Month: September 2012

Article by AlgosysFx Forex Trading Solutions

The US dollar is believed to continue losing ground alongside its fellow safe haven the Swiss franc today after Federal Reserve Chairman Ben Bernanke ignited hopes for further stimuli amid a deteriorating global economic backdrop. Manufacturing reports from China, the world’s second largest economy, underscore the challenges facing the global economy as demand continues to cool.

Two complementary reports have shown that weakening new orders have taken their toll on China’s vast factory sector, an ominous sign that the Chinese economy could weaken further in the third quarter. The HSBC China Manufacturing PMI fell to 47.6 points in August, its lowest reading since March 2009, down from 49.3 points in July. Over the weekend, the National Bureau of Statistics reported that China’s official PMI dropped to 49.2 points in August, the first time the reading fell below 50 since November 2011. The HSBC new orders sub-index dipped to its weakest reading since March 2009 as demand, particularly from the embattled Euro Zone, continues to fade.

Meanwhile, in a highly-awaited speech last Friday, Fed Chairman Ben Bernanke made the case for additional measures to spur the US economy as unemployment remains above 8 percent. Bernanke noted that the unemployment rate has seen no net improvement since January, forcing him to forecast that unless the economy begins to grow more quickly, the rate is likely to remain far above levels consistent with maximum employment for some time. As such, he said that “nontraditional policies” like a new round of bond purchases remains an option, repeating the Federal Open Market Committee’s statement that the central bank stands ready to provide additional policy accommodation as needed to stimulate growth. In its latest meeting last August 1, the Fed was seemingly moving toward additional action with many members saying more stimulus will be needed soon unless the recovery shows signs of sustainable strengthening. Bernanke’s reiteration of such intentions then raises the stakes for the Fed’s meeting next week, which could provide a venue for the central bank to launch a third round of quantitative easing, debilitating the Greenback in turn. With further Fed action seemingly in the cards, the US dollar is seen to weaken against the Swiss franc today, warranting a short position.

For more news, analysis, technical charts and candlestick analysis, visit AlgosysFx

Article by Investment U

I think we’ve all heard about the Best Buy (NYSE: BBY) takeover attempt by now.

The story goes that Founder Richard Schulze offered to buy the company somewhere in the range of $24 to $26 per share. When the announcement was made a few weeks ago, Best Buy shares shot up around 13%. That’s because if the proposed deal was to go through, a Best Buy shareholder stood to earn a premium of around 47% from the previous week’s close.

That’s a nice little return in such a short period of time.

And it got me wondering… “Wouldn’t it be nice to get in on an acquisitioned stock before the takeover bid was ever announced?”

Obviously, you could gamble and possibly get stuck with a dog of a company. That’s risky business.

Just because a company seems to be the right price for a takeover doesn’t mean you should automatically dabble. There are a lot of companies out there that are cheap for a reason – it’s because they have problems that no one wants to take on. So the important question is: Which companies are worth the risk?

So, how do you go about this?

Is there a market crystal ball or some special formula known only to market insiders? Not necessarily…

But what I did find is that Morningstar will make the decision for you, and then show you how they came up with their decision.

Morningstar’s Merger and Acquisition Insights Report for 2012

In 2011, Morningstar began to release their predictions on takeover targets. Potential targets were placed in categories like size, leverage, cash flow and by other industry specific quantitative and qualitative factors. More importantly, they went through their list and refined it to highlight the companies that appear undervalued so that everyday investors could get in on the action.

The merger and acquisition insights report for 2012, titled Economic Headwinds Shift Catalysts for Takeover Activity, is an in-depth look at investment ideas among a possible list of potential takeover candidates. It also gives merger and acquisition analysis by sector, credit implications of M&A activity and presents investing prospects for options investors.

