Month: March 2013

By The Sizemore Letter

Life hasn’t gotten any easier for Big Tobacco.  Last week, Russia became the latest country to impose major new restrictions on smoking in public places.  Starting in June, Russians will no longer be able to smoke in restaurants, and cigarette advertising will be banned.

I have my doubts as to how strictly the ban will be enforced, but the fact remains that one of the friendliest countries towards public smoking just got a lot chillier.  According to the Wall Street Journal, 44 million Russians smoke, and they collectively account for 9% of Philip Morris International’s (NYSE:$PM) profits.  Japan Tobacco and British American Tobacco (NYSE:$BTI) get 11% and 8% of their profits from Russia, respectively.

Russians will not quit smoking overnight in response to the ban. That didn’t happen in the United States, and it won’t happen in Russia.  It may be years before it makes a serious dent in consumption.  But it does blow a major hole in one of the bullish arguments supporting Philip Morris International: emerging markets will not be growth markets for tobacco forever.  As countries reach higher levels of development, the costs to the health system prompts a crackdown.

We saw the same in China.  In 2011, China banned smoking in restaurants, bars, and in several other enclosed public spaces, though it is still legal to smoke in offices. But there are now plans to ban smoking in virtually all public place, New York City style, by 2015.

Again, we’ll see how strictly it is enforced.  Though China has no qualms with crushing freedoms of expression or religion, the right to light up a cigarette is one they seem to let slip.

Latin America?  Same.  Brazil, Argentina, Chile, and Peru all have bans in most indoor areas, and enforcement is starting to be taken seriously.

India?  You guessed it.  As of 2008, smoking was banned in most public places, though enforcement has been a little touch and go.

By now, you should be getting the picture.  Though enforcement varies from country to country, there is really no such thing as a “tobacco friendly” country anymore.  Everywhere you look, the noose is getting tighter.

Sizemore Insights readers know that I have been a Big Tobacco fan for a long time.  They tend to be dividend-paying powerhouses with consistent returns.  And like other “vice investments,” they tend to be priced as perpetual value stocks, which has made them an outstanding performer in recent decades.

But I don’t advocate buying tobacco stocks at any price.  Tobacco stocks have been a great investment precisely because they were cheap and no one wanted them.  But you can’t make that argument today.  In fact, if anything they have become trendy.

Last month, I wrote that At Current Prices Tobacco is a No-Go, and I want to repeat that sentiment today.  Domestic Big Tobacco stocks such as Altria (NYSE:$MO) and Lorillard (NYSE:$LO) trade at a slight premium to the S&P 500 earnings multiple.  That simply should not be.  These are companies in terminal, albeit gentle, decline.

And Philip Morris International, the “growth stock” of the bunch, trades at a significant premium.  Philip Morris trades for 18 times trailing earnings and yields 3.7%.  That is simply not a high enough dividend yield to make this stock worthwhile given the better alternatives out there.  “Boring” tech stocks like Intel (Nasdaq:$INTC) and Microsoft (Nasdaq:$MSFT) both offer higher dividend yields, as do most midstream master limited partnerships.

If Big Tobacco has a substantial price correction, then I might be interested again.  But for now, I consider these stocks as toxic as the cigarettes they sell.

Disclosures: Sizemore Capital is long MSFT and INTC.

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The post The Russian Smoking Ban: Will It Snuff Out Big Tobacco Profits? appeared first on Sizemore Insights.

By www.CentralBankNews.info     Canada’s central bank left its target for the benchmark overnight rate steady at 1.0 percent, as expected, saying its current accommodative policy stance is appropriate for the time being given the slack in the economy, the muted outlook for inflation and a better balance in household finances.
    But the Bank of Canada (BOC) added its “considerable monetary policy stimulus” will still have to be withdrawn at some point to meet its 2.0 percent inflation target, maintaining a slight bias toward raising rates.
    The BOC started warning financial markets in April that it would have to raise rates but last month pushed back the expected timeframe for raising rates, saying a tightening was less imminent than previously anticipated due to a more muted outlook for inflation and the beginnings of a more balanced financial situation for households.
    The bank said in its statement that it expects the “growth in household credit to moderate further, with the debt-to-income ratio stabilizing near current levels.”
    Canada’s economy expanded by an annualized 0.6 percent in the fourth quarter, the bank said, with solid domestic growth offset by a sharp reduction in the pace of inventory investment.
    “The Bank expects growth in Canada to pick up through 2013, supported by modest growth in household spending combined with a recovery in exports and solid business investment,” the BOC said.

