Month: August 2012

By MoneyMorning.com.au

Much of financial theory is based on the idea that markets are ‘efficient’.

At the heart of this idea is that human beings always act to maximise their profits. They know everything there is to know about whatever they plan to invest in.

Their every action is a considered, calculated decision that will lead to the most profit, based on the available information at the time.

Clearly, this is utter, utter drivel.

Markets are created by the actions of human beings. Human beings are complicated things. We panic. We get greedy. And sometimes we do apparently irrational things, such as selling a perfectly sound asset, for rational reasons – because we’re getting divorced, say.

Some academics are starting to get to grips with this idea. The much-hyped field of ‘behavioural economics’ is a classic case of economists scrambling to catch up with what people already know: that when it comes to investing, we are often our own worst enemies.

We are terrible at understanding statistics. We hate losing money so much that we’ll throw good money after bad in the hope of getting it back.

Even our bodies undermine us. One recent study looked at testosterone levels on a trading floor. When levels are high, traders become over-confident. But when they take a real kicking in the markets, another hormone makes them overly fearful.

Rational? Efficient? You must be joking.

Profiting From Market Mood Swings

The good news is that all this presents an opportunity for investors like you and me. If markets were efficient, there’d be no point in us trying to beat them because every price would be ‘correct’ at all times.

But thankfully, as Benjamin Graham, the ‘father’ of value investing put it, ‘Mr Market’ is in fact incredibly moody. When he’s feeling good, he’ll pay you generous prices for your stocks. When he’s feeling gloomy, he’ll sell you his stocks at any price he can get them away for.

So the key is to know what stock (or other asset) you want to buy, and the price you want to pay for it. Then wait until Mr Market offers it to you at that price.

Sounds easy. There’s just one problem: you’re human as well. And if you spend any amount of time investing on your own behalf, you’ll rapidly recognise how all these emotions affect you too.

There’s the part of your brain that thinks ‘rationally’, for want of a better word. It ‘knows’ what you should do when you invest. It knows you should have a sensible plan. It knows you should ‘buy low and sell high’. It knows you shouldn’t chase losing bets or close winners too early.

But then there’s the other part. Let’s call it your gut, to save confusion. Your gut thinks it knows best. Sadly it doesn’t. Your gut panics when it sees a stock you’re thinking of buying going up. It wrestles the controls from your brain and makes you hit the ‘buy’ button.

When the same stock is plunging days later, it’s your gut that will tell you to ignore it, because it’s bound to rebound. When it fails to do so, it’s your gut that will panic and tell you to sell it just at the point of maximum loss.

In short, your gut is the enemy. How do you beat it?

Your Best Investment Yet – A Notebook

There are a number of things you can do to stop your gut from taking over when you’re investing. But the key is to slow your investment process down. You need to force yourself to think before you act, rather than the other way about.

The best way to do that is to take the time to write down your reasoning behind buying or selling an investment before you do it.

This sounds dull (not to mention low-tech). But it works.

Firstly, it forces you to consider your investments properly. So it stops you from taking impulsive bets, which are the ones most likely to go wrong.

Secondly, if you write down why you are buying, and why you are selling, you’ll start to spot where you are going wrong.

Don’t just take my word for it. In Jack D Schwager’s excellent book Hedge Fund Wizards, Ray Dalio, one of the single most successful hedge fund managers of all time, tells how he started developing his investment skills.

‘Beginning around 1980, I developed a discipline that whenever I put on a trade, I would write down the reasons on a pad. When I liquidated the trade, I would look at what actually happened and compare it with my reasoning and expectations when I put on the trade.’

At a minimum, it should include: what you’re buying; the price you’re buying at; the dealing charges; and a one-line sentence on your rationale for buying it.

But the most important thing is to get into the habit of stopping to physically write down your trade before you make it. That way, you’ll always short-circuit your gut.

You’ll still make mistakes – we all do. But you won’t make as many stupid ones.

John Stepek
Contributing Editor, Money Morning

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

From the Archives…

Revealed: Government to Get Hands on More Retirement Savings
03-08-2012 – Kris Sayce

Olympic Badminton Farce Shows How Capitalism Beats Socialism
02-08-2012 – Kris Sayce

How Low Natural Gas Prices Are Causing Energy Havoc
01-08-2012 – Dr. Alex Cowie

Silver Bounces Off Key Level, Where’s it Going Next?
31-07-2012 – Dr. Alex Cowie

How No ‘Plan B’ For The Australian Economy Could Boost Aussie Stocks
30-07-2012 – Kris Sayce

How to Defeat Your Worst Enemy in Investing: Yourself

By MoneyMorning.com.au

The technorati took me to task. So did Wall Street.

