The rally in gold prices is developing into a bubble and the precious metal faces “significant risks of a downward correction,” Nouriel Roubini, chairman of RGE Monitor, said in a research note, the Financial Times reported Wednesday. CNBC.com Nouriel Roubini ——————————————————————————– “The recent rise in gold prices is only partially justified by fundamentals, and is in part a bubble that could easily go bust,” Roubini wrote in the report titled: “The new bubble in the barbaric relic that is gold.” The note was circulated to investors last week but made available to the public Wednesday, the FT said. Roubini gained notoriety for correctly predicting the financial crisis, earning him the nickname of “Dr Doom.” If the global economy enters a period of high inflation or slips into a depression it could cause gold to surge toward $2,000 an ounce, Roubini conceded in the report. But there is “little reason” for such a strong rise unless that happens, he said, according to the FT. Another potential cause of a gold spike would be if the fiat currencies were “rapidly debased via inflation;” this could happen if countries’ ballooning budget deficits were not reined in, the note said. RELATED LINKS Current DateTime: 12:56:36 22 Dec 2009 LinksList Documentid: 34443105 ‘Dollar Crisis’ Author: More Stimulus in 201020 Stocks with the Biggest Potential To DropGet the Latest Commodity Prices Investors remain divided on the outlook for gold, with many predicting strong gains to be the norm for some time to come. Al Abaroa, commodity strategist at Options Pro, told CNBC that gold has one more “super spike” left and will push above $1,300 or $1,400 in the first-half of 2010. After that, gold will lose its luster, he added. “It’s obvious we’re starting to see upticks in inflation and future gold price will certainly be driven by inflation risk,” he said. Gold [US@GC.1 1094.5 -0.90 (-0.08%) ] prices pushed above $1,130 Wednesday after being in decline since the beginning of the month. Investors would be better off stockpiling canned foods and other commodities like oil if the recession suffered a double dip, Roubini said, according to the FT.

1. I will create game plans for all of my trades.
2. I will trade only when I have edge.
3. If I have 3 losing trades in a row, I will take a break, walk away and clear my head.
4. I will never trade for revenge.
5. Anytime I’m hoping, wishing or praying, I will exit the trade immediately.
6. I will never give back more than half of my profit on any trade.
7. I will keep a daily trading journal and email it to who will hold me accountable.
8. I will think in terms of probabilities and risk/reward.
9. I will remain objective in my trades by asking, “If I had no trade on, what would I do?”
10. I will never put more than 20% of my capital at risk in any single position.
11. I will not make trades just because I’m afraid to “miss out.”
12. I will quickly recognize my emotions and compartmentalize them rather than waste time trying to get rid of them.
13. And finally, I will trade to make money, not to be right.

I’m confident that if you commit to following these 13 rules, you’ll be more profitable in 2010.

Think better, invest smarter.

Doug Hirschhorn is the chief executive officer of Edge Consulting, a firm specializing in “Peak Performance Coaching.”  He holds a Ph.D. in Psychology with a specialization in sport psychology, and has offices in New York and South Florida. His client list includes elite athletes as well as many of the largest banks, hedge funds and financial institutions in the world. Doug’s new book, 8 Ways to Great (Putnam, 2009) is currently available on Amazon.com for $19.95.

www.cnbc.com

Buffett and Munger Play the Main Stage: Views on Newspapers, Triple-A Ratings, Complex Math and More

Here are some highlights of Warren Buffett’s and Charles Munger’s remarks at the Berkshire Hathaway Inc. shareholder meeting this past weekend.

Mr. Buffett on Newspapers

Mr. Buffett has long held himself out as a newspaper man. As a child, one of his first jobs was delivering newspapers. An Omaha newspaper Berkshire owned, Sun Newspapers, won a Pulitzer Prize in 1973 based in part on a tip Mr. Buffett provided. One of Berkshire’s biggest investments in the 1970s was the Buffalo News, which it still owns.

But his view on the future of the newspaper industry is dismal. “For most newspapers in the United States, we would not buy them at any price,” he said. “They have the possibility of going to just unending losses.”