    Exports, however, are likely to remain below their pre-recession peak until the second half of 2014 due to restrained foreign demand and “ongoing competitiveness challenges, including the persistent strength of the Canadian dollar,” the bank said.
     The BOC said the global economic outlook was largely in line with its forecast from January and global financial conditions remain stimulative. Fiscal drag in the United States over the next two years is likely to be more front-loaded than expected due to the current sequestration budget cuts and the recession in Europe continues.
    Growth in China, however, has improved while economic activity in other major emerging countries is expected to benefit from policy stimulus, the bank said.
    Inflation in Canada has been more subdued than expected and headline and core inflation is expected to remain low in the near term before gradually rising towards 2.0 percent as the economy returns to full capacity.
    Canada’s headline inflation rate eased to 0.5 percent in January from 0.8 percent in December.
    Compared with the third quarter, Canada’s Gross Domestic Product rose by 0.2 percent in the fourth quarter for year-on-year growth of 1.1 percent.

   
    www.CentralBankNews.info

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

By www.CentralBankNews.info     Poland’s central bank cut its reference policy rate by a deeper-than-expected 50 basis points to 3.25 percent and said it would explain the reason for its third rate cut this year at a press conference later today.
    The National Bank of Poland (NBP), which has cut rates by 100 basis points this year following a reduction of 50 basis points in 2012, also cut its lombard rate to 4.75 percent, the deposit rate to 1.75 percent and the rediscount rate to 3.50 percent.
    The size of the cut was unexpected as last month only two members of the bank’s 10-member policy-making council had voted for a 50 basis point cut in rates. In February the central bank cut rates by 25 basis points and did not signal any future moves.
    In the fourth quarter of last year, Poland’s Gross Domestic Product rose by 0.2 percent from the third quarter for annual growth of 1.1 percent, down from 1.8 percent. In 2012 economic growth was estimated to have declined to 2.0 percent from 4.3 percent in 2011.
    Poland’s inflation rate fell to 1.7 percent in January from December’s 2.4 percent, in the lower range of the bank’s target of 2.5 percent, plus/minus one percentage point.

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London Gold Market Report
from Ben Traynor
BullionVault
Wednesday 6 March 2013, 07:00 EST

U.S. DOLLAR prices to buy gold hovered around $1575 per ounce Wednesday morning in London, in line with last week’s close, as dealers in Asia reported an increase in demand for physical bullion, in contrast with exchange traded funds, which have continued to see selling, in what one analyst calls a “tug of war” between physical buying and ETF selling.

“Short-term, gold should drift lower to the short-term support line at $1569/65 or even to the previous low at $1555,” say technical analysts at Societe Generale.

“Initial support is at 1564.88,” adds UBS.

“A break below [that level] would expose $1556.50, the June 28 low and then $1533.70, the May 16, 2012 low.”

Gold in Sterling hovered just below £1045 an ounce for most of this morning, slightly down on the week, while gold in Euros stayed below €1210 an ounce.

Silver meantime hovered around $28.70 an ounce, very slightly up on the week, while other commodities were similarly flat. Stock markets extended yesterday’s gains, in contrast with major government bond prices which fell.

“We remain somewhat cautious on gold and silver,” says INTL FCStone analyst Ed Meir.

“They could be hit by a downward reversal if and when markets start to decouple from the surging equity markets.”

Stock markets in Europe extended yesterday’s gains this morning after several major indices closed at multi-year highs Tuesday.