They were agitated by an article I wrote in May explaining why the world’s most hotly anticipated IPO, Facebook was worth a mere $7.50 a share at best.

‘Out of touch,’ one of the critics said. A ‘luddite’ charged another.

‘Doesn’t grasp the significance of so many users,’ one Wall Street insider opined – who happened not coincidentally to work for one of Facebook’s investment bankers.

Since then the social media darling has fallen another 31% to nearly $22 a share. Ten weeks later, Team Hoodie hasn’t done much to merit an upgrade either.

Sorry guys…Facebook is still only worth $7.50 a share – likely less.

Here’s why.

The Cold, Hard Facts for Facebook

At the time I reasoned that Facebook’s valuation simply didn’t merit the 100 times earnings IPO price of $38 a share based on comparable figures from Google and Apple.

But there were a host of other factors as well.

I cited falling revenues, a lack of control over the mobile market channel, increasing distrust from customers who were voting with their feet and the concurrent departure of major advertisers like GM which will cost Facebook an estimated $10 million a year in revenue alone.

I also posited the assumption that Facebook would be unable to maintain the 100% plus growth that many investors believed was baked into the proverbial cake.

Google couldn’t. Apple couldn’t. And both of them are real businesses.

That’s the key…real businesses.

Fact is, Facebook still hasn’t figured out what it wants to be when it grows up.

Despite the fact that CEO Mark Zuckerberg does have some excellent advisors, the company isn’t going to be able to hide the fact that its “business” is nothing more than a colossal time-wasting collection of personal interest items for much longer.

Other problems abound, too. All of them point to a lower share price.

For instance, Team Hoodie seems more intent on creating new applications than they do on making money from customers. There seems to be a disconnect between what’s cool and what actually makes money.

Take the recently unveiled tablet-based Facebook application for example.

Sure, it gets Facebook on a mobile device but there’s no plan I can discern for how the application creates a different experience nor how it will generate money from all those eyeballs.

Then there’s the Facebook phone. First it’s happening, then it’s not. This suggests that Team Hoodie may have serious internal strategy battles and be fraying around the edges.

Facebook’s “Fiscal Cliff”

Call me crazy, but I think Facebook’s numbers reflect this already.

One quarter into its public life, Facebook’s net income dropped by $295 million to a loss of $157 million.

The cost of customer acquisition is going up so that’s clearly digging into its bottom line.

So is the way the company chose to account for stock-based pay in adjusted earnings. Had management not chosen to exclude stock-based pay, the loss may have been orders of magnitude worse.

And finally, Facebook has its own fiscal cliff of sorts.

The 91-day lock up period imposed on employees and company insiders following Facebook’s IPO expires later this month. That means another 268 million shares could come up for sale further depressing the value of the 2.1 million shares already outstanding.

With the stock now off $16 from its $38 IPO price there’s definitely an incentive to sell. A large number of employees are probably anxious to get out before the markets destroy their windfall gains. I know I would be.

Call me a skeptic but I find it especially convenient and more than a little coincidental that 79% of the total Facebook-related market volume comes from former employees and 86% of the total Facebook-related transactions come from the same group.

Investors are the next biggest group of sellers by total dollar volume accounting for 12.4% of the total and 4.8% of the number of sellers. Perhaps they haven’t given up the ghost yet.

Either way, the chart is kind of scary when you consider the exponential growth associated with Facebook stock sales because the old adage certainly applies. What goes up, must come down.

Don’t get Zuckered again. The clever folks are the ones who already sold.

Keith Fitz-Gerald
Contributing Editor, Money Morning

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

From the Archives…

Revealed: Government to Get Hands on More Retirement Savings
03-08-2012 – Kris Sayce

Olympic Badminton Farce Shows How Capitalism Beats Socialism
02-08-2012 – Kris Sayce

How Low Natural Gas Prices Are Causing Energy Havoc
01-08-2012 – Dr. Alex Cowie

Silver Bounces Off Key Level, Where’s it Going Next?
31-07-2012 – Dr. Alex Cowie

How No ‘Plan B’ For The Australian Economy Could Boost Aussie Stocks
30-07-2012 – Kris Sayce

Sorry, Facebook is Still Only Worth $7.50 a Share

GBPUSD stays in a trading range between 1.5458 and 1.5767. Lengthier consolidation in the range is still possible in a couple of days. Resistance is at 1.5767, a break above this level will target 1.5900 zone. Support is at 1.5458, a breakdown below this level will indicate that the longer term downtrend from 1.6301 (Apr 30 high) has resumed, then another fall towards 1.5000 could be seen.

