• More than four out of five bankruptcy attorneys (81 percent) say that potential clients with student loan debt have increased “significantly” or “somewhat” in the last three-four years. Overall, about half (48 percent) of bankruptcy attorneys reported significant increases in such potential clients.
• Nearly two out of five of bankruptcy attorneys (39 percent) have seen potential student loan client cases jump 25-50 percent in the last three-four years. An additional quarter (23 percent) of bankruptcy attorneys have seen such cases jump by 50 percent to more than 100 percent.
• Most bankruptcy attorneys (95 percent) report that few student loan debtors are seen as having any chance of obtaining a discharge as a result of undue hardship.

• College seniors who graduated with student loans in 2010 owed an average of $25,250, up five percent from the previous year. Borrowing has grown far more quickly for those in the 35-49 age group, with school debt burden increasing by a staggering 47 percent.
• Students are not alone in borrowing at record rates, so too are their parents. Loans to parents for the college education of children have jumped 75 percent since the 2005-2006 academic year. Parents have an average of $34,000 in student loans and that figure rises to about $50,000 over a standard 10-year loan repayment period. An estimated 17 percent of parents whose children graduated in 2010 took out loans, up from 5.6 percent in 1992-1993.
• Of the Class of 2005 borrowers who began repayments the year they graduated, one analysis found 25 percent became delinquent at some point and 15 percent defaulted. The Chronicle of Education puts the default rate on government loans at 20 percent.

1. Guaranteed loans of any kind are a huge problem. An even bigger problem is guaranteed loans that cannot be discharged in bankruptcy. Schools have every incentive to drive up costs and to make loans to kids who simply do not belong in school at all,  as well as to kids whose benefit of education is far less than the cost of education.
2. Lack of competition. We need more accredited universities that can offer online programs, at far cheaper prices.

1. Cancel the student loan program in entirety for new students and phase out student loans over the next three years for anyone already in such programs. 
2.  Accrediting some online education programs say from India, would certainly go a long way towards massively increasing competition and reducing costs. Obviously some classes need to be hands-on type (lab work), but I am sure that can easily be arranged in conjunction with local colleges.

Each Friday, members of our Bespoke subscription services receive our Week in Review newsletter.  This report provides Bespoke's current market thoughts through commentary and the unique graphs and charts that our clients have come to love.  If you're looking to get a better grasp of the market, subscribe to one of our membership packages today and download our Week in Review newsletter.

In this week's newsletter:

• 30 Days and counting without a 1% decline.
• What Happened to all the volatility?
• Are CDS markets confirming the rally?
• An update of the Torture Indicator.
• Sentiment - bullish or bearish.
• Is this rally the real thing or another false start?
• The juggernaut that is Apple (AAPL).
• Economic Scorecard.
• An update of Q4 earnings season.
• 'Fixed Income' Equities.
• Bull market breakouts.

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The Dollar Confirms a Possible Silver Pullback

“It was the best of times, it was the worst of times, it was the age of wisdom (for those who invest in gold) , it was the age of (central bank) foolishness, it was the epoch of belief (in Chinese growth) , it was the epoch of incredulity (in fiat money), it was the season of Light, it was the season of Darkness, it was the (Arab) spring of hope, it was the winter of (Syrian) despair.”

With several of our own additions in parenthesis, these are the opening lines of the famous novel “A Tale of Two Cities,” by Charles Dickens whose 200th year birthday was celebrated around the world this week. His words seem just as true and relevant today as in the time in which they were written.

Greece played the Artful Dodger this week and missed another deadline to approve conditions for a second €130bn bail-out on Tuesday night because of last-minute haggling with international lenders over emergency spending cuts. Negotiations to save Greece from a disorderly default are now teetering on the edge.

