Month: July 2012

By Central Bank News
    Here’s today’s Central Bank News link list, click through if you missed the previous link list. The list is updated during the day with the latest news about central banks so readers don’t miss any important developments.

By Central Bank News

    Turkey's central bank kept its benchmark one-week
repurchase rate unchanged at 5.75 percent, saying it was striking a cautious and flexible policy stance in light
of the uncertain state of the global economy and the inflation rate, which
remains above the bank's target.

By TraderVox.com

Tradervox.com (Dublin) – The Japanese currency advanced against most of its major counterparts as German lawmakers prepare to vote on bailout decision. There is speculations in the market that European leaders will slow in implementing measures to curb the debt crisis in the region which increased the demand for the yen safety. Further, German’s Chancellor Angela Merkel’s comments asking the region’s leaders to establish measures to deal with the crisis without waiting for Germany is an indication that eurozone’s largest economy is no ready to carry other countries. In addition, the Japanese currency increased against the US dollar prior to US data expected to show that jobless claims in the country increased adding to speculations of third round of quantitative easing.

Marito Ueda, a Senior Manging Director at FX Prime Corp in Tokyo, talking about the euro zone crisis indicated that there is nothing that has been solved and there are no signs of solution in the near future. He also added that the current demand for yen is due to lack of other choices in the market. He further made a projection that the euro may drop to as low as 93 yen and $1.18 by the end of September. Such sentiments have gripped the market hence investors are looking for safe haven currencies, and the yen is the most preferred for now.

German lawmakers are preparing to vote on a 100 billion euros aid to Spanish banks after they cut short their vacation. While the lawmakers are expected to pass this motion, Angela Merkel, German Chancellor, indicated that she will not allow Germany to take on any additional burdens.

The Japanese yen rose by 0.3 percent against the euro to trade at 96.47; the yen had touched its strongest since June 1 on July 16 when it touched 96.17. Japanese currency also advanced against the dollar by 0.3 percent to trade at 78.55 yen per dollar.

Disclaimer
Tradervox.com is not giving advice nor is qualified or licensed to provide financial advice. You must seek guidance from your personal advisors before acting on this information. While we try to ensure that all of the information provided on this website is kept up-to-date and accurate we accept no responsibility for any use made of the information provided. Opinions expressed at Tradervox.com are those of the individual authors and do not necessarily represent the opinion of Tradervox.com or its management. 

Article provided by TraderVox.com
Tradervox.com is a Forex News Portal that provides real-time news and analysis relating to the Currency Markets.
News and analysis are produced throughout the day by our in-house staff.
Follow us on twitter: www.twitter.com/tradervox

By TraderVox.com

Tradervox.com (Dublin) – The UK Retail Sales is regarded as an important indicator as it provides traders and analysts with the direction of consumer spending in Britain. This report will be released on Thursday, July 19 and 0830 hrs GMT. Here are more details about this indicator and its possible effects on the pound-dollar pair.

The indicator has been providing important perspective on consumer confidence and spending. If the indicator has a strong reading, this is considered significant for economic growth in the country. The UK Retail Sales was higher than the market expectation in June when it jumped to 1.4 percent. This month, the indicator is expected to increase by 0.6 percent.

There are general bearish sentiments in the UK as major sectors in the country have been contracting. Despite, the recent pound rally last week, the general trend of the pound-dollar pair has been bearish since July. Significant sectors in the economy such as the housing, construction, and manufacturing have been contracting as crisis in Europe continues to take toll on the UK economy. Moreover, the bleak global economic outlook has forced investors to favor the safe haven provided by the dollar and the yen, as such, the GBP/USD pair outlook remains bearish.

When this report is announced, some of the technical levels to keep in mind include: 1.5930, 1.5805, 1.5750, 1.5648, 1.56, and 1.5521. If this indicator comes within the market expectations, –that is 0.3 -0.9 percent, then the pair is expected to rise within range with a slim chance of breaking higher. If it comes above expectations (1.0-1.3 percent) the pair might break one resistance line. However, if the indicator comes in well above the market expectations, the GBP/USD cross is expected to break a second resistance line.

On the other hand, if the indicator is below the market expectation –that is a reading between -0.1 and 0.2 percent, the cross may move downwards with a possibility of breaking below one support level. A well below expectation reading will probably cause the pair to break a second support level.