Forex Signals

For consistent trading, use Elliott as your metronome.

By Elliott Wave International

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By OilPrice.com

As markets continue to yo-yo and commentators deliver mixed forecasts, investors are faced with some tough decisions and have a number of important questions that need answering. On a daily basis we are asked what’s happening with oil prices alongside questions on China’s slowdown, which commodities or instruments will provide safety in the current environment, will the Euro-zone split in the future and what impact the presidential election is going to have on the economy and markets?

To help Oilprice.com look into these issues and more we were fortunate enough to speak with the award winning economic commentator Mike “Mish” Shedlock.

Mike’s blog: Mish’s Global Economic Trend Analysis is one of the most popular and informative economic blogs online. His millions of dedicated monthly readers find his advice invaluable and we recommend anyone interested in learning more about the global economy and financial markets to stop in and take a look: http://globaleconomicanalysis.blogspot.com

To find his blog, you can also do a Google search for Mish

In the interview, Mish discusses:

• Why global trade will collapse if Romney wins
• Why investors should get out of stocks and commodities
• Why we have been oversold on shale gas and renewable energy
• Why oil prices will likely fall in the short-term
• Why the Eurozone is doomed
• Why there may soon be an oil war with China
• How government interference is ruining the renewable energy sector
• Why we need to get rid of fractional reserve lending

Oilprice.com: With oil prices now in the high 80’s and news out of Europe getting worse every day, do you expect prices to stay in this range, or do you see them dropping in the short term?

Mish: There are two conflicting forces here. One of them is oil prices over the long-term and the other is oil prices over the short-term.

Even in the short-term you will find there are conflicting forces at play. For example, stress in the Middle-East puts an upward pressure on oil prices. However, economic problems in Europe, a slow-down in Asia and a slow-down in the United States put downward pressure on oil prices. New orders are falling at a staggering rate across the board in Asia, China, Japan, Europe, and the United States which also puts further downward pressure on oil prices.

Long-term, forces such as peak oil and population growth in China are putting pressures to the upside.

One needs to balance all of those factors out when they are about ready to give a prediction on oil prices. My opinion is that over the short to mid-term, oil prices will go down. Long-term, energy is a good place to invest.

Oilprice.com: If your prediction is correct and oil prices do go down – what sort of impact do you see this having on the U.S. economy, if any?

Mish: That’s an interesting question. However, the question puts the cart before the horse.

Looking at prices in a vacuum is a mistake. One also has to look at why prices are doing what they’re doing. For example, falling oil prices that happen when supply shocks are alleviated are a positive thing. Falling oil prices because of falling demand is another. You seldom see this kind of distinction in mainstream media.

Right now, oil prices are primarily falling because of falling demand, and that is in spite of geopolitical tensions. That is not a healthy sign for the economy.
Oilprice.com: As we have seen with the recent oil workers strike in Norway and subsequent rise in oil prices. Geopolitical risks always remain to keep the markets off balance. Apart from Iran are there any other geopolitical risks you think people should be aware of?

Mish: A key geopolitical risk in the long-term is that China cannot continue at its expected rate of growth. For years, the mantra has been “China, China, China,” and many thought China could maintain its 8% to 10% per year growth going forward. That’s not going to happen.

I agree with Michael Pettis at China Financial Markets, that China is more likely to see 2% growth than 8% or even 6% growth over the next decade.

2% growth is a shocking reduction, even from the lowered expectations that we’ve seen regarding China. The implication is commodity prices, especially base metals, are going to be under extreme pressure because of China stockpiles. For further discussion please see “China Rebalancing Has Begun”; What are the Global Implications
Oilprice.com: What are your longer term projections for oil prices – say 3-5 years out?
Mish: I think it’s a fool’s game to make such projections. Most of the projections on the price of gold, silver and oil are ridiculous. They are designed to sell newsletters. The bigger the hype, the greater the sales. On occasion, I will make a call. For example, when crude hit $140+ in the summer of 2008, and others called for $200, I said oil prices would drop to the $45.00 – $50.00 range or so. Oil went to $35.