As long as newspapers were essential to readers, they were essential to advertisers, he said. But news is now available in many other venues, he said.

Berkshire has a substantial investment in Washington Post Co. He said the company has a solid cable business, a good reason to hold on to it, but its newspaper business is in trouble.

Mr. Munger called newspapers’ woes “a national tragedy….These monopoly daily newspapers have been an important sinew to our civilization, they kept government more honest than they would otherwise be.”

A Washington Post Co. representative couldn’t be reached for comment.

Mr. Buffett on Insurance

In response to a question about the worst possible development for Berkshire Hathaway’s vast insurance operations, Mr. Buffett responded: nationalization.

If inflation jumped and insurance policies became extremely expensive, pressure could rise on the government to nationalize the insurance industry, he said. “When people get outraged, politicians respond,” Mr. Buffett said. It’s highly unlikely that such a development would happen, he added. But he did note the example of Social Security, which is a form of a nationalized annuity.

Mr. Buffett on Housing

“In the last few months you’ve seen a real pickup in activity although at much lower prices,” Mr. Buffett said, citing data from Berkshire’s real-estate brokerage business, HomeServices of America Inc., which is one of the largest in the U.S.

In California, medium and lower-price homes — under $750,000 — have been selling more, though there hasn’t been a bounce back in sale prices, Mr. Buffett said. “We see something close to stability at these much-reduced prices in the medium to lower part of the market.”

Mr. Buffett on Moody’s

Mr. Buffett was asked about Moody’s Investors Service, which gave a triple-A rating to billions of dollars of mortgage securities that subsequently lost value. Berkshire has a 20.4% stake in the company.

“Basically, four or five years ago, virtually everybody in the country had this model in their heads, formal or otherwise, that house prices could not fall significantly,” Mr. Buffett said. He later added that “it was stupidity and the fact that everyone else was doing it.”

He said that if Moody’s had started to take a negative view on residential real estate, the ratings provider would have been hauled before Congress to testify about why it was hurting the U.S. economy with its bearish ratings. “They made a huge mistake, and the American people made a huge mistake,” he said.

A Moody’s representative couldn’t be reached for comment.

Mr. Buffett on Treasurys

Berkshire Hathaway had only one slide at this year’s annual meeting. It displayed a Dec. 19 trade ticket showing a Berkshire sale of $5 million of Treasury bills. They were coming due on April 29 this year, roughly four months after Berkshire sold them. Berkshire sold the bills for $5,000,090.70. If that buyer had instead put their money in a mattress, by April 29 they would have been $90.70 better off, he said. Negative yields on Treasury bills show how tumultuous last year was, Mr. Buffett added. “We may never see that again in our lifetimes,” he noted.

Messrs. Buffett and Munger on Math and Theories

Messrs. Buffett and Munger made clear their complete disdain for the use of higher-order mathematics in finance.

“There is so much that’s false and nutty in modern investing practice and modern investment banking, that if you just reduced the nonsense, that’s a goal you should reasonably hope for,” Mr. Buffett said. Regarding complex calculations used to value purchases, he said: “If you need to use a computer or a calculator to make the calculation, you shouldn’t buy it.”

Said Mr. Munger: “Some of the worst business decisions I’ve ever seen are those with future projections and discounts back. It seems like the higher mathematics with more false precision should help you, but it doesn’t. They teach that in business schools because, well, they’ve got to do something.”

Mr. Buffett said: “If you stand up in front of a business class and say a bird in the hand is worth two in the bush, you won’t get tenure….Higher mathematics my be dangerous and lead you down pathways that are better left untrod.”

Mr. Munger on the Future

“As I move close to the edge of death, I find myself getting more cheerful about the economic future,” Mr. Munger said.

Mr. Munger sees “a final breakthrough that solves the main technical problem of man,” he continued.

By harnessing the power of the sun, electrical power will become more available around the world. That will help humans turn sea water into fresh water and eliminate environmental problems, Mr. Munger explained. “If you have enough energy you can solve a lot of other problems.”

