on the stock last month with a price target of $39 – a 14 percent premium over market value.

8) Rackspace Hosting, Inc. (NYSE:RAX).
YTD Performance: +39.8 percent
Looking a multi-year RAX chart is like looking at a ramp that’s pointing at the sky. Shares are up more than 124 percent over the past 12 months. A P/E of 126 might not be justified, but the company appears to be consolidating power as the go-to cloud hosting company in the U.S., and now Rackspace is ready to sink its jaws into Asia (per SeekingAlpha).

9) 21Vianet Group Inc (NASDAQ:VNET).
YTD Performance: -15 percent
The latest cloud computing offering from China to IPO in the U.S., 21Vianet started trading late last week. The company counts some of China’s biggest tech companies among its clients including Tencent, Youku and Taobao. After three days of trading, VNET’s shares have fluctuated between $17.50 and $21. Check out my post Cloud computing in China: Is the 21Vianet IPO a buy? (VNET) for more.

10) VMware, Inc. (NYSE:VMW).
YTD Performance: +7.1 percent
VMware gives companies the ability to build and deploy “virtual” computers for software testing, script automation and data storage. The company recently got a thumbs up from Susquehanna, which raised its price target on the stock to $120 per share on rapid international growth (per SeekingAlpha). That’s about 25 percent higher than VMW’s current share price of $95.

11) Google Inc. (NASDAQ:GOOG)
YTD Performance: -10.3 percent
As everyday consumers grow more accustomed to storing and accessing data from the cloud, Google could lead the way. The company’s popular Docs application lets users edit, share and store documents and spreadsheets online. Google’s mobile operating system, Android, will likely strengthen consumers’ ties with their Google accounts. Before we know it, we might be storing everything on Google’s servers with the heaviest users footing the bill for the rest of us.

THE FACEBOOK OF CHINA?

3 MORE reasons to invest in the RenRen IPO

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Silver conspiracy rumors gaining street cred

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Crowdcube: How to invest in tech startups

HOTELS ARE SO PASSE

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THE FACEBOOK(S) OF CHINA

RenRen IPO’s biggest hurdle might be PengYou

TWEETING IN CHINESE

A Sina Weibo IPO could be in the works as China’s Twitter moves to Weibo.com

Tags: AMZN, APKT, ARUN, CCIH, cloud computing stocks, CTXS, GOOG, IBM, RAX, SVVS, VMW, VNET
Posted in Internet stocks, tech stocks | No Comments »

Apr

2011

Why silver, why now? Here are five reasons

by Fred Mason

Silver’s allure and extreme volatility have earned it a rather disconcerting nickname: the Devil’s Metal. On Monday, silver’s price briefly surged over $49 an ounce putting it within $1 of a 30-year-high. A few hours later, the white metal had shed 8 percent – plunging by more than $4 an ounce.

Not everyone’s ready to toss their silver positions overboard, though. Silver bulls still have lots of compelling arguments for a continued rally in prices. Here are five reasons to invest in silver now:

1) The ultimate hedge against inflation. This is one of the hardest things to convey to non-investors, but the past has shown us that precious metals act as a store of value during inflationary periods. Here’s how it works: since the dollar is no longer on the gold standard, it’s subject to supply and demand just like any other asset. If you increase the number of dollars in circulation, the value of existing dollars falls.

Let’s say you have $1,000 in the bank, and inflation is growing at 10 percent a year (which it is currently is according to Shadowstats.com). At the end of a year, your dollars are actually worth 10 percent less than they were at the beginning of the year. The number written on the bills hasn’t changed, but the amount of milk or gasoline or the number of Oreos you can buy with that $1,000 has certainly changed.

Now, let’s suppose you’d sunk your $1,000 into silver coins on Jan. 1. By the end of the year, you could sell those same coins for (in theory) $1,100 and buy the same amount of milk, cookies and gasoline you could have at the beginning of the year.

That’s a highly simplified example. Last year, for instance, silver appreciated 80 percent in nominal terms. That means your $1,000 would have been worth $1,800 by the end of the year. It wouldn’t have acted solely as a store of value, it would have grown, too. Call it the miracle of finite commodities.

When you print a limitless supply of dollars, your actions aren’t impacting the finite world of silver. That means as the supply of dollars increases, their value goes down. Silver, on the other hand, can’t be mass produced in a laboratory, so its prices aren’t subject to the whim of the Federal government.

