Friday, August 30, 2013

Custom Made Retirement

By Dennis Miller

You may have heard the popular legend about Eskimo tribes sending the elderly off to die at sea. As the stories go, when grandpa and grandma could no longer hunt or earn their keep, the younger folks would put them on an iceberg and ship them off. Fewer mouths to feed gave the younger generations a better chance at survival. I shudder at the thought.


In the farming communities where my grandparents lived, the older folks contributed whatever they could. As a boy, I spent many an afternoon shucking lima beans and husking corn with my 90-year-old great-grandmother. The garden and livestock provided enough for her children and grandchildren to support her in her old age. Fortunately for her, the Midwestern mentality was a little less harsh than that of the Eskimos.
Retirement is not a foregone conclusion for everyone, which begs the question: What is retirement?

A Working Retirement Is the New Status Quo

 

Does retirement mean you don't work? Not necessarily. One of my high school friends joined the navy at age 18 and retired with a nice benefits package at age 38. After that, he worked as a county sheriff for a couple of decades and received full retirement pay from that job as well. Many of my retired peers are still working; they just do something different than they did during their first careers. That includes your humble scribe. When I retired, I had no idea that, less than a decade later, I would spend the bulk of my free time typing away in front of a computer, sharing my experiences with people around the world.

The happiest retirees I know retired to do something they looked forward to and wanted more time for. I was not one of them. I loved what I did during my old career, but the hassles of international travel like racing to catch planes and living in hotel rooms were wearing me out. When I finally threw in the towel, I didn't care if I ever got on another plane again. My wife Jo and I spent a few years driving around the country in a motorhome, and then eventually we bought another home (not on wheels) and settled down.

At that point, I had retired from something I was beginning to hate, but I still needed to find something I enjoyed doing every day. Those folks who have a second career lined up when they retire seem to make the transition more easily. A second career may or may not bring in much income, but that is often secondary to enjoying the job. Jo and I have a friend who retired and became an artist. She is thrilled when one of her paintings sells, but even more thrilled that someone enjoyed her art enough to hang it in their home.

I feel the same way about Money Forever. It comes with financial rewards, but the real thrill comes from the nice emails I receive from readers around the globe. Knowing that I've helped folks who are in the same boat I am in makes my day. If you can do work you enjoy, something that's both emotionally and financially rewarding, why would you ever quit?

Some People Will Never Retire

 

I do realize that many older folks work for different reasons. Unfortunately, many have to work to put food on the table. In my first career, I often used Abraham Maslow's Hierarchy of Needs as a teaching tool. Maslow categorized humans' physiological needs – food, clothing, shelter, etc. – as the first level of his hierarchy. Our caveman ancestors woke up hungry every morning and had to go hunt and gather food. When you are worried about feeding your family and your own stomach is growling, you can't spend a lot of time sharing your artwork on the walls of your cave.

Squirrels store nuts to survive through the winter, but over time man has become the best animal at storing nuts, so to speak. We went from hunting and gathering food as we traveled from place to place, to clearing and irrigating land for agriculture, to curing food with salt to preserve it, and then on to canning and now freezing foods. No matter the method, man's first goal has always been to survive today, tomorrow, and hopefully many tomorrows after that.

Most folks no longer store food in their farm cellars like my grandparents did. Instead, they save money and store it in banks and brokerage accounts. The beauty of money is that, unlike a can of peaches, it can grow while in storage. If we store enough money, it can provide adequate income to free up our time for other pursuits.

What about folks who can't retire, people who have to work until the grim reaper comes knocking? Maybe they worked low-paying jobs, were poor savers or investors, or more likely, were big-time spenders. Regardless of how it happened, these folks arrived at their autumn years and their storage bins were empty. No one wants to end up in that boat. Everyone wants enough money saved to retire at some point. Even people who want to keep working want work to be a choice, not a prerequisite for survival.

Are We in a Retirement Crisis?

 

The phrase "retirement crisis" is certainly tossed around in the news quite a bit, but what is the crisis?
To begin with, many seniors have not saved enough money to support themselves in their old age. These folks will either continue to work or end up depending on their children and/or public assistance. And old age is lasting a lot longer than it used to as medical advances continue to increase life expectancy. That means folks who saved enough for just twenty years or so of retirement are finding themselves in a pickle; a long life is a blessing, but what happens when 95-year-olds can't pay their bills?

For those of us with a decent nest egg, our retirement crisis is a bit different. It involves growing our savings in a low-yield environment while protecting it from risky investments, predatory fees, and confiscatory taxes. These steps can keep us from becoming a burden on our families or anyone else, but they take work and a commitment to learning.

The truth is, our government has targeted seniors and savers. Congress wants to redistribute our nest eggs to appease their constituents (and donors). It's a fact of life that's not likely to change, and we need to work around it.

My Kind of Retirement

 

For me, retirement means having enough money to choose how I spend my time. Just like our readers, Jo and I worked hard, saved, and made smart investments to get here. I'm sure most of you feel the same way.
Retirement means having enough money to really enjoy the things we want to do right up until the end. The retirement we envision involves being totally independent, not depending on the government or our family. In order to accomplish that goal, we must tend our garden and manage our nest egg wisely.