According to Morningstar, this is how they came up with their list of potential targets:

• Morningstar equity analysts identified 87 possible takeover targets spanning nine sectors: basic materials, consumer, energy, financial services, healthcare, industrials, technology/communication services and utilities.
• The potential takeover targets for each of these sectors were determined by what Morningstar calls a “unique and proprietary scoring system” for each sector.
• The system is based on industry-specific drivers of merger and acquisition activity, as well as factors such as free cash flow, management and capital structure.
• Morningstar then examined its list of potential takeover candidates across all nine sectors and found 20 that stick out the most.
• In their own words, Morningstar selected companies that are “the most attractively priced based on their price/fair value ratio and ranking in their respective, sector-specific potential takeover candidate list.”

A Strong Track Record So Far…

A good number of companies that Morningstar labeled as targets in 2011 accepted acquisition offers.

Some of those identified in the 2011 list of likely targets like BJ’s Wholesale (NYSE: BJ), Constellation Energy (NYSE: CEP), Massey Energy (NYSE: MEE), Petrohawk Energy (NYSE: HK), Pride International (NYSE: PDE) and Temple-Inland (NYSE: TIN) had all announced deals by year’s end. Each company experienced an increase in share price of at least 17% from the time Morningstar put them on the list to the time they accepted their offers.

If we look a little deeper, there were some really big winners. Constellation Energy was bought at a premium of 22% while Petrohawk Energy was taken over at a 96% premium.

From 2012’s initial crop of potentials, Amerigroup (NYSE: AGP) and Collective Brands (NYSE: PSS) were already purchased with premiums of 31% and 49% respectively.

This Year’s Updated List

So, here’s the deal. As investors, we want value stocks that other companies actually find attractive, and it seems like Morningstar is doing a pretty good job of picking them. Last month they took another look at the 2012 list and highlighted the following 16 companies:

• Charles River Laboratories (NYSE: CRL)
• Chico’s (NYSE: CHS)
• Guess? (NYSE: GES)
• ICON plc (Nasdaq: ICLR)
• iRobot (Nasdaq: IRBT)
• Leap Wireless (Nasdaq: LEAP)
• Mosaic (NYSE: MOS)
• Myriad Genetics (Nasdaq: MYGN)
• Nasdaq OMX Group (Nasdaq: NDAQ)
• NII Holdings (Nasdaq: NIHD)
• Range Resources (NYSE: RRC)
• Riverbed Technology (Nasdaq: RVBD)
• Rockwell Automation (NYSE: ROK)
• SandRidge Energy (NYSE: SD)
• Stoneridge (NYSE: SRI)
• Ultra Petroleum (NYSE: UPL)

What Else to Look For

I know some of you out there are “do-it-yourselfers.” You don’t have time to set up your own unique scoring system. But here’s something that might be helpful.

A popular ratio used by merger analysts to value deals is called the “Enterprise Multiple”- also referred to as EV/EBITDA. Let’s break it down…

The “EV” part of the equation is the enterprise value. It’s how much you would pay for all of a company’s shares and pay off its debt holders. Then you apply the company’s cash to the deal. “EBITDA” is an acronym for the company’s earnings before interest, taxes, depreciation and amortization. It’s mostly useful for making comparisons among companies. Luckily for those who aren’t so gifted with numbers, you can access the EV/EBITDA for most companies on their Yahoo! Finance page under “Key Statistics.”

The reason the enterprise multiple is so useful for this application is that it takes into account debt that other popular valuation ratios do not. And debt is certainly something a company taking over another company factors in…

Low EV/EBITDA ratios, say below eight, may signal an undervalued company. But be mindful that enterprise multiples can be different across industries so high growth industries will have larger multiples and expect lower multiples in industries with slow growth.

Good Investing,

Jason

Article by Investment U

Article by Investment U

Many investors lump money market funds in with Treasury bills and certificates of deposit. Don’t be one of them.

Treasury bills and CDs are backed by the full faith and credit of the United States government. Money market funds are not.