The delay fueled anxieties that Athens may be forced into a messy default next month and triggered concern over whether Greece remains committed to fiscal reform after two years of failing to implement measures agreed in return for financial support. Greece has already missed two deadlines this week. Finally a deal was  presented for approval at a meeting of eurozone finance ministers Wednesday only to be sent back to Greece as incomplete with a fresh set of demands and an urgent deadline. The eurozone finance ministers dismissed as incomplete a reputed €3.3bn package of Greek budget cuts and sent the country’s finance minister back to Athens with a fresh set of demands and an urgent deadline. They also warned of more intensive involvement in the Greek economy to improve tax collection and accelerate the sale of state-owned assets.

Earlier in the week the Great Expectations that a Greek rescue plan will be completed drove the dollar down sharply against the euro and boosted gold 1.5 per cent on Tuesday.

Gold could face a short-term pullback if Greece strikes a deal, as it may hurt the appeal of safe-haven assets, but on the other hand it will be good for the euro (bearish for USD Index), which might be bullish for gold. In the long run, the lingering euro zone debt crisis is expected to support sentiment in gold.

Charles Dickens said: “Do all the good you can and make as little fuss about it as possible.” To see what good we can do for precious metals investors, let’s begin the technical part with the analysis of the USD Index. We will start with the very long-term chart (charts courtesy by http://stockcharts.com.)

In the very long-term USD Index chart we see no significant changes. Thursday’s closing index level is slightly below that of a week ago, but the recent move back below the long-term resistance line has not yet been confirmed. The index level is now more or less right at this support-resistance line, and the medium/long-term situation is slightly more bearish than not.

In the short-term USD Index chart, we see that the index “somewhat bottomed” at the cyclical turning point. Instead of a rally, a pause has followed with some sideways trading and small moves to the downside although declining at a much slower pace than seen in previous weeks. It seems likely that the index could actually rally in the very short term but the outlook for the medium term is bearish.

The situation for the USD Index appears rather bearish for the medium term but bullish for the short term, which might be a bearish short-term indication for the precious metals sector. It is also consistent with our recent view on the mining stocks part of the precious metals sector published on February 3rd, 2012 in our essay on the likely top in mining stocks:

(…) the medium- and long-term outlook for the gold and silver mining stocks is positive, however a correction is likely to be seen soon – perhaps it will start next week. Long-term investors should consider purchasing junior mining stocks, while short-term traders might want to trade the coming correction.(…) if you’ve been considering trying out our Premium Service, it appears to be a good idea to do so now.

Since the dollar is negatively correlated with the precious metals market, the likelihood of a rally is bearish factor for the precious metals sector – also for silver.

A look at the very long-term chart (if you’re reading this essay at www.sunshineprofits.com, you may click on the above chart to enlarge it) reveals a rather uneventful week. Silver’s price has been in a sideways trading pattern during the past two weeks after a strong rally in which the red support-resistance line was pierced and volume levels were significant. With silver now above this line, it seems that a move back to it, a test of the breakout may in fact be seen. The 38.2% Fibonacci retracement level based on the 2002 to 2011 rally is also in play and will likely assist in stopping a decline as well.

Summing up, the medium and long-term outlook for silver remains bullish but – also based on the analysis of the USD Index – the short term is now more bearish than not.

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Friday 10 February 2012, 09:00 EST