In London, the FTSE 100 posted its highest close since January 2008 yesterday, while over in the US the Dow saw a new all-time record close and the S&P 500 closed at its highest level since October 31 2007, less than 2% off its all-time record close set earlier that month.

Yesterday saw the release of service sector purchasing managers’ index data for a number of economies, which indicated better-than-expected conditions in the US, UK and Eurozone.

“Looking forward,” says a note from Credit Agricole, “[stock market] sentiment could get further support from data this week as the {Federal Reserve’s] Beige Book today will probably show that employment continued to grow ahead of Friday’s jobs report.”

The latest US nonfarm payrolls figure and unemployment rate are due to be published this Friday. The consensus forecast among analysts is for an addition of 160,000 jobs last month, with the unemployment rate expected to stay at 7.9%.

Later today, the privately-produced ADP Employment report is due to be released at 08.15 EST.

Outflows from the world’s biggest gold exchange traded fund, the SPDR Gold Trust (ticker: GLD), continued yesterday for the eleventh day running, taking the total volume of gold held to back GLD shares to its lowest level since November 2011.

“It is really a tug of war between ETF selling and physical buying right now,” says Yuichi Ikemizu, head of commodity trading, Japan, at Standard Bank.

“We have seen quite good physical demand from China and Southeast Asia, but the ETF selling has put a lid on gold prices.”

In China, the most popular forward contract on the Shanghai Gold Exchange continued to trade a t a premium of around $20 an ounce compared to the international wholesale gold price Wednesday.

“We are seeing strong and growing support for gold from the physical market,” say Standard Bank commodity strategist Marc Ground, “as evidenced by our Standard Bank Gold Physical Flow Index, which places a floor at around $1560 an ounce.”

“If the buying from China, Indonesia and Thailand continues, it will not be very easy to get physical supply,” one dealer in Singapore told newswire Reuters this morning.

South Korea’s central bank bought 20 tonnes of gold last month, taking its total gold reserve to 104.4 tonnes, 1.5% of overall reserves, it said in a statement.

“As the gold purchase aims to diversify the foreign exchange portfolio over the long haul, gold prices’ short-term volatility have not been considered,” said Lee Jung, head of the Bank of Korea’s investment strategy team.

February also Russia and Kazakhstan continue to buy gold.

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. Ben can be found on Google+

(c) BullionVault 2013

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.

By MoneyMorning.com.au

Over in the Blue corner of our office, we have China bear, Greg Canavan…

And here in the Red corner, you have yours truly: China bull, Alex Cowie.

If you’re worried things may get out of control, don’t. We’re good mates really, we just have different views on where China’s economy is heading.

In fact I take my hat off to Greg. Because it is hard work defending an unpopular stance – particularly when the data is going against you.

Already this year, we’ve seen a surge in China’s growth rate from 7.4% to 7.9%.

Then last week we had another round of positive monthly numbers from China’s business sector, in the form of the ‘Purchasing Managers Indices’ (PMI).

Now I’ll admit: taking pot shots across the office is good fun.

But in reality, this is a crucial debate.

The future for the Australian economy, your retirement savings, and your future quality of life all depends on which one of us is right…

Please tune into our free google plus page to give us your two cents worth.

Now here’s the problem with the China bear argument (including Greg’s), Chinese economic growth is already recovering.

And with China’s economy firing up again, the resources sector is putting a woeful 18 months behind it and is turning around right now. It’s happening in slow motion, like an iron ore vessel changing course – but the trend of resource stocks is finally pointing up once more.

So since the start of the year I’ve been tipping iron ore and copper stocks for Diggers and Drillers readers to profit from this move. I’ve also put coking coal on the radar.

Chinese Growth Still Expanding

The latest fly in the ointment for the China bears was the latest round of Purchasing Managers Index data. This includes both the official reading, and HSBC’s reading.

These data give an up-to-data reading on the pulse of Chinese business. And both were in positive territory (above 50) again.

China’s Manufacturing Sector – Still Growing

So, what does this mean?

