Month: July 2012

Source: ForexYard

Trading was relatively quiet during the overnight session, as Japanese markets are closed for a bank holiday. That being said, the EUR did give up some of last Friday’s gains against the USD, but still managed to stay above the 1.2200 level. The EUR/USD is currently trading at 1.2227. Gold and crude oil also saw moderate losses during the overnight session, and are currently trading at $1586 and $87, respectively.

Main News for Today

US Retail Sales and Core Retail Sales- 12:30 GMT
• Both indicators have come in below expectations for the last two months
• That being said, analysts are predicting today’s news to show growth in the US retail sector
• If true, the USD could see moderate gains against the JPY during afternoon trading

Read more forex news on our forex blog

Forex Market Analysis provided by ForexYard.

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Disclaimer: Trading Foreign Exchange carries a high level of risk and may not be suitable for all investors. There is a possibility that you could sustain a loss of all of your investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with Foreign Exchange trading.

By MoneyMorning.com.au

There’s an old joke that goes something like this…

Q: What’s the difference between gold stock investors… and a pigeon?

A: The pigeon is able to put a deposit on a BMW.

But are long-suffering gold stock investors about to have the last laugh?

After 12 months of steep falls, gold stocks are now ludicrously cheap. And the best cure for a low price…is a low price.

Gold prices and gold stock prices have gone in opposite directions for a while now. In the last 12 months gold has crept up slightly, while the gold stocks that make up the index GDXJ have HALVED.

Right now the gold equity market looks more like a warzone. But the best time to buy is when there is blood on the streets…

This chart shows 40 years of the world goldmining index, benchmarked against the gold price.

It gives some idea of just how cheap gold stocks now are. On this metric, gold stocks are as cheap now as they were at the height of the GFC.

And prior to that, the last time they spent any amount of time at these levels was 1989!

World Gold Mining Index — Back to 1989 Levels

The red line in the chart shows the average level over the last 40 years. This gold index would have to rally 43% just to get back to this level.

One of the main reasons that gold stocks are falling is not so much a flat gold price, but higher production costs. Miners everywhere are facing the same nightmare: the costs of labour, fuel, equipment — and paying the government’s pound of flesh — are rising everywhere. Gold mining is an expensive business.

Without a rising gold price, the miners’ profit margins are therefore getting smaller.

So can we expect a rising gold price any time soon to turn this situation around?

If you take historic patterns as any guidance, then gold is well overdue for a rally in the second half of this year.

In the last 11 years, gold has risen each year. Over this period, its median annual gain has been 18.9%.

We have a little under half a year to go for 2012, and so far gold has done very little. Just to match its historic performance, gold would need to rally to around $1850 by year’s end.

If we saw that, the miners profit margins would explode, and we would see gold mining stocks soar in response.

Going back to the chart above, if we saw a recovery around this level, it would create a ‘double bottom’. This is a technical charting pattern that can signal the start of the next leg up. For example, we saw a double bottom form between 1999 and 2001, prior to the index doubling in value.

I asked our technical trading expert, Murray Dawes, for his take on the index:

‘It’s quite clear from the chart of the goldmining index divided by the gold price that gold stocks have copped an absolute beating over the past year. The ratio is back to levels reached during the extreme lows after the crash in 2008. That’s quite amazing when you consider the gold price is more than double where it was in 2008.

‘The extreme bearishness on gold stocks can be explained by the rising costs they face and the lack of any real dividend from most of the stocks in the index, but when you consider that there will definitely be more money printing by central banks over the next few years it’s hard not to come to the conclusion that the uptrend in gold will continue and many gold stocks should start to rake in some big profits.

‘The ratio appears to be back at a major support level so I would expect to see a bounce from here.’

That would be very welcome, and well overdue, news for gold stock investors’ ears.
But what could cause gold to rally in the second half of this year, to trigger this?

In a word: Europe.

Unstoppable Europe

The European debt fiasco is unstoppable now. The chaos has graduated to Spain, and now Italy. The ECB couldn’t stop Greece from exploding, so I don’t fancy its chances of stopping the disease now that it has infected some of the bloc’s biggest economies.

When you want to get a feel for what the market really thinks, then you need to look past the stock market, and listen to the bond markets.

And I’m not talking about Spain’s or Italy’s bonds. Instead, you want to see what is happening to the world’s biggest bond market — the US bond market.

It is the biggest and most liquid market in the world. When institutional investors want to store a few billion somewhere, the US bond market is often their first choice. It’s not my idea of a fun time, but each to their own.

