Gold Price Ratio Suggests Recession Looming, Target TGT Underperforms & Growth Stocks Nasdaq AFCE, ALXN

Relative to the United States, Canada has higher wages, higher fuel prices, stronger unions, and higher distribution costs and that often leads to higher retail prices.  Target Canada will open its first 124 stores in 2013 but it won't be an easy transition; The Canadian dollar is at a low right now (95.0c US) which compounds the problems Target will face in adjusting its prices to Canadian expectations.  Since launching in select markets earlier this year a new problem has cropped up :  consumer satisfaction dipped below 30% in August (vs May).

Target (nyse:tgt) Underperforming

Latest quarterly profit -13% weighed down by Canadian operations (expansion costs).  As of quarter-end Canada is home to 68 locations with another 56 to open by year-end.  Canada accounted for $275 million of the company's $17,120m sales this quarter but Canadian performance still not up to par.  Total North American sales were suppose to be up 2% this quarter not the realized 1.2%.  Earnings at 96 cents a share ($611m vs $704m last year) a cent below expectations.

Recession Looming ?

Signs certainly suggested it on Friday when growth in silver and gold prices contrasted with next to no change for the primarily industrially used platinum group metals. 

So far in August (1-20) investors extracted $30.3 billion from US bond mutual funds which amounts to the highest monthly outflow in 19 years.  Markets both domestic and international have benefited from the US Fed bond buying program which was originally instituted to help keep mortgage interest rates down, however what the Fed is now saying is that, even after its eventual exit from the program, short term rates shouldn't go up even though long term rates will.

The Fed purchases $85 billion worth of bonds each month - half mortgage bonds half treasury notes, as a sort of quantitative easing.  Because the Fed isn't being clear on when it will stop buying mortgage bonds, interest rates are gradually moving up consquently people wanting to buy homes are doing so before the expected spike in rates (July sales of existing homes +17.2% versus last year).  30-year fixed rates - May 1 : 3.35% ; August 23 : 4.58% highest since July 2011 ; 15-year rate @ 3.6%.
Unemployment remains a problem, it was as high as 8.2% in July.  Also, jobs numbers (+170th last month) are weak - most of the new jobs are part time and not specialized;  In June for example 400,000 people with college degrees lost jobs while 250,000 people without college degrees got jobs.  Another sign pointing to a weak economy - average age of vehicles on the road now 11.1 years, the highest on record.

Investing In Bullion, Make Gold A Priority (silver price, platinum)

                      Though it's true that for much of history the gold to silver ratio was 12, that trend ended more than half a century ago at a time when gold and silver prices were a lot lower than they are today.  In recent history the ratio has been somewhat erratic ranging from a low of just over 30 (April 2011 gold avg $1474, silver avg $42) to a high of 85 in 2008;  During this period there was a lot of downward pressure on both ironically coming from one of its biggest buyers central banks - rising interest rates cause money to flow out of gold and into other sectors of the economy but gold still stood out, maintaining a price at least 75% of its high, silver however presently trades at only 40% of it's 2011 high of $50.

During the last recession the price of platinum fell below the price of gold, an occurrence that usually only happens during crises  - the last time it happened was in the 1970's when the world's main economic drivers, the US and Europe were going through recessionary periods of low growth, high unemployment, high debt levels and oil prices.

The more recent inverse relationship between gold and platinum dominated the period of August 9, 2011 to January 2013.  Prior to that, since 1986 the price of platinum always exceeded gold with the exception of very few brief periods but even then the difference was marginal.  What this means is that the current economic climate is not as rosy as it's made out to be - the factors now driving gold closer to platinum are the same ones that come into play during times of economic uncertainty (central bank buying, inflation leads to lower confidence in the dollar, causing people to jump onto the bullion bandwagon).

Platinum versus Gold

For bullion buyers, the platinum group metals (pt, pd, rh) provide an interesting alternative to gold but a couple other key factors to consider may make gold the safer option.  In 2008 when rhodium hit $10,000 an ounce before hitting rock bottom a year later (2009 average $1500) investors lost interest in the white metal.  In a healthy economy, demand for platinum and palladium will still be there since both rely on industrial (catalytic converters) and high end markets (white gold plating, platinum jewelry);  however, yearly demand in general is not nearly as high as it is for silver or gold;  2012 platinum demand was about 6 million ounces, 7 million ounces for palladium which is only a fraction of the 155.4m ounces of gold, 1.16b ounces of silver consumed.

2012 exit year - Global reserves of platinum group metals total 2.328 billion ounces (2013 Mineral Commodity Summaries: 66m kg, annual production represents 0.6% of this) versus 1.799 billion ounces for gold (annual production represents 5% of this).  This doesn't sit well with me given that production of gold is some eight times greater than all platinum group metals combined.  As an investor what this tells you is that it's a lot easier to raise mine output to either match higher demand /or to put downward pressure on the price, than it is for gold.  At current prices, gold is just as rare as the platinum group metals but demand remains many times greater.  This is precisely why the rhodium crash of 2008 could never happen to gold (rhodium supply increased substantially as miners saw an opportunity to sell at higher prices but it turned out that demand was not nearly as strong as anticipated).  Platinum may be brighter but from an investment perspective gold still outshines it. 