Well, here’s a recap: a reading of 50 suggests industry is stable, and therefore that economic growth is stable. Above 50, and China’s economic growth is accelerating. Below 50 suggests economic growth is decelerating. Easy, right?

Therefore the latest official reading of 50.1 means it was a positive reading, and therefore China’s economic growth is accelerating.

However, never in the history of statistics has the market misunderstood one indicator more.

Some were calling 50.1 a ‘bad reading’ – because it had dropped from 50.4 in January.

This simply isn’t true.

50.1 is still expansionary – it suggests China’s economy is still accelerating, just not at the same rate.

Now look again at the readings China put in last quarter: 50.2 in October, 50.6 in November, and then 50.6 in December. To put them in context, 55 would be a very strong result, and was what we used to see before the GFC.

Yet those readings of 50.2, 50.6, and then 50.6 were still enough to drive Chinese economic growth from 7.4%, to 7.9% last quarter.

My point here is that all we need is for the purchasing manager numbers to stay even just slightly above 50 this quarter, and we’re likely to see China’s growth creep above 7.9% at next count.

So China’s economy is well on track for this already. And don’t forget that China was closed for business for a week in February due to the Chinese New Year. Without this, the number would probably have been above 50.1.

An Inside View on China’s Economy

But to avoid getting too bogged down in individual data points (government data, no less) it’s wise to step back, and look at the big picture.

To this end, in a few weeks I’ll be writing to you from Hong Kong.

I know, I know. Hong Kong isn’t quite the same thing as China. But it will give me a better view than you get from a desk in St Kilda.

You’ll be getting scoops from me on most days, as I attend, and speak at, the ‘Hong Kong Mines and Money’ conference.

Unleashed for four days, I’ll listen to, and get to meet with, a bevy of Chinese bankers, fund managers, analysts and companies.

And to test the ‘official line’ against reality, I’ll also meet with my on-the-ground contacts over there, to get their two cents. It’s will be a busy week. I can’t wait to get over there.

You can always get a good feel for the industry just by assessing the mood in the room at events like this. And I expect the mood to be buoyant. There looks set to be a record attendance, which is a good start.

But the real reason for the excitement is that Chinese lending figures have taken off. Here’s a snippet of what I wrote last week to Diggers and Drillers readers about this:

‘This is lending at a pace never seen before in China. China means business. Even China’s stimulus package in the depths of the GFC looks modest by comparison. That four trillion Renminbi injection China announced back in November 2008 marked the turning point for the Australian resource sector, and preceded a rally that saw the Metals and Mining index double in just over two years.

‘So just contemplate that including the RMB2.5 trillion China lent out in January, China has now lent a total of RMB5.6 trillion over the last three months.

‘This flood of lending could go straight into infrastructure projects that could create massive demand for key commodities in both the months and years ahead. It reinforces my bullishness on the resource sector, and as resource stock prices are still just getting off their knees, this is a very exciting time to be looking at oversold resource juniors.

‘Of course, not all of this money will feed into infrastructure. It’s no coincidence that the Shanghai stock market has bounced 17.5% in the last three months. Chinese property prices are on the move too, with Beijing house prices up 5.4% over two months. The government is discussing property purchase restrictions to hold back these price hikes.

‘Some speculation is inevitable, however the majority of the capital should still feed into infrastructure spending. The reason I say this is that China Development Bank is the biggest conduit of lending into government approved projects, and it has seen a big jump in activity recently.

‘It has just announced recent loans totalling 1RMB billion on infrastructure projects.

‘These vary from coal-oil transport, water conservation, agriculture, forestry, telecommunications, power networks, public infrastructure, strategic technology, culture, environment, and energy-saving government-supported housing projects.

‘It is clear that CDB is driving this jump in loans. More are likely to follow, as the government uses CDB to finance further infrastructure projects.’

Make no mistake…

The colossal sum of lending in China is heading for major infrastructure projects – and it will have a big impact on commodity demand, and in turn, the resource sector.

After two long years of pain, the swing back up from oversold levels will make resource stocks a rewarding place to be in 2013.

