With monetary spigots opened wide around the world, a flood of cheap money has lifted all financial boats. In the U.S., continuous quantitative easing (money printing) has lifted the S&P 500 Index (SPY) to all-time highs.

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Many of the largest central banks are printing with the same amount of fervor. Below is the balance sheet expansion of the four largest central banks with their local currencies converted into U.S. dollars.

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Source: Bianco Research

The Bank of Japan (BoJ) has recently followed the U.S. central bank's lead to engage in continuous money printing. The BoJ's aggressive plan calls for purchasing 7.5 trillion yen ($78.6 billion) of bonds a month that will double its monetary base in two years. The announced figure exceeded economists' median estimate of 5.2 trillion yen a month and is the biggest move since quantitative easing began in 2001.

The BoJ's monetary

Since the Herbalife (HLF) cliff orchestrated by hedge fund manager Bill Ackman on December 19, 2012, HLF has rebounded from an intraday low of $24.24 on December 24, 2012 to close at $43.59 on January 25, 2013, or +79.8%. Given the recent price surge, HLF is currently trading above Ackman's short pre-announcement price of $42.50, and therefore gives market participants a second chance to short Herbalife at an even more favorable price.

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Based on Ackman's statements and media reports, his fund is short over 20 million shares valued at $1 billion. This huge bet implies an average per share short price of approximately $50. Ackman's target price to cover is $0, so whether investors short at his average price or not, will not make a difference provided that the share price ultimately reaches zero. All things being equal, it's important to note that shorting at a higher

Mortgage REITs (mREITs) success depends, in large part, on its ability to acquire assets at favorable spreads over its borrowing costs. These spreads have been shrinking ever since the Fed entered the scene to buy an unprecedented amount of mortgage-backed securities (MBS) and agency debt via a series of quantitative easings (QE).

QE1 (11/25/2008) - $500B MBS & $100B Agency Debt

QE1.5 (3/18/2009) - $750B MBS, $100B Agency, & $300B LT Treasuries

QE2 (11/3/2010) - $600B in Long-term Treasuries

QE3 (9/13/2012) - $40B MBS per month (open-ended)

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Mortgage REITs have been taking it on the chin recently because of the open-ended nature of QE3 and the looming fiscal cliff. As spreads between short and long rates compress, mREITs begin to face headwinds and dividends are subject to be cut.

Mortgage REITs invest in two types of MBS: Agency and Non-Agency. Agency MBS are mortgage bonds which are

Judging by low implied volatility and S&P 500 breaking five year highs, the market seems unconcerned with upcoming fiscal cliff (see below).

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The automatic $606 billion tax expirations and spending cuts will become reality if Congress fails to act by year-end. The Congressional Budget Office (CBO) estimates the automatic cuts/expirations will reduce GDP by about four percent and drag the U.S. into recession in 2013. With a potential recession hanging over our heads, the performance of the S&P 500 illuminates a different story as it continues to defy gravity and outperform Europe, China and Japan (see chart below).

(Click to enlarge) SPDR S&P 500 Index: iShares MSCI EAFE Index (EFA), iShares FTSE/Xinhua China 25 Index (FXI), iShares MSCI Japan Index (EWJ)

With Fed Chairman Ben Bernanke's resolve to fight unemployment and the sluggish economy with open-ended QE3, it is now up to the Congress

We've seen this quantitative easing movie before, and while history doesn't always repeat itself, it does rhyme:

1. Market falters under zero interest rate monetary policy

2. Federal Reserve starts quantitative easing (QE)

3. Prices rise in the stock market and other risk assets (risk-on)

4. QE ends and market falters (risk-off)

5. Lather, rinse, and repeat. See chart below:

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QE is a monetary policy used by the Fed and other central banks to stimulate the economy when conventional monetary policy has become ineffective. A central bank implements QE by buying financial assets from commercial banks and other private institutions with newly created money (i.e., increasing the monetary base). QE raises the prices of the financial assets bought, which lowers their yield. The effects of money creation since QE1 has boosted asset prices, and so far, gold (GLD) has outperformed stocks (SPY) and long-term treasuries (TLT)

Are those green shoots we see in the housing market? According to a Census Bureau report issued recently, building permits rose 6.8% to an annual rate of 812,000 permits in July, the highest rate in four years. This report along with the new and existing home data below, may suggest that we are well on our way to a housing turnaround.