Depending on your own circumstances, retirement may or may not mean you stop working entirely. That should be your decision. And it should not mean having to work a job you no longer like or taking on a minimum-wage job after retiring from your career just to make ends meet. It should mean living life on your terms, and that requires financial independence.

Unfortunately there are forces working against us: government spending and benefits cut-backs, increasing taxes, near-zero interest rates. Well, it’s time to fight back and take charge. With that in mind I’ve invited a team of top experts to share with us how they see the challenges shaping up and to give us actionable ideas that we can use starting today.

It all starts on Thursday, September 5th in a special online presentation called America’s Broken Promise: Strategies for a Retirement Worth Living and features John Stossel from Fox Business Network, former Comptroller General of the United States David Walker, American Financial Group president Jeff White, and me, Dennis Miller, your loyal advocate. Here’s the link for more.

I have to be totally upfront and tell you that I expect this thing to completely fill up (yes, it’s online, but there’s only so much bandwidth we can allocate to it): feedback from readers has been overwhelming. So if you’re even remotely interested in finding out how to claim your own financial independence I strongly suggest you reserve your spot right now (it doesn’t cost anything). All of the details and easy registration are here.


Wednesday, August 28, 2013

Precious Metals & Miners Flash Short-Sell Signal

It has been a bumpy ride for precious metal investors over the past couple of years and unfortunately we do not think its over just yet. But we feel fortunate to have our trading partner Chris Vermeulen on our team walking us through this.

Today Chris is telling us that the good news is that the bottom has likely been put in for gold, silver and gold miners BUT the recent rally in these metals and miner looks to be coming to an end. While we could see another pop in price over the next week or so the price, volume and momentum seem to be stalling out.

What does this mean? It means we should expect short term weakness and lower prices over the next month or two.

Here are three charts Chris posted several months. Their forecast were based off simple technical analysis using cycles, Fibonacci and price patterns. As you can see we are not trading at our key pivot level which we expect selling pressure to start to increase and eventually overpower the buyers sending the prices lower.....Click here to see Chris' complete chart work and article.



Tuesday, August 27, 2013

Three Easy Ways to Put the Trading Odds on Your Side

Hello traders everywhere, today’s educational trading video is a special one! How would you like to have a fast, easy way to find top trending stocks, ETFs, futures and currency markets everyday?

I’m going to share this little secret with you in this short, four minute video.

I titled the video, “Three Easy Ways to Put the Trading Odds on Your Side” and after you have watched the video you will see why I came up with the title. I bet you’ll also be shocked at this approach and its simplicity.

For more information on the tools I use in this video, click here to visit MarketClub.

Enjoy the video and we'll see you in the markets!

Ray @ The Stock Market Club





Get our Free Trading Videos, Lessons and eBook today!

Wednesday, August 21, 2013

"Beating the Market Makers" webinar replay.....Can you be on the same side of the trade?

John has decided to replay Tuesdays wildly popular "Beating the Market Makers" webinar on Thursday August 22nd at 2 p.m.. Our trading partner John Carter of Simpler Options is going to teach you more in one hour, for NO COST, then you could learn in 3 months. John is going to show us in detail how he uses a weekly options trading method that puts you on the same side of a trade as the market makers. A good place to be.

Over 10,000 traders watched the live webinar on Tuesday and John does limit seating so sign up right away before traders fill all of the slots.

Just Click here to Register Now

Here's what he'll be covering...

- How to be on the same side as the Market Maker
- How to protect yourself in a trade
- How to pick the right stock at the right time
- What Wall Street doesn't want you to know about weekly options
- The one simple trick to put the odds in your favor

And much more......

This timely webinar replay will take place on Thursday, August 22nd at 2:00PM Eastern Time.

Click here to register

After you register you will receive reminder emails automatically so you don't miss the webinar. I don't know if they'll be recording this, or if he'll ever share this information again, so don't miss out.

We'll see you in this free training class, then we'll see you in the markets. Will you be trading with us....or against us?

Ray @ The Stock Market Club

Market Makers.....Can you be on the same side of the trade?


Andrey Dashkov: Peak Gold

By Andrey Dashkov, Research Analyst


In the mining business, it is said that grade is king. A high-grade project attracts attention and money. High grade drill intercepts can send an exploration company's stock price higher by an order of magnitude. As a project moves to the development stage, the higher the grade, the more robust the projected economics of a project. And for a mine in production, the higher the grade, the more technical sins and price fluctuations it can survive.

It is also said that the "low hanging fruit" of high-grade deposits has all been picked, forcing miners to put lower-grade material into production.

You could call it Peak Gold.....and argue that the peak is already behind us. Let's test that claim and give it some context.

One of the ways to look at grades is to compare today's highest-grade gold mines to those from the past. We pulled grade data from the world's ten highest grade gold mines for the following chart.