Moreover, those predicting $200.00 never bothered to think what that would do to the global economy. We saw the same thing in natural gas. People were predicting $25. Look at prices now, at roughly $3.00 NG fell all the way to $2.20, lower than even this staunch deflationist thought.

I’m not willing to go out on the same limb and predict energy prices three years in advance. The reason is we really don’t know for sure how central bankers are going to respond. China is particularly important. If there’s universal printing of money everywhere, I would expect a lot of that to flow back into prices of gold, perhaps of silver, and perhaps energy, but we really don’t know what they’re going to do. We don’t know when or how the Euro Zone is going to break up. I think it will, but how is as important as when.

In the US, we don’t know the results of tax hikes following the 2012 election. Heck, we don’t even know who the next president in the United States is going to be. Will it be Republican? Will it be Democrat? Numerous political and economic forces are pulling and tugging in different ways.
I don’t believe there’s anyone out there that can predict, with any kind of accuracy, what oil prices are going to do. Which is why I believe trying to predict oil prices in the midst of all of these possibilities is a fool’s game.

Oilprice.com: What are your views on inflation and hyperinflation.

Mish: Hyperinflation is a complete collapse in currency. It is a political event that kicks off hyperinflation, not a monetary one. Hyperinflation talk hit an extreme when oil prices hit $140. Such talk was silly then, and it is still silly now.

Hyperinflationists in general fail to understand the role of collapsing demand for credit. The total credit market is over $54 trillion. Base money supply is $2.6 trillion and excess reserves are about $1.5 trillion. Seems to me we had huge expansion in credit and Bernanke is struggling to reignite demand. I suggest he will not succeed.

The idea the US$ will suddenly go to zero is ridiculous. The US is the world’s largest holder of gold reserves, and that alone would stop it. Also note that Bernanke, as misguided as his policies are, is still beholden to the banking system. As such he has no desire for it to collapse.

As far as inflation goes, I am still widely misunderstood. I view inflation as an increase in money supply and credit, with credit marked to market. Deflation is the opposite. If one insists that inflation is about prices, then we are in a state of inflation with 10-year treasury rates below 1.5%.

For those who woodenly view inflation in terms of prices, well, prices may or may not rise. Price have generally risen, but credit is the key behind housing prices, family formation, hiring, and in fact everything driving the economy. So, where is credit going? Demographics and student debt suggests nowhere. Indeed, credit has gone nowhere in spite of heroic efforts by Bernanke.

Oilprice.com: You just mentioned that we don’t know who the next president is going to be and sticking to this topic how big an impact do you see energy prices having on this year’s presidential elections?

Mish: I don’t think energy prices are what’s on people’s minds. What’s on people’s minds right now are jobs. Oil prices have kind of stabilized and in the very short-term they are likely to stay stable unless there are some dramatic results in the Mid-East or a dramatic slowdown in the US economy.  Both are possible, but a major US slowdown is arguably more likely. Regardless, I think energy prices are going to be a minor election issue.

Oilprice.com: The message on peak oil seems to be confused. Many are adamant that peak oil is the largest threat to ever face humanity, whilst others believe that with new technologies and new fields being found, peak oil is a myth and we are actually swimming in oil. What are your thoughts?

Mish: The idea that we’re swimming in oil is preposterous. Moreover, abiotic oil is a ridiculous pipe-dream. That said, the idea that the global economy is going to come grinding to a halt in the next year or two because of oil is also preposterous (discounting a geopolitical Mid-East shutdown). In general, I would side with the peak oil folks, noting that a global recession will likely pressure prices more than anyone thinks, barring a breakout of war or supply disruptions  in the Mid-East.

Long-term, 8% growth in China is mathematically not going to happen. People really need to get a grip on exponential math and the implications thereof. If China does attempt to grow at 8-10% as some people have predicted, there’s going to be an oil war of some kind between the United States and China because there’s simply not enough oil.

For a good discussion on the limits of exponential growth, please see Calpers Pension Plan Reports 1% Return; Stunning “What If” Charts at Various Compound Annualized Rates-of-Return Going Forward

Oilprice.com: Shale gas has been generating a great deal of headlines recently. Do you believe it could be the solution to America’s energy challenges? We are also seeing developments in oil & gas extraction technologies. Have we been oversold on such possibilities?