Source: Economics Department, NAHB

Source: Economics Department, NAHB. Sales prices are in thousands of dollars.

Source: Ibbotson Associates

With months' supply declining and home prices heading higher, the housing recovery is building momentum. Based on this information, should investors start buying housing stocks? First, let's review the business side of several housing stocks and funds that should benefit from a housing turnaround. They are as follows (in alphabetical order by ticker/type):

D.R. Horton, Inc. (DHI) - The Company is a homebuilder operating in 25 states and 73 metropolitan

Despite the sluggish U.S. economy (high unemployment, depressed housing, strained government and individual finances), many large U.S. Corporations remain highly profitable. Over the past five years, large American companies, as represented by the S&P 500, have outperformed MSCI EAFE (European, Australasian, Far Eastern), and FTSE China 25 (Chinese) companies. (see chart below - click to enlarge)

SPDR S&P 500 (SPY)

iShares MSCI EAFE Index (EFA)

iShares FTSE China 25 Index Fund (FXI)

According to data compiled by Bloomberg, S&P 500 profits doubled since 2009. The market has followed suit with the index jumping about two times since its 2009 lows. Even with such large gains, the index's so-called earnings yield is close to the highest on record when compared with the 10-year Treasury rate (albeit the 10-year Treasury has been falling). How is this possible, and can this continue? According to economist and business reports, the resiliency in corporate

With pessimism and fear swirling around European sovereign debt, particularly with regards to Portugal, Italy, Ireland, Greece, and Spain (PIIGS), now might be a second opportunity to pick up European banks and other stocks on the cheap. Below are several European banks trading below tangible book value and near or below 2009-crisis lows.

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Source: Seeking Alpha

BBVA - Banco Bilbao Vizcaya Argentaria SA (ADR)

IRE - Bank of Ireland

LYG - Lloyds Banking Group PLC (ADR)

NBG - National Bank of Greece (ADR)

RBS - Royal Bank of Scotland Group plc (ADR)

STD - Banco Santander, S.A. (ADR)

Since the 2008-2009 financial crisis, the eurozone (economic and monetary union of 17 European Union (EU) member states that have adopted the euro as their common currency) has established and used provisions for granting emergency loans to member states in return for economic reforms (i.e., austerity). This highly

Believe it or not, Apple (AAPL) is selling for about two times that of Microsoft (MSFT). How could this be, you might ask, with Microsoft dominating the desktop market.

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Source: Chitica.

The answer is, and you don't need a degree from MIT to figure this out, that Apple dominates Microsoft in the smartphone and tablet markets, which are both experiencing tremendous growth.

Smartphones

Tablets

For its iPhone, iPad and overall success, Apple reached a market high on April 10, 2012, at $644 per share -- a staggering $600.4 billion in market capitalization (the largest publicly traded stock in the history of the world as ranked by market capitalization). On that same day, Microsoft reached an intraday high of $31.19, or a market capitalization of $261.7 billion. Market capitalization is the total dollar market value of all of a company's outstanding shares. It is calculated by multiplying

Welcome to our new reality. The table below shows low and declining yields across the yield curve for three developed countries.

With ten-year risk-free rates hovering about 2%, it will take approximately 36 years to double your money applying the rule of 72. In financial circles, the rule of 72 is a method for estimating an investment's doubling time. The rule number 72 is divided by the interest percentage per annum to obtain the approximate number of years required for doubling when only a basic calculator is available. In this case, if you were to invest $10,000 with compounding interest at a rate of 2% per annum, the rule of 72 gives 72/2 = 36 years required for the investment to be worth $20,000. A scientific/financial calculator would give a more accurate reading of about 35 years.

At a paltry 2% yield, even retirees with a liquid nest egg of

With recent weakness in commodity prices, inquiring minds want to know whether the U.S. economy and other advanced nations are entering an unwelcomed period of lingering Japan-like deflation. Using Japan’s lost decades (two decades and counting) as a model, there were many similarities between the Japanese financial crisis to the one we’re experiencing today. To name a few, both experienced bursting of equity, housing, and credit bubbles. However, there are certain nuances that need to be taken into consideration, particularly differences in demographics.