Write to Scott Patterson at scott.patterson@wsj.com and Alistair Barr at alistair.barr@marketwatch.com

NEW YORK (CNNMoney.com) — Federal Reserve Chairman Ben Bernanke said on Sunday that government officials are laying the groundwork for an economic revival and that a “depression” can be avoided – acknowledging however that a full recovery will take time and that there are still obstacles.

“We’re working on it. And I do think that we will get it stabilized, and we’ll see the recession coming to an end probably this year. We’ll see recovery beginning next year. And it will pick up steam over time,” Bernanke said in a rare public interview airing on “60 Minutes,” according to a transcript released by CBS.

When asked about the risks of a “new American depression,” Bernanke responded, “I think we’ve averted that risk. I think we’ve gotten past that.”

Key to a full recovery, said Bernanke, is stabilization of the banking system — an argument the Fed chairman has made repeatedly.

Bernanke also defended government actions taken thus far, as well as the decision last fall to let Wall Street firm Lehman Brothers fail while at the same time stepping in to save insurance giant American International Group.

Bernanke said the Fed did not have powers to save Lehman because the firm did not have sufficient assets to post as collateral. In contrast, AIG (AIG, Fortune 500) has vast insurance operations that it can sell off to repay government loans.

AIG has since received $170 billion in bailout funds, in part to cover its obligations to banks worldwide. These banks had taken out insurance from AIG against the default of risky bonds. AIG collected hefty premiums from those contracts, but did not have sufficient reserves to pay out claims.

Though Bernanke said he understands public outrage over using taxpayer dollars to prop up AIG, which made “unconscionable bets,” he thinks the government had little choice.

“At that period, I felt we were pretty close to a global financial meltdown,” Bernanke said.

Bernanke indicated that similar decisions may be necessary with other big financial institutions, which are now undergoing “stress tests” to evaluate their ability to withstand extreme financial shocks.

He made clear he would seek to avoid massive bank failures – but not that he would seek to prop up sick banks indefinitely.

“They are not going to fail. But what we can do, should it be necessary, is try to wind it down in a safe way. So, for example, in the case of AIG, we’ve prevented a bankruptcy, because of the chaos that would create. But we’re also demanding that AIG divest itself, sell off its – subsidiaries, and use the proceeds to pay back the government.”

Bernanke, from a modest background in Dillon, S.C., said his chief aim in focusing on the financial sector is to ultimately help the economy at large. “I’ve never been on Wall Street. And I care about Wall Street for one reason and one reason only – because what happens on Wall Street matters to Main Street.”

Meanwhile, Bernanke indicated some government efforts are already paying off, seen in lower mortgage rates, stable money-market funds and more business lending.

The interview comes at a fragile time for the U.S. economy. Though the U.S. stock market soared 10% in the past week and several economic readings showed some firming, there still is no shortage of anxiety.

At issue: It is still unclear how the financial sector bailout strategy will address the problems caused by mortgages weighing down bank balance sheets. There is also concern about the nation’s debt burden because of the $787 billion economic stimulus package enacted last month and other federal spending programs. And job losses and foreclosures continue to mount.

Still, Bernanke sought to look past these immediate problems. “I just have every confidence that as we get through this crisis, that our economy will begin to grow again, and it will remain the most powerful and dynamic economy in the world.”

(Fortune Magazine) — Is it time to buy U.S. stocks?

According to both this 85-year chart and famed investor Warren Buffett, it just might be. The point of the chart is that there should be a rational relationship between the total market value of U.S. stocks and the output of the U.S. economy – its GNP.

Fortune first ran a version of this chart in late 2001 (see “Warren Buffett on the stock market”). Stocks had by that time retreated sharply from the manic levels of the Internet bubble. But they were still very high, with stock values at 133% of GNP. That level certainly did not suggest to Buffett that it was time to buy stocks.

But he visualized a moment when purchases might make sense, saying, “If the percentage relationship falls to the 70% to 80% area, buying stocks is likely to work very well for you.”