Disclaimer
Tradervox.com is not giving advice nor is qualified or licensed to provide financial advice. You must seek guidance from your personal advisors before acting on this information. While we try to ensure that all of the information provided on this website is kept up-to-date and accurate we accept no responsibility for any use made of the information provided. Opinions expressed at Tradervox.com are those of the individual authors and do not necessarily represent the opinion of Tradervox.com or its management. 

Article provided by TraderVox.com
Tradervox.com is a Forex News Portal that provides real-time news and analysis relating to the Currency Markets.
News and analysis are produced throughout the day by our in-house staff.
Follow us on twitter: www.twitter.com/tradervox

By MoneyMorning.com.au

We hate to do it.

As much as we try.

But he’s impossible to ignore.

That’s right, we’re talking about US Federal Reserve Chairman, Dr. Ben S. Bernanke.

He’s just finished giving testimony to the US Congress. Asked about the impact of low interest rates, the Fed Chairman said the Fed was ready to take ‘away the punch bowl’.

In other words, raise interest rates.

That’s bad news for stock markets, right? Maybe not. In fact, if history is anything to go by, it could result in the best bull-run the market has seen in nearly 10 years…

Our view on the global economy and markets is that it’s stuffed.

But, that’s not new. The global economy and markets have been stuffed for years. The trick is to recognise that so you can protect your wealth when things go pear-shaped, but also to take advantage of wild market moves — whether that’s up or down.

And that means paying close attention to what’s happening in global markets…

Will We See a Repeat Rally From an Interest Rate Rise?

We were intrigued by Fed Chairman Bernanke’s comment that when the US economy stabilises and inflation starts rising, the Fed will simply ‘take away the punch bowl’ by raising interest rates.

The immediate reaction is to think that will be bad news for stocks. After all, with all the debt in the economy, higher interest rates means higher interest costs.

But is that necessarily true? Certainly there’s an element of truth to it. But nothing is ever as simple as it seems. One consequence of higher interest rates is that investors will be more prepared to save and lend…because they’re getting a better return for their money.

That should make it easier for firms to borrow money. And so what if they’re paying a higher interest rate, at least they can borrow funds to grow their business.

And if we look at the effect of rising interest rates on stock markets, if the last time the Fed took ‘away the punch bowl’, maybe the impact won’t be as bad as most think.

Here’s a chart of the US Federal Funds Rate from 2002 to 2012:

Click to enlarge

After dropping interest rates to 1% in 2003, the US Fed kept rates low before raising them from 2004 through to 2006. By the time the Fed stopped raising rates, the Fed Fund rate was at 5.25%.

But what about the stock market?

Here’s the interesting part. Check out this chart:

Click to enlarge

The red line is the Aussie ASX/S&P 200 index. The blue line is the U.S. S&P 500 index.
The first green bar covers the time when US interest rates were at 1%. The purple line shows the period when the Fed raised rates from 1% to 5.25%. And the second red line covers the period when rates were at the peak.

From bottom to top, the US market gained 80%. It gained 35% during the period of 1% interest rates and then added another 40% as rates climbed.

Where is the US market now?

Stocks at 2003 Prices

Over a period when the Fed has kept interest rates lower for a much longer period, the US market is up 75%. So if — and it’s a big if — the US economy does stabilise and the Fed indicates rate rises are on the way (not likely before 2014), it could be the cue for the market to head higher.

And the prospects for the Australian share market could be even better. Notice that from 2003 the US market took off much faster than the Aussie market.

So that while today the US market is less than 10% below its 2007 peak, the Aussie market is still 40% below the 2007 peak. It has a whole bunch of catching up to do.

The major difference of course is that Australia has a much less diversified economy. And a much less diversified stock market — resources and banking.

But if the global economy recovers, it should mean more demand for Aussie resources. We don’t mean it will be a return to the China-led resources boom, but if investors are more realistic about the potential returns from resources stocks, you should see stocks rise from their current beaten-down level.

As we say, we’re still sceptical about the chances of a global economic recovery. But you shouldn’t discount the possibility.

Things are playing out eerily similar to the last time the Fed fiddled around with interest rates. If the Fed does eventually ‘take away the punch bowl’, stock markets (including the Aussie market) could see the biggest bull-rally in more than 10 years.

Cheers,
Kris.

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How an Interest Rate Rise Could Trigger a ‘Punch Bowl’ Rally

By MoneyMorning.com.au

Last night your editor went to dinner at the Olio Cucino restaurant in Melbourne. We heard John Hirst talk about ‘Why Australia should abolish compulsory voting’.