What has happened here is breath-taking. There is now so much money looking for a safe place to hide, that investors in these bonds are taking a historically low yield. In fact it’s now within a whisker of a 200-year low of just 1.48%. Even more remarkable is that this is below the US inflation rate — so investors are actually taking a negative real yield.

They’re effectively paying to store their money in US-bonds. Given this, it is hard to imagine many more investors taking them up.

To put it another way — like a car-park, the bond market is nearly ‘full’.

But what’s all this got to do with gold?

Simply this: the ship (financial system) is sinking, and the lifeboats (US bonds) are now full.

However, there are some other lifeboats (gold) that most of the passengers (the market) are yet to notice.

Gold is no one else’s liability, for one thing. It also offers a market which is as liquid, and as big as some of the larger bond markets.

At some point soon, the institutional investors will have to pay attention, and understand that gold actually offers the best lifeboat around.

Once this happens, we could see a huge flow of funds into gold, and get that well overdue leg-up in the gold price.

And gold stocks are the place to be when this happens — because they magnify any move gold makes.

At the rate that central banks are printing money, you won’t have long to wait to laugh at anyone who joked about comparing gold stock investors to pigeons!

Dr. Alex Cowie
Editor, Money Morning

Related Articles

Market Pullback Exposes Five Stocks to Buy

The Credit Market Debt Bubble and the Role of Gold

This Gold Price Cycle Shows We’re Headed for a Rise

How Gold Stocks Could Become Your Gilded Lifeboat

By MoneyMorning.com.au

By Kris Sayce and Dr. Alex Cowie, Editors, Money Morning

[Publisher’s Note: the following is an interview between Money Morning editors, Kris Sayce and Dr. Alex Cowie. The interview took place six weeks ago, but is still timely for those investors looking to make profits in mining stocks this year.]

Kris Sayce: I think the big issue for resources investors is the big picture view of the economy. Do you think China will continue to have the same influence over commodity prices in the future as it did between 2003 and 2008?

Dr. Alex Cowie: China is now the world’s second largest economy. Only the United States economy is bigger. But China’s growth has been 3-4 times faster than America’s, as it builds infrastructure. That has made China the biggest commodity user. And it has been the biggest price driver of key commodities like coal, copper and iron ore for years.

But China’s engines have started misfiring this year.

China was already slowly coming off the three year sugar-rush after a four trillion Yuan stimulus program. But the government also deliberately stepped in to slow down the runaway property sector. And this looks like it may have worked too well.

The tell-tale signs are falling electricity production growth, bank lending all but ceasing, and very dodgy real estate figures. Each point to a big fall in Chinese growth rates.

The knock-on effect (and why this is important to Aussie investors) is that it could lead to a big drop in demand for some commodities. This would take China out of the driving seat for commodity prices.

Kris Sayce: That doesn’t sound good for commodity prices. Are you saying they could fall further?

Dr. Alex Cowie: Some commodities could get smashed if China’s growth slows down.

China is the biggest buyer of iron ore, coal and copper. So these commodities could fall much further unless the Chinese government steps in with further stimulus – which is always possible.

To make things worse for thermal coal, which is used in power stations, it has another big problem to deal with: the competition from all the cheap shale gas in the United States. Power stations are switching from coal powered to gas powered, sending the global coal price down even further.

Kris Sayce: So, can we put all commodities and all resources stocks in the same bag? Or is there a group of commodities and stocks that could do better than others over the next few years?

Dr. Alex Cowie: The world of resource investing is changing. The industrial commodities that built China have already HAD their bull run. The copper price is up SIX-fold in the last ten years. I’m not saying you won’t make money from iron ore, coal or copper stocks in the future – but it’s getting harder. Most of the easy money has been made already.

But there is good news. There are always opportunities if you know where to look. Not all commodities are used for Chinese construction or manufacturing.

Take gold for example; this monetary metal has risen each year for the past 11 years. Every time central banks print more money, the gold price goes up. Right now it’s holding up relatively well at a time other commodities are getting smashed. This is probably because of the prospect of the US Federal Reserve, and the European Central Bank (ECB) printing more money before the end of the year.

After precious metals, oil is the next commodity still giving investors plenty of profit opportunity in these tricky markets. Even with shale oil adding slowly to supplies, global oil supply just can’t keep up with increased demand. Oil is pumped from some of the most unstable places in the world. So this commodity has a big ‘geopolitical cost risk’ involved in first extracting it from these places, and then transporting it to you.

On top of this, the easy oil has mostly been found and extracted. So now producers have to spend more money getting the ‘harder-to-reach’ oil. Analysts now reckon it costs as much as $80 per barrel to produce oil in Saudi Arabia. With such high production costs, the price of a barrel of oil isn’t likely to fall any time soon.