Yes, the federal government had its credit rating taken down a notch last year. But a U.S. government guarantee still means something powerful and important in a risky and uncertain world.

Read your history and you’ll find that the money market industry has a few blemishes. In 1994, for instance, Community Bankers U.S. Government Money Market Fund “broke the buck.” The fund’s net asset value dropped to 96 cents on the dollar, a shock to shareholders who believed their money was “completely safe.”

In 2008, thanks to the collapse of Lehman Brothers, the Reserve Primary Fund broke the buck again. This time investors fared a little better, receiving 99.04% of their funds. But it also sparked a panic.

Investors rushed to liquidate their money market funds and move them into guaranteed bank accounts. Their actions destabilized an already fragile financial system. The federal government took the unprecedented step of backstopping money market funds to avert a meltdown.

“Losses Are Entirely Possible Again”

Of course, the financial crisis is behind us now and money markets are safe again, right?

Hold on. For starters, the federal guarantee on money market funds ended nearly three years ago, on September 18, 2009. Losses are entirely possible again. And money market fund assets have grown from roughly $4 billion in the mid-1970s to approximately $2.5 trillion today. As economist Art Laffer points out, this is the size of the Federal Reserve’s entire balance sheet.

Also, the SEC recently turned down a couple of sensible proposed regulations. And investors are the worse off for it.

Don’t get me wrong. I’m an unrepentant capitalist and sharp critic of senseless or burdensome regulations. But the primary proposal here was to establish reserve requirements and require that money market fund share values be marked to market, rather than held at the fixed one-dollar level that has been the industry practice since money markets were created in 1971.

If you were the shareholder of an uninsured, unguaranteed fund whose assets were falling in value, wouldn’t you want to know about it as soon as possible rather than hold on to an illusion? Me too. But the interests of the mutual fund industry – not to mention all the corporations and municipalities who use money markets as a vehicle for short-term funding – won out over the interests of fund shareholders.

“An Uninsured Mutual Fund”

What should you do? First, understand that a money market is an uninsured mutual fund. And while the government may step up again in a full-blown financial crisis, there is no guarantee of this.

Most money funds, commonly called “prime” funds, invest in commercial paper and repurchase agreements, as well as Treasuries. But if you are highly risk-averse or have large cash balances, you should hold money market funds that invest solely in U.S. Treasury securities. Yes, the income is taxable and the yields are pathetically low, but we’re talking about safety here. You will almost certainly lose ground to inflation but your principal is secure.

Some will say this is only necessary for the truly paranoid. But I disagree. True, the chances of losing money in a regular money market fund are small. But since all money markets pay next to nothing at the moment, the cost of this insurance is low.

In the event of another financial crisis, you’ll have peace of mind. And you won’t find yourself using technical jargon like shoulda, woulda, or coulda.

Good Investing,

Alex

Editor’s Note: Alex has written in the past about his disdain for bonds in this zero-rate environment. But there is a type of bond that Alex does see an opportunity in – as long as you follow a strict disciplined strategy, such as Steve McDonald’s.

Steve calls these particular bonds “liberty certificates,” and he was kind enough to share one of the recent recommendations from his Oxford Bond Advantage service with Investment U Plus subscribers for today’s issue on money market funds.

For more information on how to access Steve’s pick and upgrade your account to Investment U Plus for just $5, click here.

Article by Investment U

Article by Investment U

To put it mildly, there is not much I like about Russia.

A couple of weeks ago, I highlighted to you Russia’s abysmal record on economic freedom. It ranks a pathetic #144 ranking in the 2012 Index of Economic Freedom.

Political freedom? What can you say about a government that puts a renegade band in jail for two years just because it doesn’t like their lyrics?

Still, I had to smile when I checked my Pacific Rim country portfolio this week and saw that the Market Vectors Russia ETF (NYSE: RSX) was the top recent performer – up around 18% since being added to the portfolio just a few months ago.