As of last year, grades at the richest mines have fallen an average of 20% since 1998. However, except for 2003, when the numbers were influenced by the Natividad gold/silver project (average grade 317.6 g/t Au) and Jerritt Canyon (245.2 g/t Au), the fourteen-year trend is relatively stable and not so steeply declining. The spike in 2003 looks more like an outlier than Peak Gold.

However, these results don't provide much insight into the resource sector as a whole, one reason being that the highest-grade mines have vastly different production profiles.

For example, Natividad—owned by Compañía Minera Natividad y Anexas—produced over 1 million ounces in 2003 from ore grading over 300 g/t gold, while the San Pablo mine owned by DynaResource de Mexico produced only 5,000 ounces of gold from 25 g/t Au ore in the same year.

This made San Pablo one of the world's ten highest-grade operations in 2003, but its impact on global gold supply was minimal. In short, the group is too diverse to draw any solid conclusions.

We then turned to the world's top 10 largest operations, a more representative operation, and tallied their grades since 1998.


The picture here is more telling. Since 1998, gold grades of the world's top ten operations have fallen from 4.6 g/t gold in 1998 to 1.1 g/t gold in 2012.

This does indeed look like Peak Gold, in terms of the easier-to-find, higher-grade production having already peaked, but it's not as concerning as you might think. As gold prices increased from $302 per ounce at the end of 1998 to the latest price of $1,377, both low-grade areas of existing operations and new projects whose grades were previously unprofitable became potential winners.

Expanding existing operations into lower-grade zones near an existing operation is the cheapest way to increase revenue in a rising gold price environment. So many companies did just that.

Indeed, the largest gold operations—the type we included in the above chart—would be the first ones to drop their gold grades when prices are higher, simply due to the fact that what they lose in grade they can make up in tonnage run through existing processing facilities. Larger size allows lower-grade material to be profitable because of economies of scale. New technologies have helped to make lower-grade deposits economic as well.

So, at least until 2011, the conventional wisdom of "grade is king" was being replaced by "size is king."
However, production costs have been increasing as well—and have continued increasing even as metals prices have retreated in recent years. Rising operating costs and capital misallocations (growth for growth's sake, for example) are at least partly to blame for miners' underperformance this year.

Suddenly, grade seems to be recovering its crown. It remains to be seen whether more high grade discoveries can actually be made, or whether Peak Gold is actually behind us.

The Takeaway

Truth is, there is no king. Grade and size, although among the most important variables in the mining business, tell only part of the story. Neither higher grades nor monster size prove profitability by themselves—the margin they generate at a given point in time is what matters most. And then what the company does with its income matters, too.

Now that the industry has moved on from a period of reckless expansion, we expect investors to become more demanding of the economic characteristics of new projects coming online. Existing mines that processed low-grade ore in a rising gold price environment are now judged by the flexibility they have to cut costs, increase margins, and persevere through gold price fluctuations.

It's true that high enough grade can trump all other factors in a mining project, but it's the task of a company's management to navigate the changing environment, control operating costs, and oversee the company's growth strategy so that it creates shareholder value.

The resource sector has had a sober awakening, and now we see many companies changing their priorities from expansion to profitability, which depends on many parameters in addition to grade. This is a good thing.
As for Peak Gold, if that does indeed turn out to be behind us, the big, bulk-tonnage low-grade deposits that are falling out of favor today will become prime assets in the future. It'll either be that or go without.

Times may be tough, but the story of the current gold bull cycle isn't done being written. The better companies will survive the downturn and thrive in the next chapter. Identifying these is the ongoing focus of our work.

How about a project that's high grade and big? We recommended a new producer that has such an asset, and it hasn't been this cheap since its IPO. Find out who it is in the August issue of Casey International Speculator. Start your risk-free trial with 100% money-back guarantee here.



Know the Zone & Improve Your Gap Trading

Guest writer today is our trading partner Scott Andrews. If you are not familiar with Scott's work this will be a great primer on "gap trading".

I am a gap trader. Specifically, I 'fade' the opening gap (i.e. go short when the gap is up or long when the gap is down). My first research breakthrough many years ago was in recognizing that gap selection was the “door” to making profits and the “key” to that door was to focus on the location of the opening price.

Using the prior day's direction (up or down) and the open, high, low, and closing prices, I created ten “zones” and each provides tremendous insight into the probability of a gap filling or not. My selection strategy has evolved over the years to include market conditions, patterns and seasonality, but zones remain the foundation of my gap fade selection criteria.

So why do opening zones work? They inherently incorporate :

    *    proven support and resistance levels
    *    short term trend
    *    overnight bias
    *    gap size
    *    trader psychologically


Together these five elements combine to create a wide range of gap fade setups that vary from highly probable to highly risky for any market. Since opening gaps in general have a strong tendency to trade back to the prior day's closing price (65-70%), the name of the game is not trying to catch all of the winners, but rather to avoid most of the losers. And that is what opening zones do very well.

