Silver coin shortage reeks of price manipulation?

Shortages of silver coins have some on the Web wondering if dealers are holding back their stock. We don’t think they are, but we do expect more shortages to come. Here’s why.

By now, most silver investors have heard about the lawsuit against JPMorgan Chase & Co. (NYSE:JPM). A class action suit’s been pending against the bank since 2010, when a large group of investors accused JPM of taking out enormous short positions in the silver futures market. The move was allegedly a bid to manipulate silver prices (see our post Silver price manipulation case narrows in on JPMorgan; drops HSBC for more).

Interestingly, there are rumors floating around the Web that some silver coin sellers could be doing their own form of silver price manipulation: namely, refusing to sell coins in the face of lower silver prices.

“I visited three very reputable distributors today – AMPEX, Gainesville and Northwest Territorial Mint – and all three of these dealers were mysteriously out of stock on one-ounce silver coins,” writes George Maniere at Market Oracle. “I can only conclude that they are willing to sit on them until the price of silver goes back up.”

Even the U.S. Mint got in the action, halting orders for sets of un-circulated American Silver Eagles (see our post Expect volatility on the path to higher silver prices in 2012 for more) because they can’t stock the necessary blanks to make the coins.

Everything’s in flux right now. We’re going through what the Financial Times calls “the biggest swings in precious metals since the collapse of Lehman.” According to the same article, though, gold and silver coin sales hit all-time sales records on Thursday (Oct. 22), Friday (Oct. 23) and Monday (Oct. 26).

That left the shelves at silver coin dealers empty. Demand for industrial precious metals may be falling, but it’s actually rising in the physical markets on bargain-hunting. That means a whole lot of investors see the recent drop in gold and silver prices for what it is: a rough patch in a decade-long bull market for precious metals.

“Buying in the retail market … it’s just huge right now,” Jim Puplava, the host of Financial Sense Newshour, said on Saturday. “They drive the price down, and it’s like Nordstrom is having a 20-30 percent off sale.”

While it may seem strange that coin dealers run out silver as soon as prices dip, it’s probably not manipulation and refusal to sell silver coins, but rather that a tidal wave of buyers have moved in to capitalize on lower prices. Even the popular Sprott Physical Silver Trust ETV (NYSE:PSLV) announced a week ago that it’d run out of silver and needed to replenish its supply.

“I think investors are really smart,” Kathy Derbes of KDerbes Precious Metals LLC told Mr. Puplava. “They know what’s going on. They understand that these price breaks – particularly this time around – are not telling us anything about the fundamentals of gold and silver. In fact, I think the reasons for owning it have gotten a lot stronger.”

Derbes adds that current orders for her clients have a two to three week delay before they’re shipped, and she doesn’t expect that to change. If anything, the delay could increase.

“We’re probably in the beginning stages of what could be shortages,” she said. “We have to remember that it’s a market that can’t be printed into existence like all the paper currencies. We have to wait for the mints to catch up.”

Related

Silver price manipulation case narrows in on JPMorgan; drops HSBC for now

The media tends to brush off reports of manipulation in the silver market. Hopefully, this lawsuit will change that.

A new wrinkle in the silver price manipulation lawsuit against JPMorgan Chase & Co. (NYSE:JPM) has dropped the spotlight off HSBC Holdings PLC (NYSE:HBC) for now. The fresh lawsuit amendment, which was filed last Tuesday, now names JPMorgan as the sole defendant in the case (per the Wall Street Journal).

Here’s what we know: a lawsuit filed by individual silver investors alleged that JPMorgan and HSBC amassed massive short positions in silver futures between 2008 and 2010, then reaped the rewards as silver prices declined in the face of the large short positions. The new move drops allegations against HSBC, as investors have entered into a tolling agreement with the London bank.