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

Gold’s (GLD) accelerated move to $1900 in the summer of 2011 past overhead resistance indicated the market was waiting for an inflationary QE3.  The market got a surprise as Bernanke waited until 2012.  This was no surprise for my readers and precious metals declined lower in the second half depicting a surprise move with gaps lower.
We were able to call the top in silver (SLV) in April 2011 and gold in September 2011 as it reached overbought conditions, locking in partial profits.  On April 28, 2011 I wrote, “Remember that I am recommending partial profits if your winnings enable you to play with the house’s money and you are still holding silver from our August  2010 Buy Signal at $18. Other readers who have not been able to build a position can wait for the inevitable pullback as additional buying opportunities.”  A few days later in May we saw a volatile decline in silver of close to 40%.
Likewise in August of 2011, I became concerned of a correction in gold as it reached overbought territory.  On August 5, 2011 I wrote, “Although the technical picture for precious metals is improving, there will be periods of volatility as the global markets shake. A consolidation in gold would be normal and healthy.”  A few weeks later gold topped and corrected for the rest of 2011.
Mining equities (GDX) and precious metals sold off hard in the third and fourth quarter of 2011. When such unexpected short term pullbacks occur we must monitor the rebound.  Negative news which causes a temporary decline with a powerful recovery indicates strength and resilience.
The precious metals and natural resource market appears to be finding its footing and now may return to close some of those downside gaps in 2012 .  The recent selling panic in gold and silver bullion has abated and reversals are beginning to occur.  We are on the verge of a breakout at $35 in silver, $4 copper (JJC) and $1800 gold could be significant.  Junior mining stocks (GDXJ) are also making dramatic moves higher especially in the uranium (URA) and rare earths (REMX).
One should never get caught up with a selling panic like the end of 2011 especially in gold and silver bullion which has had significant up moves over the past 18 months and past ten decades.  Recently gold’s accelerated move to $1900 and silver’s to $50 was overdue for a restorative, healthy pullback.
It must be emphasized acting in a knee jerk fashion following the herd and panic by selling at discounted levels for pennies on the dollar must be avoided.  Some analysts were caught up with the decline irrationally calling the end to a 10 year bull trend.  How foolish!
Gold and silver are finding support and the end of 2011 was not a time to call the end of a trend, but to realize that gold and silver was providing a discounted buying opportunity.   The mining shares have never been so oversold in this entire decade long run as it was in the end of 2011.  The recent volatile selloff created an extreme oversold condition where reversals occur.  Although the recent rise has been on volume, a break above the 200 day  on increased volume for the miners and silver could indicate that the downside gaps made in 2011 may be closed sooner rather than later and potentially very quickly.
Gold Stock Trades has weathered several corrections in miners, gold and silver over the past 10 years and each time we have maintained a strong hand.
It is normal and necessary to have corrections.  Quality mining equities and precious metals begin new bases and reach compelling valuations that long term, contrarian investors can use to their benefit by adding to positions or initiating purchases in favorite stocks or sectors which one has not participated in yet.
One must not be discouraged or give up during volatile selloffs like 2008 or 2010 or 2011 and run to cash.  One must use short term volatility to one’s advantage and go against the latest fad.  We buy winter coats in the summer.
We must stay focussed on the long term trends and realize that the mining stocks have been beaten down in 2011 to dramatically oversold levels.  It is time to pick up resource stocks especially in uranium, rare earths and gold/silver explorers (SIL) selling at great discounts.
Despite recent carnage silver and the industrial metals are exhibiting relative strength to gold in 2012.  The long term trend for silver is intact and it appears to have found support at its long term trend around $30.  The momentum indicators have bounced off oversold levels.  Silver has all the right criteria for a fast move to test all time highs.
It is no surprise why the uptrend in commodities is intact.  The West is monetizing debt and printing dollars at a record pace to alleviate the debt crisis.  Risk on has been the name of the game in 2012.
Those on the sidelines in cash (UUP) and treasuries(TLT), playing risk off are in fact playing a very risky game as inflation appears to be the flavor of the day.
Look for technical breakouts in gold, silver, copper, uranium and rare earths as they all appear to be reversing higher as the moving averages transition upward.  Don’t be unsettled by short term pullbacks or day to day volatility.  Use pullbacks as opportunities on this long term upward trend in gold and silver.  The risk off trade in Treasuries and the U.S. dollar appears to be losing momentum and dangerously teetering on a decline.  Pay attention to the ball not the windup as we may be witnessing a trend change.   To get scouting reports, specific targets and up to the minute updates on the natural resource market click here.  

The S&P 500 has gotten off to one of its best starts to a year in decades, but which way is it headed now?  Are we due for a longer-term pullback or can the index continue higher and break its April 2011 bull market highs?  Let us know by taking part in the poll below, which asks whether the S&P 500 will be higher or lower from current levels at the end of the first quarter (March 31st).  This should give us a pretty good idea of where sentiment currently stands among investors and traders.  We'll report back with the results shortly.