Based on chart below and benefit of hindsight, it appears investors are much more confident of a U.S. and Europe turnaround compared to Japan’s lost decades. Based on this backdrop, it appears U.S. policy makers have administered the right medicine and in right dosages to keep the patient/economy alive and growing (albeit slowly) with zero interest rate policy (ZIRP), quantitative easing, operation twist and a host of

With contagion fears brewing over European sovereign debt, it’s no wonder this week marks the worst Thanksgiving week (-4.7%) since the Great Depression in 1932. Moreover, the S&P 500 marked its seventh consecutive day decline and is down 7.9% over this period. Large banks fared much worst as confidence started to shake in late October.

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Large U.S. banks on average have lost over 10% since October while European banks fell even further to about 20% based on the iShares MSCI Europe Financials Index (EUFN). EUFN seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the MSCI Europe Financials Index. Top ten holdings for EUFN are as follows:

Top laggards included U.S. titans Bank of America (BAC) and Citigroup (C) for tumbling 24.3% and 25.2%, respectively, over the same period.

In our October 31^st article, we warned about

Big banks have staged a huge comeback from the abyss as market participants see hope coming out of European summit meetings to stave off a widely dreaded contagion of downgrades and defaults that threaten the global economy. Big banks on average have rallied more than 15% over the past month and have outperformed the S&P 500 Index ETF (SPY) (see chart below - click to enlarge).

When we wrote “China’s Property Boom Looking More Like a Bust” last June, the Guggenheim China Real Estate ETF (TAO) shares were trading at $19.41, while the iShares FTSE China 25 Index Fund (FXI) was trading at $43.55. About four months later, TAO and FXI shares are down to $14.26 and $32.27, or a decline of 26.5% and 25.9%, respectively, as of 9/23/11. Year-to-date, TAO and FXI shares are down 28.5% and 25.1%, respectively (see chart below).

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Investors who shorted TAO are currently in the money based on our thesis back in June whether they shorted outright or as a hedge against their FXI holding. However, investors who shorted TAO are still very much in the red if they were predominantly long in well-hyped Chinese Internet IPOs such as YOKU (marketed as the YouTube of China), DANG (marketed as the Amazon.com of China), and/or RENN (marketed

When we wrote “3 Banks Trading Below Tangible Book Value and Near 52-Week Lows”, Bank of America (BAC) shares were trading at $10.79 or about 25.8% below tangible book value. About two months later, just prior to Warren Buffett’s $5 billion private investment in BAC’s 6% preferred stock, BAC shares fell to a year-to-date low of $6.99 or about 50.1% below tangible book value. Coincidently, BAC shares closed yesterday at $6.99 and reached an intraday low of $6.80 (19 cents below the controversial Buffett Put).

Buffett’s money and brand-name allowed him to score a sweetheart deal for Berkshire Hathaway (BRK.B) shareholders. BAC created a special type of preferred stock by issuing Berkshire 50,000 preferred shares, valued at $100,000 per share, for a total of $5 billion. The preferred shares will pay Berkshire 6% annually in perpetuity. Should BAC end the arrangement, they will have to pay Berkshire a

• Sell desired shares to reduce or eliminate market risk.
• Purchase put options while volatility/premiums are relatively low.
• Purchase CBOE Volatility Index (VIX) futures or ETFs/ETNs that track VIX futures.

Source: Municipal Bond Fairness Act (HR 6308)

It was not too long ago when we wrote “How to Protect Profits as QE2 Comes to an End?” In less than two weeks after the end of QE2 on June 30, 2011, Chairman of the Federal Reserve Ben Bernanke announced on July 13, 2011 that a third round of quantitative easing is on the table if the economy gets weaker. In quantitative easing, a central bank attempts to stimulate the economy by purchasing financial assets from banks and other private sector businesses with new money created electronically. This action increases the money supply and raises the prices of the financial assets bought, which lowers their yield, thereby creating liquidity in the financial markets.

As I surmised and had warned in my original article, but it did not make it to readers due to editing, a QE3 would reduce the need to protect profits (sell and/or hedge assets). Just