Tolling agreements give both sides in the case time to negotiate a settlement. Should those talks crumble, HSBC could be re-added to the lawsuit. A tolling agreement certainly isn’t an admission of guilt on HSBC’s part, but it’s a clear signal that they don’t want to go to trial (perhaps to avoid the massive legal fees, the bad press, or because they fear they’d be on the losing side of the case). What bothers me about the agreement is the fact that we may never know whether HSBC was truly involved in attempting to manipulate the price of silver – especially if JPMorgan enters into a similar agreement in the future.

New numbers in the amended lawsuit allege that JPMorgan’s shorts pushed silver prices down 12 percent in a single day – a move that, if true, made the bank $220 million.

All told, more than 43 separate silver price manipulation lawsuits were filed against JPMorgan and HSBC (per Reuters). Those lawsuits were eventually combined into a class action lawsuit.

“The complaint alleges that HSBC and J.P. Morgan made large, coordinated trades, among other things, to artificially lower the price of silver at key times when the precious metal should have been trading at higher levels,” the law firm Girard Gibbs LLP writes on its web site. “By depressing the price of silver, the class action alleges that the defendants made substantial illegal profits while harming investors and restraining competition in the COMEX silver futures market.”

Due to it’s small size and relative lack of liquidity, the silver market has often been the target of price manipulation (see my post Silver Thursday, the Hunt Brothers, and the collapse of a precious metal for more). But there’s also a tendency for the media to brush off reports of manipulation in any markets – particularly emotionally-charged markets like precious metals. This lawsuit could help bring visibility to a problem that’s lost a lot of money for a lot of people. Let’s just hope it makes it to trial.

Related

Eleven reasons to AVOID investing in Dow Jones Industrial Average stocks

Of the 30 stocks in the Dow Jones Industrial Average, 11 of them would actually be worth less or just about the same as they were 10 years ago (including dividends!).

When I first started writing this blog post, I was going to call it “How to Invest Safely in Stocks.” My second recommendation was that beginners should start with a handful of the 30 stocks that make up the Dow Jones Industrial Average. Once I started digging through the numbers, though, I was a startled at what I found. Apparently, the blue-chip stocks aren’t the no-brainers most investors like to think they are.

Need proof? Check out this chart I put together of the 10-year returns for each of the 30 Dow Jones stocks:

Company 10-Year Stock Return 10-Year Dividend Return on $1,000 investment $1,000 is now worth
3M Company +46.6% $590.94 $3,458 (aided by a stock split)
Alcoa Inc. -68.1% $134.46 $449.82
American Express Company +41.47% $122.40 $1,514
AT&T Inc. -31.8% $357.12 $1,024
Bank of America Corp. -51.8% $718.58 $1,109
The Boeing Company +12.54% $218.16 $1,311
Caterpillar Inc. +208.7% $787.17 $7,093 (aided by a stock split)
Chevron Corporation +113.9% $794.85 $4,791
Cisco Systems, Inc. -7% $7.20 $933
The Coca-Cola Company +45.2% $284.76 $1,734
du Pont +11.1% $372.72 $1,462
Exxon Mobil Corporation +82% $319.44 $2,086
General Electric Company -61.9% $200.4 $572
Hewlett-Packard Company +2% $123 $1,129
The Home Depot, Inc. -32.7% $117.58 $780
Intel Corporation -29.7% $136.54 $825
International Business Machines Corp. +57.1% $127.26 $1,605
Johnson & Johnson +20.8% $257.22 $1,426
JPMorgan Chase & Co. -16.1% $273.12 $1,107
Kraft Foods Inc. +8.7% $283.34 $1,339
McDonald’s Corporation +198.4% $387.25 $3,351
Merck & Co., Inc. -51.2% $218.70 $698
Microsoft Corporation -20.1% $416.64 $1,998
Pfizer Inc. -56.3% $196.56 $634
The Procter & Gamble Company +68.6% $607.79 $3,884 (aided by a stock split)
The Travelers Companies, Inc. +11.8% $120.34 $1,206
United Technologies Corporation +94.9% $529.54 $4,305
Verizon Communications Inc. -31.5% $305.33 $988
Wal-Mart Stores, Inc. +4.7% $130.29 $1,141
The Walt Disney Company +25.1% $110.20 $1,330

What’s startling is this: of the 30 stocks in the Dow Jones Industrial Average, 11 of them would actually be worth less or just about the same as they were 10 years ago (including dividends!). That’s remarkable considering I didn’t factor in inflation, which have averaged 2.4 percent over the past decade (per FinTrend.com).