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Two weeks ago at this time, just 57% of the companies that had reported this earnings season had beaten earnings estimates.  As shown below, 61.5% of companies that have reported have now beaten estimates.  This is just below the historical average of 62% going back to 1998. 

While they're still negative, guidance numbers have also gotten slightly better recently.  Below is a chart showing the spread between the percentage of companies that have raised guidance minus the percentage that have lowered guidance on a quarterly basis going back to 2003.  As shown, this earnings season, the spread is -3.3 percentage points, meaning more companies have lowered than raised.  This is the most negative reading since the first quarter of 2009.  Last week at this time, the spread was at -4.2%, however, so guidance did get better this week.

Regardless of what companies have reported, as a whole, they have performed well on their report days this season.  As shown below, the average stock that has reported this season has gained 0.44% on its report day.  This is the second consecutive earnings season and the fourth out of the last five where stocks have averaged gains on their report days.

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So far this earnings season, just 3.9% of the companies that have reported have reported triple plays.  These are stocks that beat both their earnings and revenue estimates and also raised guidance. 

We consider triple play stocks the cream of the crop of earnings season, and all of the stocks are worth looking into more once they have reported such strong numbers.  We analyzed the price charts of the 49 triple plays so far this earnings season and found the ones that we believe currently look the most attractive from a technical perspective as well.

Below are the twelve stocks that we believe have the best chance of rallying from now until their next earnings reports based on their chart patterns.  On the following pages we provide charts and descriptions for each of the twelve stocks listed, and on the final page of this report, we provide a list of all 49 triple plays.

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We ran our decile analysis on the S&P 500 to see how the stocks that had been up the most and least so far this year are performing today with the index down close to 1%.  To run the analysis, we break the index into deciles (10 groups of 50 stocks each) based on YTD performance through yesterday's close, and then we calculate the average change today for the stocks in each decile.

As shown below, the 50 best performing S&P 500 stocks YTD heading into today are down an average of 1.41%, while the 50 stocks that were up the least YTD are down 0.72% today.  While the spread in performance across the deciles isn't that wide, traders are clearly taking some profits in this year's winners today, which have mostly been highly cyclical stocks.

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There is a science to market movements and various trends because human nature is consistent over time. Bear markets follow a pattern as do bull markets. In recent weeks we’ve noted the similarities between the past four equity bull markets. They start off strong for six or seven years before slowing down over the next five years. Then they break to new highs and eventually accelerate into a bubble. As we show in this update, change in valuation explains how bull markets evolve into bubbles.

The following chart shows the Nikkei (black) and its price to earnings ratio (blue). The chart comes from DailyWealth but the annotations are mine. In our opinion, the Japanese bull market began in the late 1960s. Note, from 1977-1983 the PE ratio trended down slightly, yet the market continued to rise. In other words, profits increased faster than the market (share prices). In 1983 the PE ratio broke to a new high and would move from 20 to over 70 in about five years.

Next is a chart of the Nasdaq’s price to earnings ratio, courtesy of InvestTech Research. The ratio declined from 1991-1995. It wasn’t until the end of 1996 that the ratio began to move to new highs. We cut off part of the chart as it was too tall due to the fact that the PE ratio eventually reached 260!

Where do the gold equities stand? This chart from the Erste Group, shows the PE ratio for the HUI Gold Bugs Index. This chart was produced in July 2011. Since then the HUI has declined slightly. The estimated PE for 2011 (less than 15) is close to reality. We do expect 2011 to be the bottom for the PE ratio. According to Yahoo Finance, the trailing PE ratio for GDX (large cap gold stocks ETF) is 10. After hitting a low, it took less than three years for the PE ratio for the Nasdaq and Nikkei to move to new highs.