We listened with interest. And we agreed that voting shouldn’t be compulsory…but we thought that anyway.

What was more interesting was the history of latent violence by the State against Australian citizens. How the State used police to ensure people enrolled for elections.

And how the government employed ‘spies’ — postmen and the police — to inform on Aussies if they failed to re-enrol to vote after moving house.

According to Hirst, the passive Aussie attitude to State violence comes from the lack of civil unrest in Australian history. People have grown to trust government and authority rather than question it.

As Hirst said, for a country that has a cop-shooting petty criminal as a national icon (Ned Kelly), it’s surprising how compliant people are in obeying authority.

But after all the debate about the pros and cons of compulsory voting, we asked Hirst a simple question:

‘Considering the abuses of the State in compulsory voting and non-compulsory voting nations, and the abuses of authoritarian States, isn’t the issue that government is the problem, rather than the voting mechanism?’

Hirst didn’t agree. But we are right. Regardless of the form, the State is a violent body. It steals from those it hates (the people) and gives to those it adores (employees and contractors of the State).

Cheers,
Kris.

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Cumpulsory Voting for a Violent State

By MoneyMorning.com.au

I recently received a fascinating letter from a Sound Money. Sound Investments subscriber who was ‘…born, educated, and obtained my university degree in an Eastern European Communist Country. On the day of my graduation I escaped the country and regime that I grew to hate’.

In his letter, he shared his experiences of life in a communist regime and his insight into what possible outcomes are ahead for China as their economy is undone.

I found this reader’s insight very interesting.  Because it came from someone who has experienced this type of economic system before. Granted, there are obviously differences between Eastern European communism and Chinese communism. And there will be differences between the revolutions of Eastern Europe and whatever is to come in China.

I want you to think differently about China and the way the Western media presents its economic development. There is no doubt China’s economy has some real challenges.

One question the reader asked was if it’s possible China is cornering the gold market to solve their problems.

Now, I’m not suggesting this is a way out for China’s economy. I’d like to point out that it’s the only way for China to mitigate some of the fallout it will experience from abandoning its old growth model…that is, moving from export and investment-led growth to a system based on internal growth.

How China is Rebalancing
the National Balance Sheet with Gold

Think of it this way.

Most of China’s economic assets are other countries’ debt…for example, US Treasuries. This is not a sound or stable asset base. But if China accumulates gold, it’s buying a pure asset. There is no liability, or counterparty, on the other side of the asset.

Say it amasses 5,000 tonnes of gold. At a price of $1,600 an ounce, that’s a value of $282 billion. Not much in the scheme of things. But at $5,000 an ounce, the value of the gold hoard jumps to $882 billion. At $10,000 gold, it becomes $1.76 trillion. At that level, gold would represent around 50% of China’s reserves.

Can you see how this increase in asset value, without any corresponding increase in liabilities (debt) improves China’s national balance sheet? And can you see how the same applies to the individual’s balance sheet?

An increase in assets without an increase in liabilities translates into increased equity. Equity represents unencumbered ownership. For want of a better word, it represents an increase in wealth.

A major revaluation in gold represents a transfer of wealth from issuers and owners of debt to owners of gold. This strategy is not a panacea for China’s economy, but it’s certainly a way to reduce the cost of its past policy mistakes and ease the social tension that will arise from its upcoming transition to a new growth model.

Speaking of China and gold, Bloomberg reports that Hong Kong customs data showed gold imports into China from Hong Kong were 76 metric tonnes for the month of May. This represents a six-fold increase on last year.

Physical gold is flowing from West to East. It’s as simple as that.

Greg Canavan
Editor, Sound Money. Sound Investments

Ed Note: To read the fascinating story of life behind the ‘Iron Curtain’ and why Greg believes the Chinese economy is about to become undone, click here to take out an obligation-free trial to Greg’s investment advisory service…

From the Archives…

The Credit Market Debt Bubble and the Role of Gold
13-07-2012 – Greg Canavan

How to Survive and Thrive from China’s Bust
12-07-2012 – Kris Sayce

Payday Loans: Why This Lender of Last Resort Isn’t the Bad Guy
11-07-2012 – Kris Sayce

What A Slowing Chinese Economy Means For Pork Chops
10-07-2012 – Dr. Alex Cowie

Late News: Bankers Rig Interest Rates, No-One Fired
09-07-2012 – Dr. Alex Cowie

Why Gold is Flowing into China

By MoneyMorning.com.au

Barclays Plc paid out over $450 million in fines for its role in the LIBOR  manipulation scandal, but who will be the next guilty party?