The opportunities are still there with gold and oil. But they get a lot of attention, and the best opportunities are hard to find. When the market is this crowded, you have to look in less obvious places to find the big money-spinners of tomorrow. And the best place to look right now is with strategic minerals.

Kris Sayce: Sorry, before you go on, for the benefit of our readers, can you explain strategic minerals in more detail?

Dr. Alex Cowie: Sure. Strategic minerals are a varied group of commodities with a few common features.

Strategic minerals are generally integral to the national defence, aerospace or energy industries in some way. They also all face supply restrictions, typically because production is dominated by one country. This is what we saw with the Chinese rare earths supply a few years ago. This list shows the minerals that the Royal Geological Society deems most at risk of supply shocks.

Take graphite for example. You’d never think the main ingredient in pencils could be so critical! But nearly all of the world’s graphite comes from China. It’s also of growing importance as the chief component of modern batteries, which are growing in use in electric vehicles, laptops and mobile phones.

Kris Sayce: I notice tungsten is high on the list. What’s so special about tungsten?
Dr. Alex Cowie: Tungsten is another commodity that I think has a bigger future than anyone expects. Again, China controls production, but it’s needed worldwide. The important thing about tungsten is that it’s essential for military applications such as the production of bullets. Say a war breaks out between Iran and the US, and China backs its ally, Iran – what happens if China decides to stop selling the US the tungsten its military needs?

The tungsten price has doubled in the last few years, and no one has noticed yet. In the next year or two, I think the market will suddenly notice this investment opportunity. And the best time to invest is well before that happens!

Kris Sayce: OK. So if you could only choose one commodity to invest in, which would you choose?

Dr. Alex Cowie: It would have to be gold. It has outperformed anything else in the long run, and is set to keep doing so. Gold is money, so you can buy other commodities with it anyway!

Kris Sayce: That’s interesting. So you wouldn’t go for the big bulk miners. You prefer gold, energy and strategic minerals. But I still read a lot of people in the mainstream press saying they’re backing the big miners like BHP Billiton [ASX: BHP] and Fortescue Mining [ASX: FMG]. Why have you avoided the big mining stocks?

Dr. Alex Cowie: I’d rather eat a bag of gravel than invest in those stocks. They’re so big it’s hard to get significant profits. For example, in the first four months of this year, BHP went up just 4%. FMG did much better, but still gained just 33%. But then take Western Desert Resources [ASX: WDR]. Maybe you’ve never heard of it, but this small-cap iron ore stock gained 115% in the same time. This is the type of leverage the smaller stocks can give investors.

I’ll leave the boring ASX200 stocks to the fund managers, thanks!

Kris Sayce: Speaking of the ASX200, I’ve still got a feeling this market could fall further. But are you saying the stocks you’re looking at are cheap today? If so, what do you look for to determine whether a stock is cheap or expensive?

Dr. Alex Cowie: The truth is that the truly important things can’t be quantified. You could have the best spreadsheet in the world that factors in future cash-flows, tax liabilities and the rest of it. But this approach totally overlooks the real drivers of value like the quality of the management, how safe the country is the company is exploring or producing in, or whether the largest shareholder needs to sell his or her 15% holding to pay for a messy divorce. So although I use spreadsheets and valuations, they are more as a rough guide than anything.

But the most important factor that’s not in most analysts’ spreadsheets is whether the company has access to funding. The market’s purse-strings are tightening up. Junior explorers are finding it hard to raise capital for exploration, and even harder to raise the large amounts needed to actually build a mine. Without funding, you can forget it.

Obviously you want stocks that have beaten-down prices, and there it’s not hard to find that in this market. But it’s important to look at the technical charts as well, to time the best entry point. I frequently ask [our in house technical trading expert, Slipstream Trader] Murray Dawes whether his technical view matches my fundamental view. It often improves the success rate.

Kris Sayce: We both know Murray is bearish on the market, so what impact will a falling market have on Aussie resources stocks? I clearly remember the 2008 bear market. Prices ratcheted down gradually, but then suddenly stock prices collapsed. The big mining stocks fell more than 50%, and some small-cap mining stocks fell more than 80-90%. Can you see that happening again?

Dr. Alex Cowie: This is already happening! Small mining stocks have had a terrible 12 months. The ASX300 Metals and Mining index has already fallen 40%, small gold stocks have halved, some uranium stocks are down 80%.

Stocks could fall further of course. Just when you think they’re cheap, the market will show you what ‘cheap’ really looks like. But pretty soon, we’ll be looking at the point when the smart investor gets the trolley out and starts shopping.