Bull markets follow three stages. These are the initial stealth phase, the wall of worry phase and then the bubble or public participation phase. By now you should know we are in the wall of worry phase. The current valuation of gold stocks confirms that. Sentiment confirms that. After all, gold stocks have made little net progress in the last four years while Gold has nearly doubled in the same period. The mainstream continues to ignore the gold equities while most of the true supporters are doubting the future.

Yet this wall of worry phase is what sets the stage for the bubble phase. In this period, earnings increase faster than stock prices and it results in lower valuations and improved fundamentals. At the same time, sentiment from a contrary perspective becomes more compelling. Many investors bail out of the bull market in this period leaving the strong hands in control of a bull market that remains intact.

Remember, stock prices are a function of earnings and valuations. In the first phase of a bubble we see earnings rise and valuations move from a low to a high. In the second phase of a bubble, skyrocketing valuations are the primary driver of share price appreciation. Bubbles develop from a one-two punch of rising profits and rising valuations. Over the next several years, the PE for the gold stocks (currently 10) could easily move back to 2004-2005 levels. Combined with continued increases in profits, share prices would explode. If you’d like help in stock selection and navigating this bull market then we invite you to learn more about our premium service.

Good Luck!

Jordan Roy-Byrne, CMT
Jordan@TheDailyGold.com

Jan Skoyles looks at the recent stories of countries abandoning the dollar for gold in international transactions. This will have implications for the gold price, but will it have an impact on further debates involving the gold standard. At The Real Asset Co we promote a return to sound money and so developments such as those discussed below always grab our attention.

Every Thursday we publish our Sector Snapshot report over at Bespoke Premium.  (Click here for a sample of the report.) 

Below we highlight our trading range charts for the S&P 500 and its ten sectors, which is one section of the report.  In each chart, the light blue shading represents the sector's "normal" trading range, which is one standard deviation above and below the 50-day moving average.  The red shading represents between one and two standard deviations above the 50-day, and moves into or above the red zone are considered overbought.  The green shading represents between one and two standard deviations below the 50-day, and moves into or below the green zone are considered oversold.

As shown, the S&P 500 has been in overbought territory basically for the last month now, and it's currently close to two standard deviations above its 50-day. 

Eight of the ten S&P 500 sectors are currently overbought, with the Technology sector clearly the most extended.  Financials, Industrials, Consumer Discretionary and Materials are all extremely overbought as well, but they're not quite as overbought as Tech.  Utilities and Telecom are the two sectors that aren't overbought at the moment.  These two sectors have lagged severely all year as the "risk-on" trade has driven money out of defensives and into cyclicals.  A pullback by the cyclicals from overbought levels would likely see money flow back into the defensives, however.

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Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

Here are a few quotations from various press sources:

• “Some customers just walk in and buy a bunch of 100g gold bars all at once…Companies come in too to buy gold bars for presents.” – branch manager, Industrial and Commercial Bank of China.
• “Some companies are giving out gold instead of cash to their employees” –Jia Zhihong, jeweler, Wuhan.
• “With customers crowding and rushing in, we did not even have time to eat and drink.” – gold counter sales clerk.
• “People seem crazy about gold, snatching it up more like a cheap cabbage than such a precious metal…You have to quickly decide whether to make a purchase, or it will be taken away by others.” – Beijing shopper
• “Think of it like investing in the stock market…Gold maintains its value much better than stocks.” – sales clerk, China Gold store.

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

The S&P 500 Technology sector has had an amazing run since the start of the year.  As shown in our trading range chart below, the sector has nearly gone parabolic in recent days and has moved well above overbought territory.

The run has been so strong for the Tech sector that it has been up for 10 consecutive trading days and 17 out of the last 18.  Below are the five other 10-day winning streaks that the sector has had since 1990.  We also provide how the sector performed on day 11, over the next week and over the next month following these five streaks.  As shown, the sector has declined on day 11 three out of five times, but it has been up over the following week all five times for an average gain of 1.62%.  Over the next two weeks, the sector has been higher three out of five times for an average gain of 0.88%. 

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