So why do you think gaps in the U-L zone (bottom right of the Gap Zone Map) show such a low historical win rate (48%)? I believe it's because gaps opening in this zone are catching traders positioned to the long side off guard, triggering many sell stops in the process. Plus, such an obvious reversal from the prior day surely attracts new short sellers who want to jump on board the beginning of a new potential trend. I've nicknamed this zone the “BLUD” zone for obvious reasons, plus it's easy to remember: "Below the Low of an Up Day."

Whether you trade the opening gap as a setup or just want to improve the timing of your swing trade entries and exits, you will do a better job, if you pay attention to the opening zone next time. And by the way, gap zones work great for not only the indices, but individual stocks and commodity markets like Corn and Oil too.

Good trading and good gapping!

You may also be interested in watching Scott’s short video on the The Power of Diversification. During this short, compelling video, Scott explains:

    *    Why asset diversification is not enough
    *    7 ways traders can diversify
    *    The right vs. wrong way to diversify
    *    Equity curve example (the power of complementary strategies)

 And much more

Watch This Video Now





Tuesday, August 20, 2013

Market Makers.....Can you be on the same side of the trade?

Tonight, Tuesday August 20th, our trading partner John Carter of Simpler Options is going to teach you more in one hour, for NO COST, then you could learn in 3 months. John is going to show us in detail how he uses a weekly options trading method that puts you on the same side of a trade as the market makers. A good place to be.

As of this morning over 10,000 traders have registered and John does limit seating so sign up right away.

Just Click here to Register Now

Here's what he'll be covering...

- How to be on the same side as the Market Maker
- How to protect yourself in a trade
- How to pick the right stock at the right time
- What Wall Street doesn't want you to know about weekly options
- The one simple trick to put the odds in your favor

And much more......

This timely webinar will take place on Tuesday, August 20th at 8:00PM Eastern Time.

Click here to register

After you register you will receive reminder emails automatically so you don't miss the webinar. I don't know if they'll be recording this, or if he'll ever share this information again, so don't miss out.

We'll see you in this free training class, then we'll see you in the markets. Will you be trading with us....or against us?

Ray @ The Stock Market Club

Market Makers.....Can you be on the same side of the trade?


Sunday, August 18, 2013

Scott Andrews.....Proof You are Crazy not to Diversify Your Trading

Many traders believe that investors only need to diversify to be successful. But that simply is not true!

No single trading strategy works all the time and diversification can help during the tough stretches by REDUCING your draw downs. Best of all, diversification (done properly) can also ACCELERATE your equity without increasing your overall risk.

Check out this excellent video by our friend Scott Andrews from Master The Gap as he explains the ins and outs of trading diversification. No opt-in required.

The Power of Diversification

During this short, compelling video, Scott explains:

• Why asset diversification is not enough
• 7 ways traders can diversify
• The right vs. wrong way to diversify
• Equity curve example (the power of complementary strategies)
• And much more

Watch This Video Now

Don't worry; there is NO SALES PITCH in this presentation. It's just solid information from a conservative trader that we believe everyone should consider.

If you are interested in adding a new setup and/or market feel free to opt in, then watch your email in the coming days for another free video introducing you to trading the oil market.

Please feel free to leave us a comment and let us know what you think about Scott's video

Proof You are Crazy not to Diversify Your Trading


Saturday, August 17, 2013

How to Beat the Market Makers....Free Webinar with John Carter

John Carter of Simpler Options is going to teach you more in this one hour webinar, than you could learn in 3 months. And he's doing it just for you....our readers. Register here asap since John does limit seating.

Here's what he'll be covering...

*     How to be on the same side as the Market Maker
*     How to protect yourself in a trade
*     How to pick the right stock at the right time
*    What Wall Street doesn't want you to know about weekly options
*    The one simple trick to put the odds in your favor

And much more

This timely webinar will take place online but seating is limited due to the high demand.

Click Here to Register

After you register you will receive reminder emails automatically so you don't miss the webinar. I don't know if they'll be recording this, or if he'll ever share this information again, so don't miss out.

See you in this free training class.

Then we'll see you in the markets, as we put John's methods to work,

Ray @ The Stock Market Club


Be on right side of this market, protect yourself, BE HERE


Friday, August 16, 2013

Will 1,650 Offer Buying Support for the SP500?

Earlier this week we shared with our readers a great article from our trading partner J.W. Jones where he covered in detail the loomimg correction in the equity markets. Now what? Here's a follow up article that includes the trades J.W. closed this week.......

In my most recent article, I discussed how I was expecting U.S. financial markets to reverse to the downside in the near future. I illustrated the various divergences in a variety of underlying technical indicators which have issued warnings in the past.

Unlike many financial journalists or newsletter operators, I am an option trader first and a writer second. My primary focus is typically to sell option spreads that focus on the passage of time for profitability and/or take advantage of large implied volatility spikes which help to improve my probability of success on each trade taken. Unfortunately in 2013 Mr. Market has not accommodated my style of trading as we have had very low volatility most of the year.

Low volatility levels many times force option traders to take more directional trades which ultimately leads to lower probabilities of success. I still take advantage of stocks that have had implied volatility spikes, but ultimately this market has forced theta sellers to get more aggressive, take more risk, and accept less potential profitability.