Kris Sayce: Getting back to resources stocks, one of the things I’ve looked at – and I know you have too – is shale gas. This has revolutionised the energy market in the United States where shale gas now accounts for 25% of U.S. gas consumption. And according to energy giant, BP, domestic shale gas production will make the U.S. energy independent by 2030 and soon after a net exporter. I know you saw an interesting presentation by BHP Petroleum at the Australian Petroleum Production Energy Association (APPEA) conference this year. What’s your take on the shale gas story?

Dr. Alex Cowie: It’s going to be huge. It already IS in the States. Shale gas will increase from 25% to 50% of the US gas supply by 2020. In some ways it has been TOO successful – there is so much of the stuff, the price has fallen like a stone. This is great for consumers, industry and the economy. But gas producers are having a tough time covering costs! BHP bought into the industry just last year, and the fall in gas prices could mean they are facing a huge loss.

So I’m probably more excited about shale oil. The oil price should hold up better due to a much tighter global market, and the fact it’s easier to export by ship.

The US shale sector is quite mature now, and a lot of the easy money has already been made. The Aussie shale sector now looks like the US sector did about 5-10 years ago. Thing have only really just started. There is a lot of potential. If Aussie shale formations prove to be viable … then some MASSIVE profits could be made, and this could be a huge win for the Aussie economy.

But be warned. There are far more challenges than investors appreciate. There are many shale ‘basins’ in Australia, but we don’t know much about how commercially viable they are yet. Many of them are stranded without the infrastructure needed to get the oil or gas to a port.

At this stage it’s a big punt still. But many of the international oil majors are already joining forces with small Aussie juniors. For example New Standard Energy [ASX:NSE], which has a market cap of $150 million, has joint ventured with $65 billion stock, Conoco Phillips [NYSE:COP]. Like I say, it’s early days – but if these guys are investing, they must see some potential here.

Kris Sayce: Finally, I know from reading Diggers & Drillers that up to now, a lot of your focus has been on hard rock mining (tin, copper, gold, etc.). So is there any difference between valuing an energy stock compared to a hard rock miner?

Dr. Alex Cowie: You need to look at a lot of the same things: location, management, funding; as well as all the oil exploration or production parameters. For explorers its things like how much acreage (land) do they have, and how many wells. You need to see how much geological potential they have from seismic data, and also what success neighbouring miners have had. Some areas are more ‘gassy’, while some are more ‘liquids rich’. I prefer oil over gas, as I expect the oil price to do better long-term.

Kris Sayce: That’s great Alex, thanks a bunch for your time.

Dr. Alex Cowie: I hope I’ve been helpful.

Kris Sayce and Dr. Alex Cowie
Editors, Money Morning

P.S. You can find out more about which resource stocks Alex believes will perform best in 2012, including the five stocks set to soar thanks to the 500-year Dutch Anomaly…)

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

Your Insider’s Guide to Mining Stock Profits in 2012

By MoneyMorning.com.au

Ever since the press started covering the financial crisis, all we hear is that ‘uncertainty is derailing stock markets‘, says Barry Ritholtz. But the author of influential financial blog The Big Picture says this idea is nonsensical.

Uncertainty is ‘an essential part of markets, and indeed life’, says Ritholtz. ‘The future is by definition unknowable and therefore uncertain.’ Those who complain about it reveal how little they actually understand, not just about investing, ‘but about the human experience’.

For starters, says Ritholtz, markets wouldn’t work if we lived in a certain world. ‘Investing requires there to be differences of opinion. When there is broad agreement as to an asset’s fair value, trading volume falls. Without any uncertainty, who would take the opposite side of your trade?’

If anything, it’s apparent certainty that should worry investors, he says. That’s because whenever humans are certain about something, they are usually wrong.

‘In rare instances, when there is a near-total lack of uncertainty in the market, the outcome is usually a spectacular disaster. Think of the false certainty surrounding the peak of the dotcom bubble (profits don’t matter!), or the nadir in March 2009 (the abyss awaits!) to validate just how true this is.’

Of course, now we face a long list of important uncertainties. A eurozone collapse, the potential for another US recession, and the US election are the main ones. But while they might seem serious, says Ritholtz, they don’t really undermine investing.

‘I do not recall anyone saying investing was difficult due to the uncertainty caused by a potential nuclear conflagration between the US and USSR during the Cold War. Is the Greek situation today more dire and uncertain than the policy of MAD — mutual assured destruction — ever was?’

The fact is, all of the events we are unsure about today will be revealed eventually. That’s how a linear timeline works. Given that’s so obvious, why is everyone so worried about uncertainty at the moment?