Given my antipathy towards the country, why on earth I did I add it in the first place?

It was, and remains, a dirt-cheap stock market.

According to the Financial Times, the Russian market is now trading at just 5.7 times earnings compared to 16.9 times for India, 15.1 times for the S&P 500 index, 19.4 times for the Philippines and 18.4 times for Mexico.

Is Siberia the Next Canada?

Why is it so cheap? Well in addition to the reasons I have already highlighted, Russia is one giant commodities play – an area out of favor with investors at the moment.

Roughly 70% of the Russian stock market is made up of resource stocks. The country is the world’s largest oil producer and the second largest oil exporter. On top of this, Russia is the world’s second largest natural gas producer and exports twice as much as its nearest competitor, Norway.

So when energy resource stocks are moving – so is the Russian market. Though, I have noticed that it always seems to trade at lower valuations than its peers. It’s also interesting to note that Russia has outperformed China over the last decade with a compounded return measured in US dollars of 325% versus China’s 247%.

Russia Finally Joining the WTO

There are also some developments that have recently made me watch Russia even more carefully…

First, just last week, after 19 years of painful negotiations, Russia finally joined the World Trade Organization (WTO). According to the World Bank, WTO membership will drive medium-term GDP up by 11% and could boost its growth rate by up to 3% per year. Under the terms, Russia must commit to a series of regulations that promise to energize domestic growth and encourage foreign investment.

In addition, maybe up to now protected industries will get moving through a dose of badly needed international competition.

Second, Russia is steadily shifting its attention and resources to its Pacific Rim frontier. Anchored by the city of Vladivostok, Russia is stepping up its trade and investment outreach to countries such as China, South Korea and Japan.

(Source: Encyclopedia Brittanica)

In fact, over the past five years, bilateral trade with Japan has already doubled and trade with South Korea has tripled. This is just the beginning as the Pacific century unfolds.

In addition to ample supply of energy resources, Russia has geography in its corner. It takes only 2-4 days to get raw materials from Russia’s Asian frontier to China compared to weeks for many of its competitors.

Finally, despite the bad headlines, the Russian economy is chugging along pretty well with about a 4% growth rate. One of the largest food retailers and BMW sales are both growing at a 30% annual clip.

Pundits are always warning investors about “falling in love” with their stocks. I say be careful not to hate them too much – you will miss opportunities.

Good Investing,

Carl

Article by Investment U

Article by Investment U

Many investors today are still fearful about the economy and that another global recession could be just around the corner.

For example, the other day an elderly gentleman told me he’s worried that hyperinflation of the U.S. dollar is likely imminent. He also said he’s afraid that stocks are set up for a massive correction any day now.

As a result, he confidently stated he wouldn’t touch equities and he’s piling his money into gold instead.

I like gold. But it seemed odd this man would make such a drastic move with his money because he really doesn’t know what’s going to happen in the future any more than I do.

In fact, I have heard this doomsday story about the economy for well over two years now and have yet to see things fall apart.

Yes, we did experience a major recession in 2008 and it did ruin people’s lives.

There are also a number of major concerns, such as our government’s soaring debt, the unemployment rate, and Europe, which must still be addressed before we’re out of the woods completely.

But investors completely ignoring the stock market and buying gold in droves today could really be the ones setting themselves up for disaster.

Because while it’s a good thing to own some gold in your portfolio, going all-in on any investment is really just as risky as putting all your money in one stock.

It’s an investment based on emotion, not strategy.

In fact, when comparing gold prices to other commodities, the world’s most popular precious metal actually seems overpriced at current levels.

And you may be surprised just how detached gold prices when compared to other commodities according to one indicator.

By As Much As 74%

The Thomson Reuters Equal Weight Continuous Commodity Index (CCI) is often considered a key indicator of how commodity prices stack up against each other.

It’s an index on the ICE Futures Exchange that consists of 17 commodity futures, which are continuously rebalanced.