I have recently closed several winning positions with members of Options Trading Signals service during the August expiration. Several positions were actually closed Thursday August 15th for gains.

However, what might surprise readers is that several positions that I closed for gains this week and even today were long biased positions. In fact, one of my largest winning trades for the August monthly option expiration cycle was the EWZ Call Debit Spread that was essentially long Brazilian equities.

Here are the detailed results of J.W.'s recent trades


New video....John Carters weekly options method to beat the market makers at their own game!


What makes THIS different?

They say that those who can't DO...teach. Does THIS prove that phrase wrong? 

In this 7 minute video, John Carter of Simpler Options shows his REAL account balance, his winning AND losing trades that has racked up amazing profits. How did he grow his account? Simple.

Using the methods he teaches in this 7 minute video. See his account and learn his methods. Please feel free to leave a comment and tell us if you can see yourself using these methods to trade commodities, equities or even currencies.

Watch John's "Dirty Secrets of Weekly Options" video now


Three urgent steps to take right now as interest rates begin to explode higher

FIRST, other than for trading purposes, exit all sovereign bond holdings. There is the possibility of one more drop in interest rates, but the long term reality is that bond prices are going to fall.

SECOND, exit the most vulnerable interest sensitive stocks. See our list below of 25 STOCKS TO DUMP RIGHT NOW.

THIRD, beef up your income portfolio with these three rock solid companies my research analysts have found that thrive on rising interest rates."

Just click here to read John Mauldins, Chairman of Mauldin Economics, entire article "Three urgent steps to take right now as interest rates begin to explode higher"



What makes THIS different? In this 7 minute video, John Carter shows his REAL account and trades
 

Wednesday, August 14, 2013

John Carter's "Dirty Secrets of Weekly Options".... New Video

2013 will be remembered as the year the retail investor was introduced to the world of trading options. And our readers have been lucky enough to follow our trading partner John Carter of Simpler Options as he teaches us how to successfully trade options using his "unique weekly model".

A couple of times a year John is willing to produce a new video and bring us his latest take on trading options including showing us his recent trades from his personal account. What do you need to do to understand this system?

Just click here to watch his new video!

Here's what you'll be learning......

    *   How he has made $650,000 this year beating the market makers at their own game

    *   The Dirty Little Secret of Weekly Options

   *   Why weekly options are his favorite way to trade options

    *   The account size you need to trade weekly options....[Here's a hint...any size]

    *   Your goal as an options trader

    *   And so much more...


Watch the video and please feel free to leave a comment and tell us what you think about the video and what you think about using his weekly options trading model.

The Stock Market Club


Watch "What Wall Street Doesn't Want You to Know about Trading Options"


Monday, August 12, 2013

The SP500 Enters Major Correction Period

Our trading partner David A. Banister of Market Trends Forecast releases his call that the SP 500 is close to confirming new correction. Says 1685 support is the key. Here's the details based on his Elliot Wave research.

The SP 500 has been on a tear since late 2012 with the SP 500 bottoming at 1266. The rally though we have been charting out as part of a “Primary wave 3″ uptrend for this Bull market cycle from March 2009, and we are likely entering a Major correction or what we would label “Major wave 4″. Since the 1266 lows, we have had Major Wave 1, 2, and now 3 completed at 1710. We are entering Major wave 4 which should correct 23-38% of the entirety of Major wave 3, which was 444 points.

This correction will be confirmed with any close below 1674 and nails in the coffin begin with any close below 1685 on the SP 500 index. Primary wave 1 of this super bull cycle ended at 1370, a 704 point rally. Primary wave 3 will likely be larger than Primary wave 1 and I am projecting a top between 1900-2000 on the SP 500 before it’s completed. The current correction is Major wave 4 of Primary wave 3, which has 5 Major waves required. With that said, our projections are for 1605 on the shallow side and 1540 on the deeper side for Major wave 4 of Primary wave 3.

Now it is possible that we may extend a bit higher yet in Major wave 3 to 1736-1772, but only if we hold the 1685 support lines which the market is basing around currently. In any event, at our Trading service we have been aggressively taking profits in the past two weeks on multiple positions while still holding a few open at this time.

Below is a chart showing our projected correction pivots of 1605 and 1540, subscribers will be updated on a regular basis. Just click here to join Banister with a 33% discount on his trading service and also receive Precious Metals (GOLD) forecasts on a regular basis every week.

812 SP 500


John Carter releases DVD version of "Spread Trading Strategies for any size Account"....Click Here to get your copy!


Wednesday, August 7, 2013

Doubting your ability to pick the perfect stock?

Our trading partners at Premier Trader University are gearing up for another great free webinar on Thursday. This week we'll be focusing on trading ETF's around earnings season. This is especially interesting if you have been doubting your ability to pick the perfect stock?

Why not skip the pressure. Exchange Traded Funds (ETFs) are traded in a basket so you don't have to pick just one.

In this webinar, we'll tell you our favorite ETFs to trade with Options. With these hidden gems, you'll receive exposure to different countries trading just a single product. Plus, we'll let you in on a little secret, trading ETFs are a perfect for trading around earnings seasons. And we'll show you how it's done.