The answer, says Ritholtz, is that humans like to live ‘in a happy little bubble of self-created delusion’. We like to rationalise everything we do and think that it all fits into our chosen narrative. But every now and then, reality presses up against us and pierces through that bubble.

The ongoing financial crisis has disturbed the comfortable story we liked to believe. It’s one of those moments when ‘the facade fades, the curtain gets pulled back, the ugly reality becomes known to us. We get a glimmer of understanding our own lack of understanding’.

But don’t worry, Ritholtz doesn’t think it will last long. It’s just one of ‘those all too rare instances when we mortals briefly acknowledge reality. When it passes, we all manage to go back to our previously constructed artificial reality.’

James McKeigue
Contributing Editor, Money Morning

Publisher’s Note: This article originally appeared in MoneyWeek (UK)

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

How Uncertainty in the Stock Market Can Be Your Friend

Being supported by the lower line of the price channel on 4-hour chart, AUDUSD rebounds from 1.0100, suggesting that a cycle bottom has been formed. Now the bounce would possibly be resumption of the longer term uptrend from 0.9581 (Jun 1 low), further rise to test 1.0328 previous high resistance could be expected, a break above this level will target 1.0500 zone. Key support is now at 1.0100, only break below this level will indicate that the uptrend from 0.9581 is complete.

Daily Forex Forecast

By MoneyMorning.com.au

There are two things you can’t discuss at the Smith’s extended family gatherings. Religion and politics. And that’s mostly because there’s no talking when those subjects come up, just yelling, fist pumping and table thumping.

And after a recent weekend gathering, we added a third ‘no-go’ topic. After all the noise, thinly disguised name calling and our colour blind electrical engineer uncle setting fire to the dining room table, we decided to never discuss Australian property with them again.

Chances are, we would never have discovered the passion for the Australian property market if it wasn’t for all the media attention toward the deflating Aussie property bubble.

Just this week The Age commented on rising negative equity for homeowners in the outer suburbs.

‘Many people who bought houses on Melbourne’s fringes in recent years could be facing financial ruin after a slump in prices has left them owing more to the bank than their homes are worth, experts have warned.’

But that wasn’t what grabbed our interest. It was further down in the article where a property spruiker changed his tune.

‘The average plot of land in the outer suburbs is [worth] half what it is in the middle suburbs and it is the land that appreciates, albeit slowly on the fringe. The houses they are building actually depreciate. On top of that, the quality of construction is often cheap. So that’s what’s behind the negative equity.’

Say it ain’t so? Aussie homes are built on the cheap? For years property spruikers told you the reason Australian house prices are so high is because of the high quality of Aussie housing.

Six years ago, the Reserve Bank of Australia suggested in a report ‘Australian House Prices’ that the higher quality of new homes added to the overall housing quality in the Aussie property market.

And then in September last year, the Herald Sun repeated something similar:

‘Higher Australian property prices can also be justified by the higher quality of Australia’s housing stock, with renovations and extensions naturally adding value.’

In fact, even as recently as six months ago the spruikers were still claiming Australian housing stock was of a high quality. As Paul Bloxham, an economist at HSBC wrote in The Australian Housing Bubble Furphy report:

‘First, the quality of the housing stock is high. Australia has the largest dwellings in the world, and they are of high quality. Estimates suggest that the average Australian dwelling is 214 square metres, and the real expenditure on new dwellings is now 60 per cent higher than it was 15 years ago, reflecting the increase in both the size and quality of dwellings.’

At the time, Kris Sayce didn’t buy the spruikers talk. He told Money Morning readers in his article Another Housing Market Myth Busted, ‘To our mind Bloxham had confused quantity of housing (the size of houses), with quality of housing (how good they are).’

How is it that suddenly Australian houses have gone from being of the highest build quality in the world to cheaply built?

You see, the idea that Aussie homes were of a high quality was just a myth, often used to support overpriced houses. And now those myths and hype are falling apart.

But of course, an Aussie housing crash is nothing compared to another, bigger property bubble…

That’s right, China.

Economics professor Li Daokui from Tingshua University recently told the Financial Times, ‘The housing market problem in China is actually much… much bigger than the housing market problem in the US and UK… It’s more than [just] a bubble problem.’

Yes, We Really Mean Billion

Around 2009, hedge fund firm, Kynikos Associates, CEO Jim Chanos wanted to find out exactly why mining stocks were so profitable during America’s great recession. His team came back with one word: China.

So he started digging deeper. What could China be using all this copper, iron-ore and cement for?

One of his analysts looked into it. He did the math. And checked his figures….three times. During the northern hemisphere summer of 2009, China was building 5.5 billion square meters of high rise space.