Mish: I think we’re oversold on everything. We’re oversold on the idea of cheap energy, of free energy, of green energy, of clean energy. We’re oversold on the stock market. We’re oversold on what Obama can deliver. We’re oversold on what Mitt Romney can deliver. We’re oversold in so many areas, I can’t even mention them.

In regards to new technologies, how much water will it take to extract these reserves in the midst of these droughts? What are we going to do with the contamination, how do we get rid of the waste byproducts? These kinds of projects look good on paper, but are they truly scalable in practice?

I hope I am wrong.

Oilprice.com: What is the role of government in alternative energy sources?
Mish: The role of government should be to get the hell out of the way and let the free market work. If peak oil really is a problem (and I think it is), the free market will come up with a solution if left alone.

Instead, the government is trying to pick winners. Look at the results. President Obama backed solar panel manufacturer Solyndra and the DOE loan guarantee scheme blew sky high.

Our ethanol program is a total disaster. By government mandate, corn has been diverted to ethanol production smack in the midst of a drought. Corn is not an efficient way to produce ethanol, even if there was not a drought.
Governments seldom back winners. Instead, government bureaucrats back companies that contribute to their campaigns. This is worse than it looks because such activities deprives companies with real solutions a chance at funding.
We need to get government out of the energy business completely and let the free market work.

Oilprice.com: Sticking with the renewable energy theme, do you see them making a meaningful contribution to global energy production over the next 10 years?

Mish: Adding to my previous answer, government subsidies of unviable products and unviable ideas gets in the way of the free market actually producing viable products and viable ideas. Simply put, the more government interferes, the less likely we are going to see advances in the actual direction of a true solution.

Oilprice.com: In regards to presidential elections, how do you think energy will fare under Obama and under Romney? Which sectors will benefit, and which will suffer?

Mish: Mitt Romney has declared that if he’s elected he is going to label China a currency manipulator and increase tariffs on China across the board. That’s something that I believe he might be able to do by mandate. If he’s elected and he does follow through, I think the result will be a global trade war the likes of which we have not seen since the infamous Smoot-Hawley Tariff Act compounded problems during the Great Depression. Simply put, I think that global trade will collapse if Romney wins and he follows through on his campaign promises.

Unfortunately, campaign rhetoric now is heating up to the point where President Obama and Mitt Romney are trying to outdo each other on who’s going to do more to China. Thus, we may very well see a global trade war regardless of who wins.
As an aside, Mitt Romney is pledging to increase military spending. Given Romney’s statements on Iran, it’s more likely he would start a war with Iran than Obama. Note that the U.S. military is one of the biggest users of petroleum worldwide and oil price shocks could be devastating.

None of this is any good for the world economy at all. I believe that Romney will do what he says. I believe he’s more likely to start wars than Obama, but that doesn’t make Obama any good. This is the worst slate of candidates in U.S. history running for president, and I’m writing in Ron Paul.

Oilprice.com: As the global economy slows, where do you see the best investment opportunities available to investors?

Mish: At this point, the best thing to do is wait for better opportunities. I am talking my book, but something like 70-80% cash (or hedged equities) and 20-30% gold seems reasonable. I’m telling people, “Get out of the stock market. Get out of commodities except gold and perhaps a bit of silver.”

A global slowdown is underway. Actually, I made a Case for US and Global Recession Right Here, Right Now.

Although nothing is certain, central bankers worldwide are highly likely to pump up money supply hoping to counteract the slowdown. If so, I think gold is going to be one of big beneficiaries. Silver may be a huge beneficiary, and I like it here. However, silver is also an industrial commodity, so gold is safer.

Bear in mind, I may seem like a broken record on this thesis given cash and gold has been my call for the last year and a half or so.

In spite of calling the global economy exceptionally well, I’ve simply been wrong about U.S. equities. They have risen far more than I thought, but I still caution that risk is high.

I’m going to repeat my general message here, that another slow-down, and another big downturn in the stock market is highly likely. Equities are quite overvalued at this point, cash is not trash, and staying liquid now, with a percentage in gold, is a good idea.

Oilprice.com: I was hoping you could tell us your thoughts on the Euro. You mentioned previously, that you think the E.U. will split in the future, why do you think this will occur, and what will the economic and political implications be?