That means your odds of throwing a dart at a list of the Dow stocks and hitting a winner are only around 63 percent. That’s not much better than going to the casino and counting a few cards at the blackjack table.

Before you toss your hands up and cash in your IRA for guns and ammo, though, I’d be remiss if I didn’t point out that the average return on $1,000 for the 30 Dow component stocks was $1,842 over the past 10 years. Indeed, a $1,000 investment in Caterpillar Inc. (NYSE:CAT) would be worth $7,093 today. That’s not bad, but seeing the returns from a company like GE, which has crumpled more than 60 percent over the past 10 years is scary. And this year hasn’t been kind to the Dow, either. Take a peek at the YTD returns on each of the component stocks:

Company Ticker YTD Return Dividend Yield
3M Company NYSE:MMM -10.8% 2.86%
Alcoa Inc. NYSE:AA -27% 1.07%
American Express Company NYSE:AXP +3.9% 1.61%
AT&T Inc. NYSE:T -3.17% 6.05%
Bank of America Corp. NYSE:BAC -51.8% 0.62%
The Boeing Company NYSE:BA -10.5% 2.88%
Caterpillar Inc. NYSE:CAT -14.7% 2.3%
Chevron Corporation NYSE:CVX +2.25% 3.34%
Cisco Systems, Inc. NYSE:CSCO -25.8% 1.6%
The Coca-Cola Company NYSE:KO +2.28% 2.79%
du Pont NYSE:DD -12.1% 3.74%
Exxon Mobil Corporation NYSE:XOM -4.02% 2.68%
General Electric Company NYSE:GE -17.3% 3.97%
Hewlett-Packard Company NYSE:HPQ -41.9% 1.96%
The Home Depot, Inc. NYSE:HD -7.9% 3.1%
Intel Corporation NYSE:INTC -7.85% 4.33%
International Business Machines Corp. NYSE:IBM +8.33% 1.89%
Johnson & Johnson NYSE:JNJ -1.51% 3.6%
JPMorgan Chase & Co. NYSE:JPM -21.2% 2.99%
Kraft Foods Inc. NYSE:KFT +6.47% 3.46%
McDonald’s Corporation NYSE:MCD +14.3% 2.78%
Merck & Co., Inc. NYSE:MRK -13.1% 4.85%
Microsoft Corporation NYSE:MSFT -14% 2.67%
Pfizer Inc. NYSE:PFE +0.9% 4.52%
The Procter & Gamble Company NYSE:PG -4.07% 3.40%
The Travelers Companies, Inc. NYSE:TRV -11.8% 3.34%
United Technologies Corporation NYSE:UTX -14.02% 2.84%
Verizon Communications Inc. NYSE:VZ -2.6% 5.6%
Wal-Mart Stores, Inc. NYSE:WMT -3.23% 2.80%
The Walt Disney Company NYSE:DIS -14.6% 1.25%

Just seven out of the 30 Dow component stocks have actually appreciated in value this year. That should give you pause before you invest in a high-profile company solely on the strength of its name and brand.

The Takeaway

Here are three key things I take away from the charts above:

1) Energy is the name of the game. One sector in the Dow has strongly out-performed others in recent years. Namely, oil (ala Chevron and Exxon). And I wouldn’t expect that to change – particularly as fears over inflation mount.

2) Banking stocks have a lot of ground to make up. The fact that JPMorgan Chase is down 16.1 percent over the past 10 years, and Bank of America’s down a whopping 51.8 percent could get you thinking banking stocks have to turn the corner soon. I’d argue there’s a lot of pain for them on the horizon, particularly with the imminent threat of inflation. Banks thrive and dive on interest rates, and all those fixed mortgages BAC’s underwriting at 3 percent could come back to bite them in a high-inflation environment. That’s a big part of why banking stocks have fallen in recent months, and it’s a trend I expect to continue.