Well, that’s where stocks were in late January, when the ratio was 75%. Nothing about that reversion to sanity surprises Buffett, who told Fortune that the shift in the ratio reminds him of investor Ben Graham’s statement about the stock market: “In the short run it’s a voting machine, but in the long run it’s a weighing machine.”

Not just liking the chart’s message in theory, Buffett also put himself on record in an Oct. 17 New York Times op-ed piece, saying that he was personally buying U.S. stocks after a long period of owning nothing (outside of Berkshire Hathaway (BRKB) stock) but U.S. government bonds.

He said that if prices kept falling, he expected to soon have 100% of his net worth in U.S. equities. Prices did keep falling – the Dow Jones industrials have dropped by about 10% since Oct. 17 – so presumably Buffett kept buying. Alas for all curious investors, he isn’t saying what he bought.

Buffett, the so-called Oracle of Omaha for his ability to buy up the right companies at the right time for his holding company Berkshire Hathaway (BRK.A), said the worst may not be over for the fledgling economy.

“In the near term, unemployment will rise, business activity will falter and headlines will continue to be scary,” Buffett wrote.

But for that reason, the Berkshire CEO said, he has converted his personal portfolio almost entirely to U.S. stocks. Previously, he said he owned nothing but Treasury bonds.

Buffett said the fear surrounding the disastrous credit crisis, which has dropped stocks about 36% from their all-time highs set around this time last year, has left equities with attractive purchasing prices.

“A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful,” said Buffett. “And most certainly, fear is now widespread, gripping even seasoned investors.”

Stock prices have been volatile, to say the least. Consider what happened this week alone: The Dow Jones gained 976 points on Monday; fell 76 points on Tuesday; dropped 733 points on Wednesday and then gained 401 points Thursday. But Buffett says the future is much brighter for stocks.

“Fears regarding the long-term prosperity of the nation’s many sound companies make no sense,” wrote Buffett. “Most major companies will be setting new profit records 5, 10 and 20 years from now.”

Still, many nervous investors have been ditching the up-and-down stock market and pouring their funds into physical assets like gold or cash equivalents. Though they may feel safe now, Buffett said those investors are holding “terrible long-term assets” that will not come close to matching the future gains of stocks.

“The hapless ones bought stocks only when they felt comfort in doing so and then proceeded to sell when the headlines made them queasy,” Buffett added.

So if strong companies are destined for long-term success, bad news is good news when you’re looking to invest in the stock market.

“Bad news is an investor’s best friend,” Buffett said. “It lets you buy a slice of America’s future at a marked-down price.”

To quote a good friend of mine, “Anyone who thinks the stock-market crisis is over has rocks in his head.”

The collapse in stock prices particularly in New York last week was described as a selling climax or capitulation, supposedly indicating the bottom was reached.

This week’s historic one-day rise is supposedly the beginning of a new dawn. Nonsense. Despite the fact that the shares of certain companies are “cheap,” very few are buying shares to put in their portfolio for the long term.

The stock trader who bought when the Dow Jones Average was up 100 points made a killing when the market ended 900 points higher. The ones who bought when the market was up 900 points only got killed.

Conventional stock-market wisdom encourages investors to take advantage of lower prices by buying more to average the cost over the longer term. This can make sense in most instances. But how can you average your cost when the stock you bought at $20 two months ago is now trading at $5?

Last week was also described as a time of “irrational fear.” Stock-market wisdom says the time to buy is when there is blood on the streets. The question then becomes, how much blood does it take to signal a buying opportunity? Fear is only irrational if it is unjustified, and not a single expert can make an accurate prediction of what the future may hold.

The global economic-rescue package is only an attempt to stabilize the situation, not a cure for systemic flaws and failures. No one has a clue as to the next year of economic activity in the United States or Europe. No one can forecast as to what levels bank lending will return. No one can estimate what will happen to consumer spending in the months to come, and these economies are driven by the consumer. And remember this: The Dow Jones dropped from 14,000 to 9,000, a 35-percent fall. To go back up to 14,000, the market must rise 56 percent. Does anyone realistically believe that several trillion dollars of stock buying is going to come in to push the Dow up 56 percent in the foreseeable future?