Just click here to get Your logins for Thursdays webinar

See you Thursday,

Ray @ The Stock Market Club

Get our complete schedule for our FREE Trading Webinars


Tuesday, August 6, 2013

Are Your Bullish Calls Plagued with Divergences?

By now everyone has a prediction about where the S&P 500 Index (SPX) is going to be heading in the future. Most of the sell side and their ilk are all rolling out the green bullish carpet and predicting that a major bull run is right around the corner.

If you are a contrarian investor by nature and tend to sell when others are buying this will be of great interest to you. When retail investors are buying and the professional sell side is quickly reducing their long equity exposure we get increasingly more bearish.

This recent report was accompanied by some eye opening charts...... 

View report and charts courtesy of Bank of America Merrill Lynch


Get our FREE Trading Webinars Today!


Friday, August 2, 2013

Amazon.com Creates 5,000 Jobs, Destroys 25,000 in the Process?

Amazon.com Creates 5,000 Jobs, Destroys 25,000 in the Process?

By Alex Daley, Chief Technology Investment Strategist

The Technology Jobs Conundrum

The past few weeks have seen the tech and business media abuzz about a not-so-little warehouse in Tennessee. That's because this distribution center, opening its doors with a burst of fanfare and even a few visits from nearby politicians, isn't a jumping-off point for Macy's or Target. Instead, the warehouse is the latest in a series of new locations being opened by retail technology giant Amazon.com.
The jobs this new mega warehouse is purported to create: 5,000.

The politicians who made the quick trip to Tennessee to get in front of the cameras included one President Barack Obama, who gave a rousing speech not just about the importance of the 5,000 jobs promised at this one facility (and another 2,000 corollary positions at customer service centers elsewhere in the country), but also about the "need" to raise taxes on the businesses that are creating them and use those taxes to fund "infrastructure" jobs in green energy and natural gas, among other areas.

The politically charged speech and the press conference from Amazon.com touting its job-creation abilities have understandably drawn quite the skeptical reaction from some. But surprisingly, in all the talk I've heard in the media these past few days, most of the fury seems directed not at the proposed tax hikes, but at Amazon itself for creating what might be fewer jobs than it claims… and possibly for destroying more jobs than it creates.
Along with its jobs announcement, Amazon's PR department was ready for the utterly predictable media criticism that the jobs are nothing more than menial, low-wage shop floor jobs. Its retort? These new jobs will pay on average 30% higher than typical retail jobs. That's a good thing for the employed, no doubt, to be paid more for a similar skill-level job.

But with its emphasis on low prices, how can Amazon afford to boost those wages so much? It all boils down to efficiency. Think about Amazon versus another retailing giant without the same level of sales, but with a similar "low prices" kind of push: TJX companies (owners of TJ Maxx, Marshalls, and Home Goods). Last year, Amazon had retail sales of over $60 billion globally (up from $47 billion in 2011); TJX brought in about half that, at almost $26 billion globally (up from $23 billion in 2011).

Whatever the companies' similarities, the differences between the two couldn't be bigger; and those differences have profound impacts for investors, as well as for the future of our economy.
On one hand, you have companies like TJX—so-called "bricks and mortar" retailers—which in order to do business every day must staff a few thousand stores, and keep them open for 10, 12, or even 24 hours per day. That means greeters, checkers, security, customer service, and stockroom employees, plus bright lighting, catchy displays, and other ordinary features of a quality retail facility.

Companies like Amazon have bricks and mortar too, of course, as displayed on the recent junket in Tennessee.  But that's about all they have. Amazon can operate in facilities far off the beaten path, with nothing but wire shelves and cement floors, and they can serve just as many customers from only a fraction of the locations—and a fraction of the manpower—that their competitors require. On just about every front, the company is more efficient than its peers. But let's look specifically at two of the top expenses for virtually any retail company: its plant and its people.

Facilities

Last year, TJX ended with 3,055 stores, making it one of the most prolific clothing and home goods retailers in the US. It pegs its sales at a respectable $8.5 million annually per store. That's not a big-box retailer like Best Buy, which racked up $25 million per store in 2011, but it's solid compared to many other clothing and home goods retailers (like Sears, with much larger stores and only $9.5 million in per location sales, or the Gap, with smaller, mall-style stores and only $5 million per outlet).

Amazon doesn't have stores, of course. It has "fulfillment centers," just like the new one in Tennessee that the POTUS visited. As of May 2013, a few dozen such centers are scattered across the world, including 37 in the US and 2 in Canada, and another dozen plus in Europe:


Of course, it's unfair to count only fulfillment centers, as the company handles customer service at separate locations, something a retailer like TJX would normally handle mostly onsite in the stores (excepting the separate online sales division, but that constitutes only a small fraction of TJX's business). Add in those locations, plus the newest centers Amazon plans to open, and you still have fewer than 100 retail operations centers globally.

If we round up just to be fair, that pegs Amazon's sales per location for the past year at $660 million, or about 80 times the sales per location of a TJX.