Half of the construction space was ‘office/mix use’.

Chanos tried to put the data into perspective. He said: ‘Well gee, that’s 30 billion square feet use for office mix use. And 30 billion square feet is a five foot by five foot office cubical for every man, woman and child in China.’

Using this information, Chanos decided China wasn’t a stable economy.

But that 5.5 billion sqm of high construction was over three years ago. And the construction hasn’t stopped.

Even though both home sales and demand for high rises are slowing, building is still going ahead at a rapid pace.

At the current rate, every five days China completes a new skyscraper. According to a report by Skyscrapers Magazine, by 2016 China will have more than 800 skyscrapers taller than 152 meters. Four times more than the US.

Less than two months ago, Chanos told CNN, ‘We’re bearish on China’s property sector and the credit sector. This is a country that’s in the middle of an epic property bubble and construction bubble that will end at some point and it won’t be pleasant when it ends.’

China Going From Boom to Bust

Chanos isn’t the only analyst who’s negative on China.

‘China is now on the other side of its boom,’ says Greg Canavan, editor of Sound Money. Sound Investments.

And the economic growth numbers are just the beginning of a China slow down. Gross domestic product was down to 7.6% for the second quarter, down from the previous quarter’s 8.1%.

Consumer price inflation grew by only 2.2% and the producer price index (PPI) dropped to 2.1%. Since March, the PPI has fallen every month.

‘I am absolutely certain that combining a credit bubble with a Communist regime was a recipe for disaster. The credit bubble is playing out like they all do — first the inflation, then the deflation. First the boom, then the bust,’ Greg tells me.

‘The Chinese slowdown is gathering pace. This has major implications for Australia.’

As an Aussie, you can’t stop the Chinese economy from failing, but you can prepare your portfolio.

Greg has detailed insight and information into what he believes is the most important development for Australian investors right now — how to protect your wealth from what he calls the ‘China Bust’.

China’s economy is changing…and fast. If you want to hear what Greg has to say about the coming ‘China Bust’, click here.

Shae Smith

Money Weekend

The Most Important Story This Week…

The reason Australia managed to dodge a recession during the global financial crisis in 2008 was thanks to China.  This was because China spent billions of dollars to stimulate its economy with huge levels of construction. This translated into huge profits for the big Aussie miners.

Thanks to this Australia has managed to avoid the worst of the global recession seen in Europe and the USA.  But just as China has held the Australian economy afloat so far, there is a massive risk that China will cause it to sink.  See what Kris Sayce says in How to Survive and Thrive from China’s Bust.

Other Recent Highlights…

Kris Sayce on Payday Loans: Why This Lender of Last Resort Isn’t the Bad Guy: “But there is one line of business that has resisted the urge to fiddle with interest rates. And not surprisingly, in a world where credit and debt have become dirty words, this line of business is doing very nicely indeed…”

Keith FitzGerald on What I Wish Ben Bernanke Knew About Japan’s Economy: “Ben Bernanke and his central banking buddies think it’s easier to print money than actually stimulate real growth. In doing so, they are re-creating Japan’s “Lost Decades” here at home with years of smouldering, piss-poor growth as our destiny. Yet it doesn’t have to be that way. We can still choose a different path.”

Dr. Alex Cowie on What A Slowing Chinese Economy Means For Pork Chops: “It’s been well over a year since I tipped any stocks in iron ore, coking coal, and copper – commodities tied to Chinese infrastructure and construction…But I’ve steered clear of those commodities for a while, focusing instead on strategic minerals such as graphite and lithium. This strategy is to avoid the effect of the crashing Chinese property construction sector.”

John Stepek on The Sticky Plaster Fix For the Spanish Economy: “There was the prospect of the European bail-out fund buying sovereign debt too. And yet Spanish bond yields soon ran back up to around the 7% mark. So there’s been another emergency discussion session. So here’s the big question: is another eurozone disaster looming? The answer might surprise you…”

Why the Australian Property Bubble is Only the Beginning

By MoneyMorning.com.au

Legendary Wall Street trader and best-selling author Jim Rogers recently offered this unconventional advice: If you want to get rich, you should be investing in farmland.
Don’t laugh. Rogers is good at what he does. Really good.

Together with George Soros, he founded the Quantum Fund in the 1970s and posted returns of 4,200% over 10 years. Rogers retired in 1980 at the age of 37, but is still active as a private investor.

Back in 1999, Jim Rogers recommended gold when it was trading at $252 and silver at $4. You know what happened after that.

Now Rogers thinks investing in farmland will pay off in a big way.

‘It’s the farmers, the producers, who are going to be in the captain’s seat when the prices go through the roof,’ he told The Australian Financial Review.