Perhaps the best stock-market truth is that you should sell until you can sleep comfortably.

Based on country stability, corporate growth and economic soundness, there are only three stock markets I can see that make investment sense: Canada, China and the Philippines. I would also include Iraq, but their market only trades a million dollars plus per day.

Canada is a small country with the world’s strongest banking system and a large amount of profitable energy/commodity-related companies. China has $1.5 trillion of foreign reserves to support its economy. The Philippines is a place of calm in an economic storm.

So why is our market down? Because foreigners are bailing out to get their money back home and local investors rarely have a clue why they bought in the first place, and so, therefore, do not have a clue why they are selling.

To sell local stocks because New York, London and Japanese markets are down is simply foolish because there is no direct and very little indirect connection. To see the shares of companies like PLDT, Megaworld, Meralco and the banks at these levels is amazing. Oil is under $80 a barrel and will probably be lower by year-end, taking care of our recent inflation problem. All the stable economic drivers, including exports, remittances, agriculture and consumer spending, are still growing.

I have yet to hear a rational justification that shows the correlation between the corporate value of PLDT, Megaworld, Meralco or any other issue to the global debt crisis. I know what investors in Japan, Europe and the United States are fearful of. What are local investors afraid about?

Show me that Megaworld’s profits will be down 75 percent over the next 12 months to rationalize the stock falling 75 percent. If so, then MEG will be a great buy at 50 centavos. If not, it is a great stock bargain right now.

The market will probably fall further to the 1,950 area in order to get as much of the foreign money as possible out of the Philippine Stock Exchange. And if you are a short-term player, you should also sell. If you are a longer-term investor, accumulate on the way down or wait for the decline to stop, and then jump in with both hands.

I was asked during a recent television interview, “Who is to blame?” That is like asking who is to blame for a bowl of tangled pasta. The guy who invented spaghetti, the cook, the sauce and the one who is eating. No one is to blame; everyone is to blame for “The Crisis.”

What is the root cause of this global financial crisis? There isn’t any. This crisis is the result of a progression of events. US government policies created a legal framework that the financial institutions maximized for their business interests, and consumers participated so they could get wealthier, all for the purpose of a long-term housing boom.

Home ownership is a critical part of Western economies. This is why government policies are geared to keeping a continuous boom in the housing industry.

In the United States:

• Housing contributes about 14 percent of US gross domestic product (GDP).

• Home equity is the largest share of household wealth.

• Residential assets are worth nearly $10 trillion, equal to one year of US GDP.

• About 40 percent of monthly consumer spending is housing-related.

• Annually, more than $1 trillion exchanges hands from home sales.

However, in the West, no one “buys” a house. They borrow the money to purchase one.

During the Bill Clinton administration, lending institutions were strongly encouraged to broaden the base of homeowner borrowing. The power of government-backed financial institutions Fannie Mae and Freddie Mac to guarantee these loans was greatly expanded so that much lower-income people could buy a house. With more people being able to borrow-to-buy, the housing sector boomed as housing prices increased continuously over a decade and individual wealth grew fantastically as the value of their homes increased.

During the Clinton presidency in 1999, Congress passed the Financial Services Modernization Act (FSMA) that repealed the Glass-Steagall (GS) Acts of the 1930s. In response to the Great Depression, GS separated commercial banking and investment banking. The Great Depression was caused, in part, by banks loaning money for speculative buying in the stock market. When the market fell, those loans could not be repaid and the banking system failed.

Commercial banks borrow money from depositors and loan money to businesses and consumers. Investment banks and stockbrokers use client funds for speculative investments like the stock market. GS prevented the banks from acting like stockbrokers and the reverse.

Since the 1970s, banks and investment brokers often crossed lines of their respective businesses. Brokers were paying interest on uninvested funds (money-market funds). Banks were offering brokerage services through affiliates and subsidiaries.