In addition to the amount of dollars per square foot in revenue that Amazon can push out its doors, the company can strike deals to grab land in otherwise desolate areas for its facilities, so long as UPS and FedEx will service them—no need for high-rent districts with lots of shopper traffic. This means that not only does the company have to support fewer square feet of space and make each square foot less glamorous, it can also push into districts willing to offer it big tax savings, or where construction costs are highly depressed (often one and the same). Amazon's negotiation power and economies of scale are both significantly higher than the average multi-thousand storefront retailer.

Employment

Of course, having more sales per location means less if you have to fill that location with just as many people to get the goods out the door. Sure, you save on the overhead from electricity to property taxes, but you can only gain so much efficiency in a labor intensive business. But here too, Amazon's differences are broadly apparent.

TJX Companies Inc. has approximately 179,000 employees: as with any retailer, it's a mix of full-time, part time, and seasonal workers.

Amazon's demand is just as cyclical as any other retailer. When queried at the press conference in Tennessee, a company rep wouldn't specify how many of the 5,000 promised new jobs are part-time and seasonal. He instead jumped back to the pre-approved talking point about pay being 30% higher on average. The spokesman did acknowledge that a good number of them would not be full-time, year-round positions.

(Amazon is able to staff much more efficiently than most retailers during non-holiday seasons, thanks to real-time, around-the-clock operations management and the ability to pull staff in for extra shifts and on short notice—a more difficult task for traditional storefront retailers, because having 10 extra people show up tomorrow from midnight to 6 a.m. doesn't help move any more product. So it's reasonable to assume Amazon will have more seasonal help as a percentage than most other retailers.)

In all, though, Amazon has managed to grow to its current level with just about 89,000 employees, or almost exactly half of TJX’s workforce. To do that yet pull down 150% more revenue makes Amazon about five times more efficient than TJX, measured by retail sales per staffer.

Amazon is able to do so because the number of shoppers who can be served per warehouse employee is much higher than at a typical retail location—especially the smaller stores that TJX mostly uses. The same goes for all the servers the company operates: one IT guy can take the midnight shift and keep a few thousand servers up and running, but one janitor cannot clean the floors at two locations, let alone 400—and many other aspects of the business share this limitation.

Stacking Up Against Retail's Big Boys

TJX wasn't cherry-picked as a counterexample—there are many retailers with far worse operating margins than TJX to pick on if that was the goal. Amazon stands out head and shoulders above nearly all other retailers in efficiency. Even when stacked up against larger competitors which can bring more scale to the business than TJX can, such as retail megastore Walmart, whose $470 billion in sales don't put a dent in the revenue-per-employee figure:

Wal-Mart
(NYSE:WMT)
CVS Caremark
(NYSE:CVS)
Target
(NYSE:TGT)
Amazon.com
(Nasdaq
GS:AMZN)
TJX Companies
(NYSE:TJX)
# of Employees
2,200,000
241,500
361,000
88,400
179,000
Revenue TTM (000s)
$470,339,000
$123,098,000
$73,140,000
$66,848,000
$26,269,900
Rev per Employee
$213,790.45
$509,722.57
$202,603.88
$756,199.10
$146,759.22

As is obvious above, Amazon's revenue per employee is leaps and bounds above its competition. The only other one on our short list that comes close is CVS, but despite the public perception of the company as a retailer, it now generates the overwhelming majority of its revenues from its insurance programs, so it's partially miscategorized. Even so, it still doesn't come close to Amazon in terms of revenue efficiency; CVS would need to grow its sales by greater than 50% without adding a single staffer in order to catch up.

Walmart? It would have to lay off over two-thirds of its employees or triple its same-store sales to even come close.

Amazon's revenue efficiency is remarkable by virtually any standard. And it's one of the reasons that despite a long track record of underperforming on earnings, the company has generally stayed in the market's good graces and been granted a hefty valuation relative to its peers. The market sees Amazon for what it is—a technology company with leverage that can grow revenues in a big way—and not a more traditional retailer.
But this also means that for every jar of Crazy Aaron's Thinking Putty that is shipped out the door, the number of people on the payroll is only one-fourth that of Walmart or Target… or one-fifth that of TJX.

What Does This Mean for the President's Jobs Plan?

Does this mean that Barack Obama is right? Does the government need to step in, tax these efficient companies harder, and spend that money on solar farms, wind turbines, and transport infrastructure? After all, you cannot efficiently deliver tens of millions of packages when roads are choked and bridges are crumbling.

At first glance, it would be easy to jump to that conclusion. That's the direction I heard quite a few of Tuesday and Wednesday's commentators heading with their questions, even on business-oriented stations like my morning commute companion, Bloomberg Radio.