Dr Alex Cowie
Editor, Diggers & Drillers
Join me on Google+
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By MoneyMorning.com.au

If you’ve ever suspected gold prices are being manipulated, you’re not alone – and you’re right, they are.

Against the backdrop of fiscal mismanagement, political incompetence, and failed austerity measures, the world’s biggest traders have all bet heavily on gold. Lately, they’ve been pulling out all the stops to get what they want while laughing all the way to bigger bonuses.

Today, I want to talk about who ‘they’ are and share a few tricks you can use to capitalize on their actions without being taken to the poorhouse.

Let’s begin with the concept of manipulation itself.

In order to understand the players, you have to understand their motivations. You’d think it’s all about profit, but that’s not entirely true…

How the Big Traders Move the Market

The financial markets are like a football game in that there is a constant flow of energy between participants. Sometimes the game gets very aggressive, leading to smash and bash tactics intended to crush the opposing ‘team’.

Other times, the game is much more subtle, with all kinds of complicated feints and patterns being run to wear down the other side to the point where they make mistakes.

Neither changes the objective – which is, of course, to win.

Traders, especially the big ones acting on behalf of mega hedge funds, large-scale private funds, institutions, and various central banks, do the same thing. They attack the markets with all the ferocity of a top-tier coach orchestrating the most effective combination of plays and players in an all-out effort to win the game that literally starts each day when the opening bell goes off.

If they want to push prices higher, they can work to build momentum to the point where computerized arbitrage programs kick in with ‘buys’ of their own. If they’ve had enough, they can quietly begin selling into strength, hoping to slip out the back door as the new partygoers are enticed in the front.

If they want prices to move lower, they can simply walk away from the ‘bid’, a tactic used with amazing success and alarming regularity. Absent consistent buying, sellers have no choice but to lower their ‘ask’…until the buyers come back.

Or, perhaps they will even try to move the markets with a few well-placed comments in the cyber-ether.

Television host and former hedge fund manager Jim Cramer talked explicitly about how this is done on The Daily Show with Jon Stewart during a stunning March 12, 2009 interview, which referenced earlier footage from a December 22, 2006 interview he did with Daily Ticker host Aaron Task.

During this now-infamous appearance, Cramer noted that he’d encourage anyone who’s in the hedge fund business to do it because it’s ‘legal and it’s a very quick way to make money. And very satisfying.’

He also told Task that while it’s illegal to create an impression that a stock’s down all by yourself, ‘you do it anyway because the SEC doesn’t understand it.’ And you do it in such a way that you get the story-hungry media to do your dirty work for you, making prices move accordingly.

More commonly though, bigger firms like JPMorgan, Goldman Sachs, PIMCO or any of a dozen other behemoths will simply release a ‘research report’ that is interpreted as gospel by the mainstream media and swallowed hook, line, and sinker by millions of unsuspecting investors as a reason to buy or sell.

Guess Who the Big Traders’ Target is

This allows mega-traders to engage a far wider audience – the retail investor. That, of course, is exactly what traders want to see, because it gives them the ability to buy or sell to the last incremental counterparty for maximum gains…right before they move the asset of choice completely in the other direction.

I think that’s the case with gold right now. Of course, it’s also the case with the S&P 500, which is moving higher despite overwhelming structural and fundamental economic problems – but that’s a related story for another time. ‘Manipulation’ works in both directions, especially when it’s being orchestrated by the Fed and other central banks in the name of political expediency.

Goldman Sachs, for example, recently released a report suggesting that gold’s 12-year bull market run is over and that prices as low as $1,450/oz. are ahead.

I’d bet dimes to dollars there’s at least one in-house Goldman trading desk that’s shorted the you-know-what out of gold. Goldman is well known for trading directly against the interests of its clients and has reportedly done so on everything from Greek debt swaps to the Facebook IPO to Chinese companies.

Bigger private traders like George Soros and Louis Bacon Moore are far more subtle, but that doesn’t mean they’re not playing the same game. What makes them different, though, is the scale of their actions.