However, with FSMA, the line between banks and brokers was officially and legally eliminated. Investment companies such as Merrill Lynch and Lehman Brothers could now act as a bank would, offering depositor services, but using those funds for investments way outside of simple business and consumer loans. Banks bought out and took over investment companies, as Smith Barney (broker) becoming part of Citigroup (bank/insurance). Banks were brokers and brokers were banks. Now they were called “financial-services companies” (FSCs). And they were incredibly successful.

Although accounting for less than 3 percent of the total US GDP, FSCs eventually booked 30 percent of all US corporate profits.

Government policy was to increase homeownership and the lenders were making a fortune cooperating. One way to get more borrowers was to lower the credit standards to receive loans. These were called “subprime” loans, meaning the borrowers had less than a “prime” credit rating.

Government ignored these bad lending practices as they achieved the goal of more homeowners. The private sector did not care because it was making lots of money. Existing homeowners were happy because home values were always rising and, with more credit available, they could buy home number two or three as an investment.

As lending criteria loosened significantly, the natural progression was the kind of loans finally made in the last two to three years: “Ninja” loans, or “No Income, No Job or Assets” loans. Home lending became almost like a pyramid scheme, with a constant demand for new participants to keep the pyramid of rising home prices going, and these new “investors” were brought into the pyramid through borrowed money.

When the line between banking and investing disappeared, the banking side of the FSCs that loaned the money put many of these loans in investment packages and “sold” them to investors on their brokerage side. This increased the amount of money available for lending.

Institutions around the globe bought these packages as a good, safe investment vehicle. After all, Fannie Mae and Freddie Mac guaranteed almost half of all US housing loans. Further, the “packages” included thousands of individual loans spreading the risk of loan default.

Housing prices had increased almost without hesitation for more than a decade, so the underlying collateral of the loan was solid. These were home loans and people will do almost anything to pay their loan to avoid losing their homes. Increased lending was also fueled by decreasing interest rates from 2001 (6.5 percent) to 2003 (1 percent), and rates remained flat for a year.

By mid-2004, the picture could not have been any better. The US stock market rose from 8,000 to 10,000 from 2003 to 2004. There was an almost unlimited amount of global funding for housing loans. Home-loan interest rates were at the lowest level in 25 years. Home sales had never been any higher. 

Out of the Box article By  John Mangun (Businessmirror Sept. 23, 2008)

Given this scenario, I am considering the possibility of an intermediate rally. (I usually look at 50-day EMA for determining intermediate trends). 

This is a good opportunity to jump back into the stock market.  However, I believe that this is just a correction from its long-term bear market trend since it is far below its 200-day EMA.

Recently, I bough MEG, AT and PNB.  I also wanted to buy AGI but i’m having a hard time finding a good buying point.  Now, the stock looks overextended from its base. 

But i think MEG and AGI will go up because of their buyback program.

1.  Price behavior (OHLC, Candlesticks)

     – Does it signal a reversal in trend?

2.  Pattern (if it is trending/basing/or in a trading range) using the ff:

a.  moving average (3-5-days for short-term, 20-50 days for intermediate term, 200-day for long-   term)

b.  Trendlines

3.  Volume to determine how convincing is the price behavior

4.  Fundamentals (Choose companies with good earnings, qualitive management, product in a sunshiine industry, or has a turnaround story)

5.  Other yardsticks(MACD/RSI/Momentum) to back up price behavior

6.  Support/Resistance

Trading Tactics

1.  In a bull market (especially when above the 200-MA).  Use trend-following technique.   Byuy on strength, sell on weakness (or when it goes below the 30-50 day MA).  Better to buy when the price rises above the base pattern accompanied by strong volume.

2.  In a trading range or basing pattern, by on weakness (or near support) and sell on strength (or near resistance). 

3.  In a bear/volatile market, use swing trading/momentum trading technique.  Buy when the stock is on the support level, is showing signs of reversal

My Money Management Rules

1.  Never risk more the 1% of your equity on a single trade.

2.  Use tighter stops in a volatile market, wider stops in a bull market.

3.  Ride on a winning position, but put trail stops.

4.  As much as possible, use trial shares when entering the market.  Add more shares when it becomes profitable.  Cut loss when the trial shares turns into a loss.

5.  Do not average down a losing position.