Demand for platinum has a shiny future - light vehicle production is expected to increase by 13.6% over the next three years, with each vehicle needing a catalytic converter containing four grams of platinum and palladium what that amounts to is an additional 1.54 million ounces of pt/pd demanded.

Only 1 of 4 Greek Bond Options Attracting Private Investment (coupon of 5% for last 20 yrs) & Update on Greece: Is it doing enough to avoid a default (austerity measures)

   Private bond holders are choosing overwhelmingly only one of the four bond/coupon options being offered by the Institute of International Finance (the one with the highest payout; payout is 5% annually for the last 20 years, 4-4.5% for the first 10), complicating things for the euro zone which previously made a deal with holders of Greek bonds built on the assumption that investors would show just as much interest in the other three (proposal was first made July 21, the other 3 options though having the same net present value, would've provided more flexibility for the eurozone). (Reuters: Investors chose most expensive Greek debt option) The other 3 options are discount bond exchanges rolling over into other financial instruments over the next 15-30 years. Private sector involvement is important considering that over €189B is expected to come from that source before 2020. Greece is issuing the bonds at a 21% net present loss. Any restructuring of deals with bond holders would certainly get a negative response from the markets where there's already speculation that Greece's bailout creditors are trying to shift more of the losses over to private bondholders. (Time.com: Greece's Debt Inspectors Back in Athens on Thursday)

As of today (October 4, 2011) Greece only has enough cash to cover expenses through November (the bailout tranche for November was €8B ($10.9B). The next round of bailout money to keep Greece out of default after November, was put on hold in early October due to news that Greece's deficit for 2011 will be 8.5% of gdp (€18.69B which is higher than the 7.8% of gdp/€17.1B deficit projected earlier); News of the higher deficit was also made worse by the fact that Greek gdp contraction will be greater than first thought (5.5% smaller than 2010 gdp versus the anticipated 3.8% recessionary figure). Greece's gdp shrank for 12 consecutive quarters (last quarter that recorded growth was the one ended August 2008); In contrast Germany's gdp hasn't had a problem growing (two consecutive quarters as recently as January 2011 (ended) when it grew 4% & 3.9%. For German bonds, as of February 14, 2011 the 10 year yield was 3.33% (highest since Jan.14, 2010), 2 year yield 1.41%. Between January and mid February 2011 investors made a 4.3% return from Greek bonds, 0.8% from Spanish and 0.1% from Irish but lost 2.1% from German bonds. The eurozone's rescue fund, which has already provided aid to Ireland and Portugal, is €440 billion ($595B) in size. Also anounced on Tuesday: US Fed will purchase up to $5 billion worth of 8-10 year treasury notes (Due between November 2019 and August 2021) in an attempt to lower long term borrowing costs (buying more bonds helps to lower yields/interest rates). Belgium and France stepped up to the plate when Brussels-based Dexia faced problems stemming from their exposure to Greek debt). The shift over to US treasuries as a safe investment haven (30 year long bond) lowered yield rates to 2.70%, the lowest the yield has been since January 2009. (Bonds rise as Greece debt woes spur bank fears)

This question has come up a lot: Is Greece doing enough to reduce the deficit and finally take responsibility for its own debt? I think it has but I'll let you decide.

Pensions: 1. 20% of any amount over 1200 euro will be taken away (ie €2000 pension will be lowered to €1880). Only about half a million Greeks get pensions over 1200 euro. 2. Pensions going to people younger than 55 will lose 40% of any amount that exceeds €1000 while another three million pensioners will be affected by auxillary pension cuts of up to 50% (that loss is just the beginning for those three million because their pension funds are already insolvent). When people retire they sometimes receive lump sum payments, that will be lowered anywhere from 20% to 30%.

Taxes: Taxes will be rendered on 855,000 low income earners for the first time ever after the tax income threshold was lowered from €8 to €5000 (annual gross income). There's also a reduction in the tax free allowance from 12 to €8,000 that will levy an additional €700 in annual tax burdens on those Greeks affected. Net monthly pay lowered by €150 as early as next month for nearly all of the salaried taxpayers represented among the 855,000 people affected.

On Sunday October 2, 2011 the Greek cabinet completed a plan to reduce staff in the civil service by 30,000 overall. (KCTV5: Greek deficit projected at 8.5% of GDP) That figure seems unfathomable considering the public transport employee representatives stated on September 22 that their staff is already low, 20% lower than it was just a couple months ago.

Here is where Greece is coming from. Last year they had 800,000 civil servents collecting $48,000 annually in full pensions, those pensioners became eligible for that at age 52. New austerity measures are likey to impact those people significantly. European banks typically leverage about 80 times (debt used to acquire additional assets), that puts the EU in a more preciarious situation than the United States (40 times leverage).

Making matters worse