One thing’s for sure: Regulators are on the hunt.

The New York Federal Reserve last week confirmed that U.S. Treasury Secretary Timothy Geithner sent a memo to British regulators in 2008 over concerns of banks manipulating LIBOR.

Geithner maintained that he and the Fed sent a long list of recommendations to the Bank of England and the British Bankers’ Association, which oversees the LIBOR-setting process.

In light of the LIBOR scandal, U.S. Federal Reserve Chairman Ben Bernanke was questioned about the Fed’s inaction regarding LIBOR manipulation at his testimony before Congress on Tuesday.

Bernanke also made clear that the Fed was not aware that Barclays was manipulating the rates for its own profit. Instead the Fed believed the bank was simply manipulating interest rates to maintain the appearance that everything was fine with the company (which surely wouldn’t affect a bank’s profit…).

Bernanke insisted the Fed followed up on the disclosures and that in cases like this there is not much more U.S. regulators can do than make suggestions.

Possible U.S. Culprits of the LIBOR Scandal

It’s hard to believe that the Fed did all it could do to prevent LIBOR manipulation. And if it couldn’t prevent the LIBOR scandal, the Fed certainly had the power and the knowledge of what was going on to keep it from ballooning to what it is today.

Jim Rickards, author of Currency Wars, thinks there is much more that could have been done to prevent the ‘largest financial scandal’ he has ever seen.

He has gone as far as to say Geithner should be charged with aiding and abetting a crime. He explained that Geithner was aware of a crime, fraud, taking place, and did nothing to stop it.

Geithner is set to testify and face questions about the issue next week when he appears in front of the House Financial Services Committee.

So far U.S. banks have only felt a twinge of the possible repercussions that could stem from this mess.

JPMorgan Chase and Citigroup are the only two banks that have admitted to being under investigation, while other U.S. banks such as Bank of America remain under heavy suspicion.

The English Players in the LIBOR Manipulation Scandal

Considering that LIBOR is controlled by English regulators it would make sense that Barclays is not the only British wrongdoer in this scandal.

There is Bank of England’s deputy governor Paul Tucker, who has been questioned about his correspondence with Barclays former CEO Bob Diamond.

Tucker said he pressed Barclays, HSBC Holdings and the Royal Bank of Scotland to urge the British Bankers Association (BBA) to carry out a more detailed review of Libor in 2008.

‘We wanted to give the BBA the message that they shouldn’t just do their normal annual review of LIBOR but do a much broader, global consultation of LIBOR and its governance,’ Tucker told lawmakers. ‘We decided to say to the banks that this broader review shouldn’t be conducted at the level of the normal committee, which is desk level, but should be more senior. I called roughly the number two’s and number three’s at all the big sterling banks to say that.’

This contrasts with a story Tuesday by the Associated Press concerning Bank of England’s governor Mervyn King. King said the first he knew of any alleged wrongdoing during 2008 ‘was when the reports came out two weeks ago.’

‘We have been through all our records. There is no evidence of wrongdoing or reporting of wrongdoing to the Bank (of England),’ King said.

King also said that the Federal Reserve of New York did not show him any evidence of manipulation or misreporting of LIBOR when they raised concerns in 2008.

King, speaking to a House Commons committee, said during the 2008 financial crisis there were concerns regarding what LIBOR was indicating about the health of banks, but not about LIBOR manipulation.

King was asked about Geithner’s suggestion to ‘prevent accidental or deliberate misreporting’ and ‘eliminate incentive to misreport.’

‘When you design any self-reporting scheme you have rules to prevent misreporting,’ King said. ‘That isn’t the same as saying you’ve got evidence that there is misreporting, nor did the Fed or anyone else send us any evidence of misreporting.’

Lastly, Britain’s Financial Services Authority is under speculation. They faced questioning on Monday from Parliament as to why regulators failed to respond to concerns about LIBOR manipulation going back to December 2007.

Members of Parliament accused the Financial Services Authority of not acting quickly enough and even the chairman of the British regulator, Adair Turner, admitted they had not dealt with the potential risks of LIBOR.

The Financial Services Authority is currently investigating several other global financial institutions about their role in the interest rate scandal.