Food Demand on the Rise

Consumers in places like China and India – where an emerging middle class suddenly can afford a better diet – are eating more of everything, especially high-protein meat.

But they have a long way to go to catch up to Western levels of meat consumption.

According to Time Magazine, the average American consumes about 250 pounds of meat a year. Meanwhile, the Chinese average roughly 100 pounds a year, while Indians eat less than 10 pounds a year.

As the middle class in these and other emerging markets expand in the coming years, demand for meat will explode.

But to increase meat production, farms will need a lot more grain to feed the livestock. Half of U.S. corn production already goes to feed cattle, pigs and poultry.

A prediction in a recent advertising campaign from Monsanto Co. (NYSE: MON) illustrates the immense demand that’s just around the corner. The company said the world’s farmers will need to produce more food in the next 50 years than farmers have produced in total over the last 10,000 years.

Soaring demand for grain has already affected the market. Monsanto said global grain consumption has exceeded total production for seven out of the last eight years.
‘The world has got a serious food problem,’ Rogers told Time. ‘The only real way to solve it is to draw more people back to agriculture.’

Milking Profits From Farmland

Meanwhile, new technology over the last 20 years has helped U.S. farmers significantly increase production. Redesigned seeds have increased yields and the use of computers has vastly improved planting techniques.

Such changes have pushed corn production from an average of 91 bushels per acre in 1980 to 152 bushels per acre in 2010. That, along with higher prices, is boosting profits and making farmland dramatically more valuable – and farmers richer.

Net farm income is expected to clock in at roughly $97.1 billion in 2012, the second highest on record according to the USDA.

Farmland typically is held for long periods of time and usually comes on the market only when the owner passes away.

But today the average U.S. farmer is 58 years old. The USDA estimates that over one-third of all farmland owners have less than 15 years left to live.

That aging population represents a window of opportunity for investing in farmland.

Investing in Farmland

Over the last 100 years [US] farmland, based on income and capital appreciation, has consistently delivered positive returns – with only three brief periods of negative returns (1930s, 1980s, and 2008).

And as the saying goes, they just aren’t making any more of it. So a severe imbalance is developing in the supply and demand of farmland.

Farmland is also an opportunity to invest in an asset class not directly correlated to stocks and bonds, and one with significantly less volatility.

Jim Rogers believes investing in farmland is ‘in its third inning.’ In other words, there’s still plenty of time to get in.

Don Miller

Contributing Writer, Money Morning
Publisher’s Note: This is an edited version of an article that first appeared in Money Morning (USA)

From the Archives…

The Australian Housing Shortage That Never Existed
06-07-2012 – Kris Sayce

Did the European Summit Change the Market Trend?
05-07-2012 – Murray Dawes

Why Government Intervention Hinders Progress and Innovation
04-07-2012 – Kris Sayce

The Big Opportunities in the Oil Market That Will Lead to Profit
03-07-2012 – Dr. Alex Cowie

LIBOR – The Banking Scandal That Could Cause A Riot
02-07-2012 – Dr. Alex Cowie

Why Jim Rogers is Investing in Farmland

Article by Investment U

Because of lackluster stock returns, rock-bottom interest rates and aging baby boomers hungry for income, investors are rightfully focusing on stocks with a high and rising dividend record.

This is why the timing of Marc Lichtenfeld’s new book, Get Rich with Dividends, couldn’t be better.

I’ve always been impressed with Marc’s versatility as an analyst. He’s a great growth stock picker, and also develops winning income strategies. Marc’s book combines both of these with the proven strategy of buying growth stocks with a rising dividend record. This is a dependable and conservative growth strategy backed up by solid research that shows dividends account for about half of stock returns.

Thinking of Marc’s experience as a ring announcer for world championship boxing, I refer to this as his one-two punch strategy.

You’ll need to buy this book to learn how to execute Marc’s specific strategy, but let me give you a couple of ideas to get started.

Marc dedicates an entire chapter to foreign stocks, which focuses on investing in international dividend payers. Marc rightly points out that international and emerging market stocks often have higher-yield stocks, but have an inconsistent dividend record. And then there are the risks associated with currency conversions…

How can an investor sort through all of these international stocks and pick those with the highest and most consistent dividend record?

A great choice to get started would be Powershares International Dividend Achievers (NYSE: PID). To get into PID’s high dividend basket, international stocks must have a sterling dividend growth record: five consecutive years of dividend increases.

Next, I highly recommend WisdomTree Emerging Markets Equity Income (NYSE: DEM), which is a basket of the highest dividend-paying emerging market stocks. As you might expect, it outperforms in weak markets and underperforms in strong markets. This lower volatility is just what I think most investors are looking for in emerging markets, and the proof is in the pudding.