Mish: I think it’s pretty clear that the euro’s going to split because no currency union in history has ever survived without there being a corresponding fiscal union in place. Right now we’re in a situation where Germany’s Chancellor Angela Merkel says that “There should be no fiscal union until there’s a political union.” Francois Hollande said, “There should be no political union until there’s a banking union,” and the German Supreme Court will not allow a political union or a fiscal union, nor a banking union without a German referendum.”

I did a post on this, and it’s called, “It’s Just Impossible.”

If politicians could not get agreements when times were good, how are they going to get these agreements now, when they’re bickering over every little thing, including the amount of the ESM, whether or not the bailout of Spain should be via the ESM or the EFSF, and whether or not the Spanish government should be backstopping this loan.

They can’t get an agreement on anything, and the German Constitutional Court is hanging like a Sword of Damocles over the entire thing.

For these reasons, the Euro is going to bust up. What happens to the price of the Euro depends on how it busts up. If the breakup is piecemeal and disorderly, it means one thing. If it’s orderly and prepared in advance with Germany leaving and the northern states leaving, it’s a completely different scenario. Any point along that line is possible, but piecemeal seems more likely. How disorderly remains to be seen.

For example, if Germany exits the Euro and goes on the deutschmark, the value of the deutschmark will soar, whilst the value of the Euro will decline.
Instead, if we see a break-up by Spain leaving, by Greece leaving, by Italy leaving, and the bulk of what’s left is Germany and the northern States, then the value of the Euro can soar. Those are the two conflicting possibilities here. The market has not decided which one of those is more likely.

Meanwhile, the Euro is in a low 1.20 range to the U.S. dollar. A breakout or a breakdown might be a signal that the market is expecting one of those possibilities over the other.

We are in uncharted territory and everyone is guessing.

Short-term I am neutral on the US dollar at this level because the euro is a bit oversold, the idea of a Greek exit is no longer unfathomable, and the Fed is likely to initiate QE3 at some point. This is a change from my previous US dollar bullish stance.

Oilprice.com: We mentioned China earlier, and I was wondering what you think the future holds for China, both politically and economically.

Mish: A regime change in China is coming up. The current regime has been focused on growth. However, I think the next Chinese government already understands that the growth at any cost of the current regime is not sustainable. If so, we’re going to see a major shift away from an export-driven production model dependent on investment on roads, on bridges, and more production, to a consumption-driven model. That shift will be one of the major forces in the global economy.

If I’m correct on this, then it’s going to be a painful adjustment, regardless of what China does. For example, a Chinese slow-down towards consumption would increase the value of the renminbi, would decrease their exports, would help the balance of trade between China and the United States and Europe, and would put intense pressure on commodity prices. In turn, asset prices and currencies of the commodity producing countries, like Australia, Brazil, and Canada will come under heavy pressure.

Oilprice.com: Mark Faber is not a fan of the Federal Reserve, blaming them for the current US economic situation. He said, “Usually under a gold standard you have a bubble under one sector of the economy but you don’t have it across the board globally and that’s really what the Federal Reserve has done over the last couple of years.” Do you agree? Is the Fed to blame? And what can be done to avoid this in the future?
Mish: I agree with part of it, if not most of it. However, the idea that the gold standard itself causes bubbles is fallacious. The gold standard does not cause huge bubbles. The real culprit is fractional reserve lending. Historically, problems happened when banks lent out more money than there was gold backing it up.

The gold standard did one thing for sure. It limited trade imbalances. Once Nixon took the United States off the gold standard, the U.S. trade deficit soared (along with the exportation of manufacturing jobs).

To fix the problems of the U.S. losing jobs to China, to South Korea, to India, and other places, we need to put a gold standard back in place, not enact tariffs.

Oilprice.com: Mish, thank you for your time this has been a very enjoyable and enlightening conversation for us.

For those of you who haven’t seen Mish’s superb blog and daily economic commentary we strongly recommend you visit his site: http://globaleconomicanalysis.blogspot.com. You can also do a Google search for Mish.

Source: http://oilprice.com/Interviews/Global-Trade-Likely-to-Collapse-if-Romney-Wins-Interview-with-Mike-Shedlock.html

Interview by. James Stafford of Oilprice.com

By Central Bank News
​   The Central Bank of Armenia (CBA) kept its benchmark refinancing rate unchanged at 8.0 percent to guard against higher inflation from stronger domestic demand and higher wheat prices.
    The central bank, which has kept interest rates unchanged since September 2011, acknowledged that prices had fallen by 1.5 percent in July from the previous month for a year-on-year inflation rate of 2.3 percent, at the lower end of its target range of 4 percent, plus or minus 1.5 percentage point.