3) Follow the macro-trends. If you would have invested $1,000 in gold at the start of 2001, you’d now be holding onto $6,797 in bullion. Energy and inflation are the stories du jour, and your portfolio should reflect that reality. No one can say the next 10 years will play out the same as the past 10, but we can say the demand for oil isn’t going away anytime soon, and neither is our government’s debt problem. You can’t afford to ignore the macro picture anymore, unless, of course, you’re happy rolling the dice in your IRA.

Related

JUST THE BEGINNING FOR GOLD


Insane gold and silver price predictions for 2011


WHAT’S THE POINT?


Why invest in gold?


THINK AND GROW RICH


Top 10 new investing books for 2011


DON’T CALL IT A BUBBLE YET


Rally in gold prices could still have legs


TECH BOOM


Top five best social media stocks


THE WHITE METAL


Why invest in silver?


JPMorgan tries to get in before Twitter IPO (JPM)

Wealthy investors will pay just about anything to invest in Facebook and Twitter. JPMorgan (JPM) and Goldman Sachs (GS) are finding ways to make it happen.

Shortly after Goldman Sachs Group, Inc. (NYSE:GS) announced it was selling $1 billion in Facebook shares to its foreign clients, news leaked that JPMorgan Chase & Co. (NYSE:JPM) was raising cash, too, for its so-called J.P. Morgan Digital Growth Fund LP. A few weeks later, the Digital Growth Fund is sitting on a treasure chest filled with $1.2 billion. And it’s looking to deploy that cash for stakes in late-stage, pre-IPO social media companies.

Twitter sits in the crosshairs. Negotiations are ongoing, but it sounds like JPM’s pushing for a minority stake in Twitter, which could value the site at $4.5 billion, according to the Financial Times.

Talk about a steep valuation. Debra Williamson of eMarketer estimates Twitter could generate just $150 million in revenue in 2011, according to the Wall Street Journal. Compare that to Facebook, which could generate as much as $4 billion.

With a valuation around 100 times the company’s revenues, JPM will probably lobby for Twitter to put itself up for sale. A partnership with a site like Google Inc. (NASDAQ:GOOG) could give Twitter the cash and time it needs to roll out a viable, long-term business model. And no one suggests such a thing will be easy.

While Twitter’s got 175 million “registered accounts,” eMarketer believes that only 16 million or so of those accounts are actually active. Still, it’s difficult to put a price-tag on a site that’s among the Top 10 most-visited Web sites in the world (per Alexa). It shares that honor with Web superpowers like Baidu.com, Youtube.com and Google.com.

Twitter’s reach makes it difficult to slap a pricetag on, even if the site’s “only” generating $150 million a year. The fact of the matter is, investors probably won’t care. The hottest companies in the tech sphere are all privately-owned. And we all want a piece of something the rest of the public can’t touch. Wealthy investors will pay just about anything for that honor, and JPMorgan and Goldman Sachs are finding ways to make it happen.

Related

ONLY THE RICH NEED APPLY


JP Morgan’s new media fund forces out the little guy, again


IPO CALENDAR


The unofficial tech IPO calendar for 2011


THE OTHER FACEBOOK


Five reasons to invest in the RenRen.com IPO


I WANT IN


How to buy stock in private companies


ROCK ON GROUPON


Groupon CEO is a weird guy with good advice

DOWN WITH DEMAND?


Time to short Demand Media, Inc. (NYSE:DMD)?

Net income at Noah Holdings (NOAH) up 88 percent

With great wealth comes the desire to make even more of it, and Noah Holdings (NYSE:NOAH) appears perfectly positioned to help China’s newest millionaires amass even more cash.

First off, this disclaimer: Noah Holdings Limited (NYSE:NOAH) is one of the biggest holdings in my portfolio right now. A wealth management company that serves high-net-worth individuals in China, Noah released 4Q earnings last night. Analysts were spot on with their calls. The company reported $0.09 earnings per share, which met the Thomson Reuters consensus estimate of $0.09, according to AmericanBankingNews.com.