But in addition to lower volatility, it consistently outperforms the leading emerging market index. Just take a look at the chart below comparing DEM with the most widely used emerging market ETF in the world, iShares MSCI Emerging Markets (NYSE: EEM).

You can see that during the past five years, DEM outperformed and ended in the black while the much larger and famous EEM ended its volatile ride in the red. The index that DEM aims to track has a current dividend yield of 4.07% (actual yield may differ).

DEM has a three-year annualized return of 14.5%, compared with 9% EEM. This performance is attracting assets with DEM seeing net inflows of over $220 million since June 1 with total assets approaching $4 billion.

Stocks in the DEM fund are weighted not by market value but by dividend yield. Importantly, the basket is rebalanced every June. This allows the fund to kick out stocks that have lowered their dividend, as well as more expensive stocks, and add some new companies to the mix.

The recent June rebalance resulted in DEM increasing exposure to China and Russia, two beaten-down markets. The fund currently has 21.2% in Taiwan, 14.2% in Brazil, 14.2% in China and 13.8% in Russia.

Get Marc’s book today and get going on building a dividend rich portfolio. And don’t forget to add some international stocks to the mix; their dividend yields are higher than U.S. stocks and should lead to lower portfolio volatility.

Good Investing,

Carl

P.S. To find out more about Marc’s dividend investing strategy and his new book, click here.

Article by Investment U

Article by Investment U

When I first got started in the investment business 27 years ago – as a novice stockbroker – I had an awkward conversation with a client.

She was an elderly, income-oriented investor with a substantial sum tied up in an oil stock with a fairly low yield. I suggested that she could do a lot better than the 2.5% dividend she was earning.

“Son,” she replied – I had already come to recognize that it was likely to be a teachable moment, and an embarrassing one, when a more-experienced investor called me “son” – “that stock is paying 2.5% based on what it is selling for now. But for me, the annual dividend is more than my entire original investment.”

Oh.

It was an early lesson in magic of investing in blue-chip companies with steadily rising dividends. To this day, it still astonishes me how many investors – even experienced ones – don’t realize what a powerful opportunity this is – or how cheap dividend payers are right now.

That’s why you should pick up a copy of Oxford Club and Investment U analyst Marc Lichtenfeld’s new book, Get Rich with Dividends: A Proven System for Earning Double-Digit Returns. Here’s why…

Dr. Jeremy Siegel, a professor of finance at The Wharton School of the University of Pennsylvania, has done a thorough historical investigation of the performance of various asset classes over the last 200 years, including all types of stocks, bonds, cash and precious metals. His conclusion? Dividend stocks have outperformed everything else over the long haul – and almost certainly will in the future, too.

In Get Rich with Dividends, Marc explains why – and shows you exactly how to identify the most promising income stocks. He also demonstrates that even during market declines, dividend-paying stocks hold up better than non-dividend-paying stocks, often fighting the broad trend and rising in value. The reason is obvious. These tend to be mature, profitable companies with stable outlooks, plenty of cash and long-term staying power.

Bear in mind, U.S. companies are sitting on a record amount of cash right now, more than $2 trillion. Most corporations are not hiring and they’re not boosting spending. So a lot of this cash is rightfully going back to shareholders. The Dow currently yields more than bonds. And dividend growth among U.S. companies has averaged 10% per year over the last two years, more than double the long-term dividend growth rate.

The current outlook is especially promising. Over the last 50 years, for instance, the highest 20% yielding stocks in the S&P 500 returned 14.2% annually. That’s good enough to double your money every five years – or quadruple it in 10. And if you were even more selective, say investing only in the 10 highest-yielding stocks of the 100 largest companies in the S&P 500, your annual return would have been even better, 15.7%.

Marc makes a strong case that dividend stocks today represent an historic opportunity. Not only are U.S. companies flush with cash, but payouts are less than one third of profits, a historic low.

This is exactly where most investors, especially income-oriented ones, should park their money right now. After all, bonds – which should carry a warning label at the moment– are sporting record-low yields. Money market funds pay almost nothing, less than one-tenth of one percent. But many dividend-stocks are dirt-cheap and will boost their payouts substantially in the months ahead.

In short, if you’re looking for growth, invest in dividend stocks. If you’re looking for income, invest in dividend stocks. If you’re looking to reduce your risk, invest in dividend stocks. And if you’re looking to build your fortune – safely and securely – invest in Get Rich with Dividends. It’s a classic.

Good Investing,

Alex

Article by Investment U