For now all we know is that the LIBOR scandal is just picking up and it remains to be seen who will be punished the most, or even at all.

Ben Gersten

Contributing Writer, Money Morning

Publisher’s Note: This article originally appeared in Money Morning (USA)

From the Archives…

The Credit Market Debt Bubble and the Role of Gold
13-07-2012 – Greg Canavan

How to Survive and Thrive from China’s Bust
12-07-2012 – Kris Sayce

Payday Loans: Why This Lender of Last Resort Isn’t the Bad Guy
11-07-2012 – Kris Sayce

What A Slowing Chinese Economy Means For Pork Chops
10-07-2012 – Dr. Alex Cowie

Late News: Bankers Rig Interest Rates, No-One Fired
09-07-2012 – Dr. Alex Cowie

Who Will Be Next in the LIBOR Manipulation Scandal?

USDCHF stays in a upward price channel on 4-hour chart, and remains in uptrend from 0.9421, the fall from 0.9872 is treated as consolidation of the uptrend. Further decline to test the support of the lower border of the channel would likely be seen, as long as the channel support holds, uptrend could be expected to resume, and another rise to 1.0000 is still possible. On the downside, a clear break below the channel support will indicate that the uptrend from 0.9421 has completed at 0.9872 already, the the following downward movement could bring price back to 0.9500 zone.

Daily Forex Forecast

Article by Investment U

In focus this week: Apple may be the only safe place in technology, a portfolio that was set up in 1935 that’s still kicking butt, and the SITFA.

AAPL to $1000?

Apple (Nasdaq: AAPL) is on a tear again. A recent Barron’s article described it as a safe haven in an otherwise tech landscape rife with fear.

Estimates for the tech industry have been cut by just about everyone because of economic fears, a weak pc market and weak IT spending by corporations.

Apple, on the other hand, is in complete control according to Barron’s. A 50% profit margin and the ability to hold its prices put it in another class in the tech sector.

Apple has the world’s attention and everyone, it seems, is waiting for the next gizmo.

The key here is expectation, not delivery. Tiernan Ray of Barron’s says this one will be running again as soon as this September in anticipation of the new iPhone model.

The rest of the industry can’t put a dent in AAPL and since it broke above $600 again. It looks like we’ll have all kinds of predictions of a $1,000 AAPL again.

I’m not sure $1,000 is realistic, but when the hype starts rolling on this one, and the momentum builds, there seems to be no end to the run. But there always is.

A 1935 Portfolio That’s Still Cooking

In 1935, a portfolio of 30 stocks was set up with the idea of not doing anything, or at least as little as possible to it. The theme then and now is “no manager, no problem.”

The best part, over the last 10 years this little doozy has outperformed the market by 56%, and compared to other large cap funds by an even greater percentage.

In fact several of its holdings tripled in price in just the last 10 years; Praxair (NYSE: PX), Union Pacific (NYSE: UNP) and Burlington Northern (NYSE: BNI).

ING Corporate Leaders Trust has $750 million in 22 stocks that reads like a who’s who of Wall Street: Union Pacific, DuPont (NYSE: DD) and their largest holding, Exxon (NYSE: XOM).

The founders wanted blue-chip dividend payers that could thrive for decades. They look for brands and sustainable competitive advantages. It seems to be working very well.

But the ride hasn’t always been a smooth one. It lagged badly during the tech boom of the 90s and recently held EK until it went below $1.00. So, while it may look like the perfect play for the “buy and go to sleep crowd,” it too has given its shareholders lots of reason to cut and run.

This fund was originally set up as a UIT, unit investment trust, which as a tool for equities fell from grace long ago. I can’t remember the last time I read anything about an equity UIT.

These long-term, big performers always look so simple until you take a closer look at what you had to put up with to get the great returns.

What looks so simple on the surface never is. Is it?

And the SITFA

Here’s a good one.

A recent WSJ article described the reported inflation rate in China as unreliable because the Communist government in place there manipulates prices to control the markets.

The Communists manipulate the markets? What? Here in the United States, we just exclude energy and food from our inflation numbers. That’s not manipulation? You’re kidding, right?

How about our unemployment numbers? We just exclude those who have given up looking for work and the unemployment rate goes down. It’s really about 15%, not 8%.

Manipulation? The Chinese could take lessons from Washington on this one.

What a joke! Talk about the Emperor’s new clothes.

See you all next week.

Article by Investment U