Net revenues at the company shot up 157 percent from $5.4 million in Q4 2009 to $14 million in Q4 2010. Over that same time span, net income attributable to shareholders rose 88.9 percent to $4.2 million. Those are heady numbers, and so are the company’s expectations for the rest of the year. Noah forecasts non-GAAP net income attributable to shareholders to hit a year-over-year increase in the range of 56.7% and 86.6%.

Analysts are also positive on the stock. JPMorgan Chase & Co. (NYSE: JPM) initiated coverage on Noah Holdings with an Overweight rating and a $22.00 price target last month. Bank of America (NYSE: BAC) analysts currently list Noah as a Buy with a $22.20 price target.

Both targets are more than 40 percent higher than the stock’s current price at $15.43. Apparently, I should have waited to buy my shares, which are down 3.5 percent since opening day, but I’m definitely not worried about the company’s long-term prospects.

There’s much talk about China’s burgeoning middle class, but, if luxury purchasing is any indication, the ranks of the upper class are swelling even faster. A new report by broker CSLA forecasts overall consumption in China will rise 11 percent per year over the next five years. Sales of luxury goods are expected to grow more than twice as quickly, by 25 percent a year.

“The wealth of China’s upper-middle class has reached an inflection point, reckons [the author of the CSLA report] Mr. Fischer. They have everything they need,” The Economist writes. “Now they want a load of stuff they don’t need, too.”

With great wealth comes the desire to make even more of it, and Noah appears perfectly positioned to help China’s newest millionaires amass even more cash.

Related

HOUSING COLLAPSE


When will the housing market rebound?


IPO CALENDAR


The unofficial tech IPO calendar for 2011


THE OTHER FACEBOOK


Five reasons to invest in the RenRen.com IPO


GO LONG


Top 10 best stock sectors for 2011


BE YOUR OWN BOSS


Five cheap franchises to start with less than $10,000

SILVER SHEEN


Three triggers that could push silver over $50 ounce

3 reasons U.S. stock market forecast for 2011 is bullish

Here are three reasons why we’ll probably see another banner year for stocks in 2011 despite high unemployment and restrained consumer spending.

If 2010 taught us anything about investing, it should be this: stocks markets don’t follow the overall mood of an economy. You would think last year’s double-digit unemployment, crumbling housing prices, massive economic stimulus plans and fears of a double-dip recession would have forced down equities. Instead, the S&P 500 rose more than 12 percent last year.

Stock markets are always looking ahead, though, and forecast appears rosy in 2011. Here are three reasons why we might see another banner year for equities:

1) Hot money. The Federal Reserve’s quantitative easing program is designed to pump more money into the financial system. In theory, this money will spur lending by banks, which would allow businesses to expand and start hiring with abandon. In reality, employers are still wary of hiring or investing in expansion. That leaves a whole lot of fresh cash sitting on the sidelines. Why sink it into government bonds when you could dump it into high-yielding blue chip dividend stocks?

2) The double-dip is dead. Fears over a double-dip recession have all but disappeared. That should be a warning sign for contrarian investors, but it just might encourage the bulk of the public to re-invest in stocks. “The investing public in the United States has been massively underinvested in equities, with U.S. equity mutual funds experiencing three consecutive years of net redemption,” Chen Zhao writes in the Financial Post. “Once investors regain confidence in the economic recovery, they will likely move their capital away from bonds into equities.”

3) Booming exports. A falling dollar has made U.S.-produced goods more attractive on the global marketplace and that contributed to some 2 to 3 percent of the annual U.S. GDP growth last year. Exports through November of 2010 grew 17 percent over 2009’s numbers, according to U.S. Commerce Undersecretary Francisco Sanchez. More exports means bigger earnings for American companies.