By The Sizemore Letter

Charles Sizemore gives his thoughts on how to invest in Europe to Bloomberg’s Guy Johnson, live in London.  To watch the interview, see “Emerging Market Exposure via Europe“

Related posts:

• Live on WSJ.com: Charles Sizemore on the EU Crisis and Investing in Germany
• Charles Sizemore Discusses His Favorite Beer Stocks on Bloomberg TV
• Live on Fox Business News: Charles Sizemore on Dividend Investing

By The Sizemore Letter

The following was originally published as Charles Sizemore’s monthly manager commentary on Covestor.

Men considering a career in investment management should plan on adding the cost of a Rogaine prescription to their monthly budget. And men and women both should factor the costs and risks of heart bypass surgery. The wild volatility of recent years has a way of making hairlines recede, and the stress is not particularly good for the heart.

Let us consider the events of the past month. Responding to rising bond yields that threatened to destabilize the Spanish and Italian capital markets, European Central Bank chief Mario Draghi, in a rare show of bravado, announced that he would do “whatever it takes” to save the Eurozone. And with an uncharacteristic display of chest thumping, he added, “and believe me, it will be enough.”

Investors reacted exactly as you might have expected them to. Spanish stocks, as represented by the iShares MSCI Spain ETF ($EWP), soared by nearly 15% in two days, and Italian stocks rose by comparable amounts. The belief on Wall Street was that the ECB was on the verge of going on a bond-buying spree and that less conventional tactics—such as granting a banking license to the Eurozone bailout fund—were on the table as well.

Alas, it was not meant to be. This past Thursday, barely a week later, Draghi doused investor expectations by ruling out the banking license, suggesting that any aid from the ECB would have to be formally requested and subject to constraints, and by generally pushing responsibility away from himself and onto Europe’s squabbling national leaders. The specter of German Chancellor Angela Merkel’s pouting disapproval was enough to inspire an investor retreat. Spanish stocks fell by more than 5%, and world capital markets were sharply lower—for a day.

Friday, world markets were sharply higher, and Spanish stocks were up over 7% (again, using EWP as a proxy).

The catalyst? Spanish Prime Minister Mariano Rajoy indicated that he might take Mr. Draghi up on his offer for bond market relief, provided the strings attached were not too onerous.

How are we to make sense of all of this as investors?

Markets hate uncertainty even more than they hate bad news. And it is precisely the uncertainty of the Spain situation that has caused the volatility of late.

If Spain formally requests a bailout, the massive weight of uncertainty surrounding the country will be lifted, and I would expect a sustained rally in Spanish assets comparable to the rally that started in March of 2009. Spanish stock prices are certainly cheap enough to make such a rally possible, even if the Spanish economy remains mired in recession (see “Is Spain the Opportunity of a Lifetime”).

There are still quite a few “what ifs,” of course. What if Rajoy changes his mind? Or what if German opposition torpedoes the entire enterprise? Or perhaps worst of all, what if investor preoccupation merely shifts from Spain to Italy, keeping a lid on all European asset prices?

We have no answers to these questions, which is why the coming months will likely continue to be choppy and volatile.

With volatility comes opportunity, however, and we look forward to taking advantage of attractive pricing as we see it.

Disclosures: Sizemore Capital is long EWP.

Related posts:

• Is Spain the Opportunity of a Lifetime…or a Wicked Value Trap?
• First Quarter 2012 Letter to Investors
• 2011 Year End Investment Outlook and Commentary

By TraderVox.com

Tradervox.com (Dublin) – The greenback dropped against most of its major peers as risk appetite rose in the market. This was triggered by the Germany’s support of the European Central Bank’s decision to incorporate bond-buying into its efforts to fight debt crisis in the region. The US dollar fell against the yen as a report from the Bank of Japan signaled that the bank may refrain from additional stimulus when they meet this week. The New Zealand dollar rose against the US currency as stocks rose. The Standard & Poor’s 500 Index reached its highest level since May.