According to InsiderMonkey.com, historically, the price ratio of gold to the CCI has averaged 1.66. Today that ratio is about 2.89.

In other words, when measuring gold to other commodities, it’s overvalued by as much as 74%.

Now, I wouldn’t expect gold prices to plummet that much anytime soon.

But these days, gold bugs do have a couple of red flags to be aware of.

1. Global demand for gold has fallen consistently for the past four quarters straight. And the drop can mainly be pinned on India and China, which account for about 44% of global gold demand. According to MetalMiner, India’s gold demand is down 13% from the first quarter, and 38% year over year. Meanwhile, China cut its demand back by an incredible 43% from the first quarter. If demand for gold continues to fall, supply will increase, bringing gold prices down further as a result.
2. The U.S. housing market is making a comeback. The Los Angeles Times just reported, for the first time in about two years, all 20 major metro areas tracked by the S&P/Case Shiller Index are up. This signals housing prices have likely found a bottom, which many economists said would be the turning point for the U.S. economy. Plus, it gives the Fed incentive not to provide anymore stimulus to the economy, which also would drag gold prices down.
3. Rising Interest Rates. Although the Fed has vowed to keep rates low through 2014, that doesn’t mean they have to. And typically the price of gold is negatively correlated with interest rates. When rates finally do rise you may see something similar to what happened in the early 1980’s when the price of gold collapsed. Think about it, who would want to be earning next to nothing holding a hunk of metal once bank accounts begin paying decent interest again?

It’s not all bad news for gold though. As Matthew Carr has written about in the past, we’re about to enter the bullish season for gold prices.

The end of fall is known for being a time gold prices typically head higher. Coincidentally, it’s also right around the Diwali wedding season in India which should provide gold with a slight boost on its own. Chinese holidays also boost demand during this time of the year.

But before you go piling all of your cash into gold like the man I spoke with last week, just realize the future of gold prices may not be as shiny as the metal appears.

Good Investing,

Mike

P.S. Earlier this year, Alexander Green provided seven reasons why he felt holding more than 5% of your assets in gold was a gamble. He also predicted gold was unlikely to go much higher. Even with its recent rally, gold is still only about 2% higher than when Alex wrote his article.

To see Alex’s full essay on why gold is far from a sure thing, click here.

Article by Investment U

By Central Bank News

By Central Bank News

    The high number of unemployed, a politically charged issue in the U.S. presidential campaign, is mainly due to the depth of the economic slump following the financial crises rather than structural factors, according to a paper presented to the Jackson Hole Symposium.
    And even the large number of long-term unemployed, which exceeds that of previous recessions, is caused by the severity of the recession not by structural factors that are beyond the reach of central banks, according to the paper by Edward Lazear of Stanford University and James Spletzer of the U.S. Census Bureau.
    Their finding has implications for monetary policy because “cyclical declines in employment are the explicit target of the US Federal Reserve bank and at least implicitly are the concern of the central banks of other countries as well,” Lazear and Spletzer wrote.
    Their paper was presented to central bankers, finance ministry officials and other financial market participants during a morning session on the last day of the conference.


   The high rates of unemployment that followed the global economic crises and recession from 2007-2009 lead many observers to conclude that structural changes have occurred in the labor market and the days of low unemployment will never return.
    But Lazear and Spletzer cannot find any support for this thesis.
    “An analysis of labor market data suggests that there are no structural changes that can explain movements in unemployment rates over recent years, they wrote in  “The United States Labor Market: Staus Quo or A New Normal.” 
    “The current recession does not appear fundamentally different from prior ones, except that it is worse,” they said, adding:
    “One exception is that the ratio of long-term unemployed to total unemployed is higher than it was in prior recessions including recessions with comparable unemployment rates. However, this is not due to any observed structural change, but rather to the depth of the current recession.”
    www.CentralBankNews.info

Forex Daily review brought to you by REAL FOREX | www.Real-forex.com

 