With billions at their disposal, these guys have no need to engage retail investors directly; instead, they look to capitalise on the disarray created by other trading firms and their prey.

In other words, they’ve learned to ‘read’ the game.

Soros, who famously ‘broke the Bank of England’ in 1992 to the tune of more than a billion dollars in profit, is the ultimate example. He knows exactly what ‘plays’ to call based on a combination of personal knowledge, careful study, and gut feel built up over decades – not to mention billions of dollars’ worth of success.

Here’s What to Do about It

If you’re about to give up hope – don’t.

Believe it or not, as a retail investor you’ve got several advantages the bigger players don’t:

• Big traders have to move money; it’s their job. This means they have to keep things in motion every day whether they want to or not. They can’t afford to sit on the sidelines. On the other hand, I haven’t met a retail investor yet who can’t afford to take a breather every now and then.
• Big traders move size. That means you can see them coming a mile away, especially if you are familiar with volumetric analysis. With billions in their portfolios, they simply can’t pick up a few million shares at a whack; that’s why volume tends to increase just prior to important market turning points. They have to move carefully or their actions will work against them. This is why Bruno ‘the whale’ Iksil of JPMorgan got into such trouble. Once other traders learned that he was in deep kim chee, they circled like sharks sensing blood in the water and turned on him by making it very difficult to unwind his positions without a great deal of financial pain.
• Big traders, for all their sophistication, typically have very limited attention spans. This means they will move from one asset class to another much more frequently than typical individual investors. Individual investors, on the other hand, can be more patient and long-term oriented.

And, finally, remember that you’ve got simple, effective tactics at your disposal that can counter seemingly overwhelming odds – market manipulation or not:

1) ‘Go with the flow’ by selling into strength and buying during periods of weakness. This is counter-intuitive, so it takes a lot of guts and discipline, but it’s worth it. Doing so not only helps minimize risk, but it aligns you, and more importantly your money, with the biggest traders rather than against them. Under the circumstances with gold prices now off its peak, I’d be buying.

2) Buy and sell over time, not all at once. One of the simplest ways to do this is simply to split your capital into chunks and invest on the first day of each month. It’s a little more work than just hitting the buy or sell button one time, but given what dollar cost averaging makes possible, I think it’s worth it, especially when you consider the big boys do the same thing for exactly the same reason.

3) Pay attention to the fundamentals. The most successful traders of our time are finely tuned to the world around us and they don’t get distracted by aberrations, even if they’re the ones creating them. Stick to the facts: Fiat currencies are failing, the world’s central banks are buying more gold than they ever have in history, and the world stands on the brink of a 1930s-style currency war. In the long run all three are incredibly bullish influences for gold prices.

4) Use trailing stops. You never want to be in a position where you are second guessing the markets or the big traders who move them. Instead, use trailing stops to pre-identify both profit targets and loss management – just about every online broker offers them these days so there’s no excuse for not using them. More sophisticated investors can use put options to accomplish the same thing.

And at the end of the day, remember, it doesn’t matter who is manipulating gold (or any other asset class for that matter) as long as you can profit from it.

Keith Fitz-Gerald
Contributing Editor, Money Morning

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

From the Archives…

Gold’s Dark Hour Before Dawn
1-03-2013 – Dr. Alex Cowie

The Primary Colours of Investing
28-02-2013 – Kris Sayce

Revealed: Inside a Share Trader’s Den
27-02-2013 – Murray Dawes

Where to Find Value in this Rising Stock Market
26-02-2013 – Kris Sayce

China Bull Versus China Bear – There Can Only Be One Winner
25-02-2013 – Dr. Alex Cowie

USDCAD is facing the support of the lower line of the price channel on 4-hour chart, as long as the channel support holds, the pair remains in uptrend from 0.9932, and the fall from 1.0341 could be treated as consolidation of the uptrend, another rise to 1.0400 is still possible after consolidation. On the other side, a clear break below the channel support will indicate that lengthier consolidation of the longer term uptrend from 0.9815 (Jan 11 low) is underway, then deeper decline to 1.0150 area could be seen.

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