2) The historic gold:silver ratio. Precious metals investors closely watch what’s known as the gold:silver ratio. It’s found by dividing the current price of gold by the current price of silver. As of this writing, for instance, gold’s trading at $1,497 an ounce and silver’s at $44.91 for a ratio of 33:1. In other words, it would take 33 ounces of silver to buy one ounce of gold.

Depending on your time frame, the historic gold:silver ratio could be anywhere from 10:1 to 70:1. Over the past 100 years, the ratio has hovered close to 65:1. In centuries past, that ratio was much lower – somewhere around 16:1. That’s pitted two different types of silver investors against one another: those who use modern history as a scale for the gold:silver ratio and those who look at things over a much longer time horizon – say over the past 1,000 years.

Nick Barisheff president and chief executive of Toronto-based Bullion Management Group argues that silver has historically traded at a ratio of 16:1 – a number that’s roughly equivalent to the ratio of silver to gold in the ground (per the Toronto Sun). “In terms of that ratio, silver should be twice the price that it is,” Barisheff tells the Sun.

3) Industrial demand. Unlike gold, which is primarily used in jewelry and as a monetary metal, silver is used for a wide range of industrial applications. In 2010, industrial demand for silver climbed above 487 million ounces, according to the Silver Institute. That accounted for nearly half of the worldwide supply of 1.05 billion ounces. Silver is consumed by industry for use in batteries, bearings, soldering, electronics and catalysts. In addition, a number of new and emerging uses for the metal prove promising in diverse fields from medical applications to solar energy and water purification.

4) Volatility is your friend. If you believe in the underlying argument for higher precious metals prices, silver will give you more bang for your buck than gold in the event that you’re correct. Because the silver market is smaller and more liquid than the gold market, its price can swing aggressively. Where gold goes silver does, too, but it does it faster. The trade off is a greater degree of risk. If you can stomach the powerful price swings, you’ll probably make more in silver than you would investing in gold.

5) The high cost of mining. Most of the silver that’s mined from the earth (about 70 percent of it, in fact) is mined as a by-product of mining for other metals. Even with silver trading over $45 an ounce, that’s not quite enough to bring costly, full-scale silver mines into production. That means we probably won’t see a large influx of fresh silver production hitting the market anytime soon – even in the face of rising demand. Without more supply to meet growing demand, prices have just one direction to move; and that’s up.

BLIND LEADING THE BLIND Why has the media gotten silver price forecasts so wrong?	GOLD’S TURN TO SHINE? Gold silver ratio pointing to higher gold prices?
SOCIAL NETWORKING WAR HEATS UP IN CHINA RenRen IPO’s biggest hurdle might be PengYou	ARTIFICIAL MARKETS Silver market manipulation can’t be ruled out
THE SIMPLE WAY TO HOLD PHYSICAL GOLD AND SILVER Top 10 best gold and silver ETF funds	THE FACEBOOK OF CHINA? 3 MORE reasons to invest in the RenRen IPO

Tags: gold-silver ratio, industrial demand for silver, inflation, silver price, silver price forecast
Posted in AMEX, economy, gold, mining stocks, precious metals, silver coins, silver stocks | 2 Comments »

Apr

2011

New silver margin requirements go into effect today

by Fred Mason

For the eighth time in the past year, the CME Group has raised silver futures margin requirements. The rules, which went into effect at the close of market yesterday, apply to dabblers in the 5,000-ounce silver futures contract. Per the new rules, the initial deposit to purchase a contract has climbed from $11,745 to $12,825. The cost for holding a contract overnight is up from $8,700 to $9,500 – nearly a 10 percent jump.

The move comes after a blistering 17 percent climb in silver prices during the course of a week. Trading stalled just shy of the $50 an ounce mark, with silver hitting an intraday high of $49.82 in Asian trading Monday. That was too far, too fast, according to the suits at the Comex, and they quickly moved to reign in volatility.

One writer called for tighter Comex margins before the news became public on Monday. On Sunday night, Dian L. Chu argued that the CME should move to increase margin requirements by 30 percent.

“With (the) gold/silver ratio setting a new 28-year low record almost everyday in April, it looks like the necessary elements are already set in motion for another horrid crash-and-burn contagion scenario,” Chu wrote.

Indeed, Chu fears any amount of tightening by the Comex might not be enough to offset a massive silver sell-off that could spill over into other commodity markets. And we’ve already seen something of a correction in the silver space. After prices hit $49.82 on Monday, they collapsed more than 8 percent in 24 hours.

A number of factors outside of the Comex’s new silver margin requirements might have been at play, however. For one, investors likely locked in prices after silver hit $49 an ounce – just $1 shy of its 31 year high. Uncertainty over the Fed’s next move has set in now, too.