 

 

 

 

 

By TraderVox.com

Tradervox.com (Dublin) – The euro-dollar pair increased last week as the market speculated about the Federal Reserve Chairman’s speech at Jackson Hole. The pair closed the week above and month above 1.2587 after it challenged the resistance line at 1.2624. The market analysts expect the pair to be influenced by major events that will take place in the euro zone this week. There are about 16 major events this week that depict the reasons why the cross is likely to drop this week. Further, as the week starts, there are major tensions between the ECB and the German central bank over the decision the European Central Bank to buy bonds.

The first major event on Monday will particularly center on the issue of bond buying and the tension in the market. The Mario Draghi speech in European Parliament will be of interest as investors seek signs for the bank’s next major decisions. The ECB decision to embark on bond buying program has encountered major resistance from bundesbank, with its Chairman Jens Weidmann reported to be considering resignation as a protest to the move. The Spanish, Italian, and Final manufacturing PMI reports will also be released on Monday between seven and eight. All these reports are expected to show contraction in the manufacturing in major countries and the whole region at large.

On Tuesday, the PPI report will be the major report that will be released at 0900hrs GMT. The PPI report has been declining in the last four months. However, the market is expecting a marginal increase of 0.3 percent this time round. On Wednesday, there will be the Spanish 5-year bond auction and the Italian 10 year bond auction. Investor will be looking at the performance of these debts in the market as they gauge the market sentiments over the euro area debt crisis. Other reports on this day will be the Final Services PMI and Retail Sales which will be released at 0800 and 0900 hours respectively. The market expects these indicators to drop in the coming publication hence dampening the demand for the euro.

The Revised Euro zone GDP will be published on Thursday at 0900 hours. The first estimate had indicated that the region contracted by 0.2 percent in the second quarter, but Germany had increased by 0.3 percent. ECB rate decision will be made on this day at 1145 hrs. The same day, Rajoy will meet Merkel as they discuss measures to deal with the debt crisis. On Friday, the German and French Trade Balance reports will be published at 0600hrs GMT. Later at 1000hrs, the German Industrial production report will be published. The market expects a small increase.

With market expectation on reports from the euro zone being slightly negative, investors will likely take precautions when buying the euro. The increase safe haven demand is likely to push the dollar up against the euro.

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 kiwi-dollar pair dropped last week but pared these loses as renewed quantitative easing speculation arose in the US. This week, there are two minor events in New Zealand; hence investors will be leaning on technical levels this week.  In retrospect, the official business confidence figure announced by the NBBZ gave the pair a boost as it rose to 19.5 points. This countered concerns about China and the small increase registered in the building sector. The pair was also boosted by the Bernanke speech at Jackson Hole on Friday. The market is expecting the Fed to extend guidance rather than additional stimulus to spur growth in the region.

The overseas trade index and the ANZ commodity prices are the two events from New Zealand. The overseas trade index will be announced on Sunday at 2245hrs GMT. This is a quarterly report the measures wealth in the country. The report showed a decline of 2.3 percent in the last quarter and the market is predicting a drop of 2 percent this time round. The ANZ Commodity Prices data will be released on Tuesday at 0100hrs. This report shows international prices which has been dropping in the last five months. The market expects this trend to continue during the next week.

The kiwi-dollar cross opened dollar cross opened the week with a decline below the support level at 0.80. Later, the pair recovered to close the week at 0.8023. The cross has a bearish outlook this week despite the Bernanke’s speech being dovish. This might be as a result of speculations that the Fed might extend its current twist program rather than additional stimulus. The kiwi is also limited by the deteriorating economic conditions in China. As such, some of the major resistance levels that might come into play this week include the 0.8123, 0.8083, and 0.8055. The pivot level this week is a narrow range between 0.8015 and 0.8018. Support levels to keep an eye on are 0.7988, 0.7948, and 0.7920

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