It’s also important to remember that it’s becoming increasingly difficult to think of an American company as an American company. More than half of Citigroup Inc.’s (NYSE:C) revenue comes from outside the U.S., for instance, and other banking giants like JPMorgan Chase & Co. (NYSE:JPM) are eagerly expanding into the Asia-Pacific region.

So while 9 percent of Americans are unemployed, the country’s biggest corporations will keep churning out record profits on the back of a weak dollar. That might not be good for Main Street, but it’s probably good for Wall Street, and I imagine that will keep the cash spigot flowing in Washington – no matter what the consequences are in the years to come.

Related

GOLD BUGS


Triggers that could push gold to $5,000 per ounce


BEAD POWER


Death to Exxon? A sythentic fuel maker hopes so


SHIMMERY SILVER


Top 5 reasons to invest in silver bullion


TIGER MOMS


Chinese ‘Tiger Moms’ company, Tsingda eEDU, to IPO in 2011


IPO CALENDAR


The unofficial tech IPO calendar for 2011

LIGHTER WALLETS

Signs double digit inflation is coming to U.S.

Analysts like Noah Holdings Limited stock (AMEX:NOAH)

Currently trading at a P/E ratio of 89, Noah’s shares sound expensive, but the company’s growth just might justify the premium.

A month and a half after Noah Holdings Limited’s IPO (AMEX:NOAH), analysts have started weighing in on the Chinese wealth management company, and they seem to like what they see – even at what appears to be an extremely high price for shares in a young company.

Here’s the first batch of analyst ratings that started rolling in earlier this month: JPMorgan Chase & Co. (NYSE:JPM) gives NOAH an “overweight” rating, and Roth Capital Partners joins Bank of America Corporation (NYSE:BAC) in listing it as a “buy.” Both Wells Fargo & Company (NYSE:WFC) and Oppenheimer (NYSE:OPY) started the stock at “perform.”

Noah targets wealth management products to high net worth individuals in China, and that’s a decent niche to fill. The ranks of China’s wealthy are swelling as high net worth individuals in the PRC controlled some $5.6 trillion in 2009, according to Reuters. That was good enough to rank them No. 4 in the world in terms of high net worth individuals in 2009.

Currently trading at a P/E ratio of 89, Noah’s shares sound expensive, but the company’s growth just might justify the premium. During the first half of 2010, Noah’s net revenue more than doubled to $13.7 million over the same period in 2009. Even better: Noah’s profits grew fivefold during that time span to $4.04 million.

“As investors, we like to see companies that can grow,” Benjamin Kirby, a Santa Fe, New Mexico-based analyst at Thornburg Investment Management, told Businessweek. Noah definitely meets that qualification, and that’s made me a believer in the stock.

Related

Earning future looks dim for Goldman (GS) and Morgan Stanley (MS)

If the earnings results from commercial banks are any indication, the investment banking sector could get hammered this week with reports from Goldman and Morgan Stanley.

After some unimpressive earnings from the commercial banking giants, things don’t look great for the upcoming earnings releases from investment banks Goldman Sachs Group, Inc. (NYSE:GS) and Morgan Stanley (NYSE:MS).

On the commercial side, revenues were down at all three of the biggest banks:

  • Bank of America Corporation (NYSE:BAC): Revenue -40 percent
  • Citigroup Inc. (Public, NYSE:C): Revenue -26 percent
  • JPMorgan Chase & Co. (NYSE:JPM): Revenue -24 percent

The good news? The three commercial banks generally beat analysts estimates, but they did it on lower credit losses as consumers hunker down to pay off their debts (another factor that could slow the economy at large).

If the commercial banks are any indication, earnings from the biggest investment banks will be unimpressive, too. Be wary of a sell-off in shares of Goldman and Morgan Stanley. Goldman is slated to report their earnings on Tuesday, July 20, before the market open. Analysts are calling for earnings of $2.04 per share, down $2.89 from a year ago. Morgan Stanley will report earnings Wednesday, July 21, before the market open. Analysts are anticipating earnings of $0.46 per share, up $1.83 from a year ago’s loss of $1.37 per share.