And yes, in some senses, for every job Amazon "creates," four other jobs go away at a company like TJX.
But it's not that simple. First, with any efficiency comes inefficiency on another point. The relative competitiveness of two business models is driven by the economic weight of those items in contrast to each other—an equation that changes over time. For instance, Clayton Christensen eloquently pointed out years ago in his book The Innovator's Dilemma (available here at Amazon.com) that at one point the commonplace hydraulic backhoes and diggers that litter every construction site in the modern world were once considered vastly inferior to their cable-actuated big brothers. Per foot, they couldn't—and still can't—dig nearly as wide a moat per pass. But it didn't matter. They won the overall market on convenient smaller sizes, easier maintenance, and better safety. Their inefficiencies were simply smaller than the value of their improvements.

Much the same, while you can argue about Amazon's relative efficiency to TJX, you must be careful not to discount its INefficiency. For instance, at a store like TJMaxx, one truckload of goods can restock the place for weeks. To deliver the orders of a few dozen Amazon customers might require dozens of individual packages, shipped to half a dozen different sort facilities, and put on a few dozen different trucks.

TJX benefits from all the dinosaur dung burned by its customers coming to the store and driving goods back home for it. Amazon, on the other hand, takes those nearly countless millions of extra miles and absorbs them into its business model. Compared in this way, Amazon is incredibly inefficient.

What Amazon doesn't spend hiring direct employees, the company outsources to others, and the sum of those expenses is enormous.

In fact, the company is so good at spending that gross margin per staffer, that it usually manages to spend it all. Just look at this graph of Amazon's gross revenue and its profits for the past five years…


You might have to squint to find the red bars that represent profits. The difference between those two sets of colored bars is the amount Amazon spends on not just its 89,000 employees, but all of its operations and marketing. All of those dollars flow into the economy, be it through FedEx drivers and pilots, outsourced programmers, content licensing agreements, purchases of inventory to keep its unimaginable selection of goods growing, or any of hundreds of other paths. And each path is itself a series of jobs generated and a series of taxes that eventually do flow to the government to fund all of its activities—from building fences to keep out Mexicans to staffing the IRS to collect all that money.

Even if the company was profitable, the same would be true. Those people who made more money would be inclined to invest and spend it. The higher the relative profitability, the more free cash flow, and the more likely it is to turn into additional spending.

Any company whose technology improves efficiency in these ways is going to reduce employment in the affected industry. That's the breaks. But it does not necessarily mean those jobs are gone forever.
A time will come when the amount of efficiency gained by automation, aggregation, logistics, and other techniques puts another significant and serious dent in the demand for labor—we've already seen it with low-skill manufacturing jobs, and we are seeing it take hold now in retail sales. But that does not have to mean the end of the economy or an economy of no jobs. Instead, the efficiency flows outward to create new opportunities surrounding the new business and its investors.

Revenue efficiency creates demand for business services. What is not done in house gets pushed to other networks of suppliers—services contracted by the sellers or by the buyers. Also, profit efficiency creates income for investors, which gets reinvested into more new businesses. Just look to the Silicon Valley venture-capital scene, and you'll see years of investment gains flowing back into the markets to the tune of multiple billions of dollars per year in investments into companies bent on reinventing every area of the economy, from entertainment to building supplies to biotechnology to car rental, through technology.

The biggest risk to our economy and employment is not innovation, which speeds up the flow of capital. Rather, the risks to be on the lookout for are the ones that compromise the ability of businesses to innovate, or which otherwise impede the flow of capital—i.e., those that restrict lending, cause people or companies to hoard cash, or generate fear and distrust among trading partners.

Fears over banking failures in 2008 showed just how serious this risk can be. And while the short-term reaction of shoring up liquidity in financial markets may look to have been a smart one in retrospect, the long-term lack of consequences for outright criminal activity in that sector are damning for the future of the economy. Trust in our government, bankers, and currency continues to be at all-time lows, a factor that can only be slowing the return of economic growth.

If Barack Obama and camp want to generate more government revenues, they should consider backing off on the new taxes and focus instead on limiting the regulations that impede the flow of capital. They should help secure confidence in the economy, not just through buoying up the stock markets, but through justice and prudent oversight over the value of our money and security of our savings.

Companies like Amazon thankfully continue to invest and grow despite the rising tide of operational regulations (for all the deregulation in banking over the past 20 years, the same cannot be said of any other sector) and the continued political immunity of the banking class. As it does so, its innovations are making life better for the majority of people. While the industry-wide shift of employment will be painful to some, over time the economy will adjust, as it always has, and other employment opportunities will fill the gaps created.
Plus, it's not like Amazon has a lock on retail efficiency. After all, Costco—the star quarterback of the big-box store movement—generates over $975,000 in sales per employee. Yes, it seems like even Amazon could still learn a few things.

As for the question of whether more efficient companies—which employ software and even robots (as Amazon does in its warehouses increasingly every year) to save on labor—destroy more jobs than they create… it's not as simple as it might seem at first. Innovation ultimately benefits society, so we must be careful not to hamper it for fear of the unknown future it will bring.

While technology jobs pose a conundrum for politicians, companies like Amazon will continue to grow their market share and make handsome profits for investors. If you aren't making your share of them, consider a risk-free trial subscription to BIG TECH today, and see the actionable and profitable investment advice our technology team provides for yourself. Learn more and get started today.


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