According to Michael Woolfolk, the risk-off trading environment is diminishing and investors are comfortable holding higher yielding assets. Woolfolk, who is a Senior Currency Strategist at Bank of New York Mellon Corp in New York, added that the market is already very short euros and overly long dollars. However, the Australian dollar has remained unchanged at $1.0569 as investors wait for the Reserve Bank of Australia decision tomorrow. The market expects the RBA officials to keep the interest rates at 3.5 percent as the economy seems to savor through the current turmoil. The Standard & Poor’s Index rose by 0.6 percent while the MSCI World Index of stocks increased by 0.9 percent.

The greenback dropped by 0.3 percent against the yen to trade at 78.25 at the close of trading yesterday in New York, while it declined by 0.1 percent against the euro to exchange at $1.2401; it had dropped earlier by 0.5 percent to trade at $1.2444, which is the weakest it has been in a month. However, the euro was down by 0.2 percent against the yen to trade at 97.03 after it touched 97.80, its strongest since July 2. The New Zealand dollar rose against the greenback to exchange at 82.24 US cents. This is its strongest since April 30. The kiwi then dropped slightly to trade at 0.1 percent up at 82 cents.

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London Gold Market Report
from Ben Traynor
BullionVault
Tuesday 7 August 2012, 07:15 EDT

THE SPOT MARKET cost of buying gold climbed to $1616 an ounce Tuesday morning in London, its highest level so far this week, as commodity prices and stocks markets also edged higher, with the exception of the FTSE which was hit by allegations that one London-listed bank has hidden “secret transactions” from US regulators.

“Gold appears to be enjoying increasing popularity again,” says Commerzbank’s Commodities Daily note.

“There would appear to be brisk buying interest on the market below [$1600]…which should provide the price with a safety net.”

The US Dollar gold price has remained within 3% of $1600 for virtually all of the last two months.

“The market as a whole lacks conviction,” says Marc Ground, commodities strategist at Standard Bank.

“The little confidence that was forming will most likely have been destroyed by last week’s disappointment [from the lack of action by the Federal Reserve and European Central Bank].”

“We continue to like precious metals, even as central bank event risks have been largely removed until September,” says a note from Societe Generale.

“Further disappointment with politically driven ‘growth agendas’ should confirm the need for even stronger monetary solutions to reignite nominal growth.”

The price of buying silver meantime rose to $28.12 an ounce – up 1% so far this week – while on the currency markets the Euro held steady near one-month highs above $1.24.

Major European stock indices were up on the day by lunchtime, with the exception of the FTSE in London, which was hit by a fall of more than 20% in Standard Chartered shares after the bank was accused by the New York State Department of Financial Services of violating US law by dealing with Iran.

“For almost ten years, [Standard Chartered] schemed with the Government of Iran and hid from regulators roughly 60,000 secret transactions, involving at least $250 billion,” says the New York State Department filing, which describes the London-headquartered bank as a “rogue institution”.

Standard Chartered last night issued a statement saying it “strongly rejects the position and portrayal of facts made by the New York State Department of Financial Services.”

In India meantime, the “sputtering” monsoon is set to hit gold buying ahead of the forthcoming wedding season, traditionally associated with strong demand for gold, the Wall Street Journal reports.

“In India, the monsoon is another negative factor [for gold],” the WSJ quotes Michael Shaoul, chairman of Marketfield Asset Management, which looks after over $2.5 billion. Shaoul also says India’s relatively high interest rates also give people an incentive to keep cash in savings account rather than convert it into gold bullion.

The Rupee has lost over 20% of its value against the Dollar over the past 12 months, a factor that has contributed to record Rupee gold prices in recent weeks. In addition, India’s government has twice increased import duties on bullion since the start of 2012.

“We’re all aware of the current conditions in India,” says Ani Markova, co-manager at AGF Precious Metals Fund, which manages $600 million.

“But India hasn’t been a strong player in the market this year…I think China is driving the bus.”

In the six months to the end of March China overtook India to become the world’s biggest source of demand for buying gold, according to World Gold Council data. China’s imports of gold bullion from Hong Kong however – regarded by many as proxy for overall imports – fell 10% in June compared to a month earlier, official Hong Kong government statistics published last week show.

Ben Traynor
BullionVault

Gold value calculator | Buy gold online at live prices

Editor of Gold News, the analysis and investment research site from world-leading gold ownership service BullionVault, Ben Traynor was formerly editor of the Fleet Street Letter, the UK’s longest-running investment letter. A Cambridge economics graduate, he is a professional writer and editor with a specialist interest in monetary economics.

(c) BullionVault 2011

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.