We’ll have a better idea of the Fed’s plans after the Federal Open Market Committee wraps up a two-day meeting today. In an uncharacteristic move, Fed Chairman Ben Bernanke will address the media this afternoon. Call it a grand finale to the FOMC’s closed-door meetings. Rest assured investors and analysts will be poring over Bernanke’s words with a fine-toothed comb for any hint of future policy direction.

Most assume Bernanke will reiterate previous hints that QE2 will indeed end on time and that interest rates will remain near-zero for the foreseeable future. If we get any indication whatsoever that an interest rate hike is around the corner or QE2 will end early, yesterday’s 8 percent drop in silver prices will probably look like child’s play – and there will likely be a whole lot of margin calls on the Comex.

BLIND LEADING THE BLIND Why has the media gotten silver price forecasts so wrong?	GOLD’S TURN TO RALLY? Gold silver ratio pointing to higher gold prices?
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Tags: Ben Bernanke, Comex, QE2, silver futures
Posted in commodities, precious metals, silver stocks | No Comments »

Apr

2011

Gold silver ratio pointing to higher gold prices?

by Fred Mason

In two short years, the gold:silver ratio has plummeted 62 percent from 80:1 to 30:1. That means it takes a mere 30 ounces of silver to buy one ounce of gold. The dramatic shift of fortunes has a lot of investors and analysts saying silver’s overheating. Is it time to jump ship and swim for the golden shores? Perhaps. Here are three reasons to consider reallocating your portfolio in favor of gold:

1) ‘Mean Reversion.’ The gold:silver ratio is at 30-year lows. “Generally, relative strength relationships ‘revert to normal’ or at least move towards equilibrium over time,” writes Corey Rosenbloom at AfraidToTrade.com. Suffice it to say that a gold:silver ratio of 30 is far from normal. Over the past three decades, the gold:silver ratio has averaged somewhere between 65 and 70. Over the long haul, we’ll probably look back on today as an aberration. When the gold:silver ratio decides to revert to ‘normal,’ which we assume it will eventually, it could happen quickly. And it could happen in two quite different ways: “The mean reversion scenario suggests other outcomes such as a dramatic ‘catch-up’ rally in gold,” Rosenbloom writes, “or a ‘blow-off top’ correction down in silver.” Either way points to gold as a better option.

2) Rife with speculation. The fundamentals for investing in gold and silver are quite similar. Both have historic status as a monetary metals. They even have their own symbols for trading on international currency exchanges. Logically then, both metals should have followed similar trajectories after the Fed announced its quantitative easing program, QE2, in September. Instead, gold futures have climbed 20 percent while silver shot up 150 percent. That leads me to believe the rise in silver prices has been driven by speculators and momentum traders who are attracted to the smaller, more volatile silver market. If that’s the case and the momentum shifts away from silver, prices could collapse quickly.

3) Government Intervention. Over the long haul, I’m convinced there’s still a bullish argument for gold and silver prices. QE2 may be coming to an end in June, but unless the Fed plans to aggressively raise interest rates, inflation will start sinking its teeth into our pocketbooks. In such an environment, there are few places to retreat outside of precious metals. Hedge fund and money market managers know as much, and since they control such vast amounts of capital, entering the silver market in a large way isn’t really an option. The gold market, though, has the depth and stability to absorb enormous inflows of capital. Expect gold to outperform in such an environment.

Of course, for all the pontificating of analysts and writers (myself included), there’s a chance that the gold:silver ratio has been artificially high over the past few decades. Perhaps the market’s shaking loose the shorts? Or maybe the sudden change in silver’s fortunes is due to renewed industrial demand from the solar industry?

Eric Sprott of Sprott Asset Management helps oversee more than $1 billion in assets, and he’s publicly argued that we’re in the midst of a watershed moment in the precious metals market. He’s went on the record calling for a gold:silver ratio as low as 10:1. Such bold predictions by respected investors could, in and of themselves, be pushing silver prices higher much faster than gold. Right now, though, the present looks very different than the past, and that should be enough to give all investors pause.

BLIND LEADING THE BLIND Why has the media gotten silver price forecasts so wrong?	THE DAY THE SILVER MARKET DIED Silver Thursday, the Hunt Brothers, and the collapse of a precious metal
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Tags: Eric Sprott, gold price, gold price forecast, gold-silver ratio, QE2, silver price, silver price forecast
Posted in gold, gold stocks, mining stocks, precious metals, silver coins, silver stocks | 1 Comment »

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