USDCAD stays within a downward price channel on 4-hour chart, and remains in downtrend from 1.0442. Resistance is at the upper line of the channel, as long as the channel resistance holds, the downtrend could be expected to continue, and next target would be at 1.0200 area. However, a clear break above the channel resistance will indicate that consolidation of the longer term downtrend from 1.0608 is underway, then further rally to 1.0360 area could be seen.
Provided by ForexCycle.com
You may notice that sometimes we’re glib and dismissive of what goes on in the financial markets.
That isn’t because it’s not important. But rather there’s so much waffle flying around that we prefer you just ignore it.
A great example right now is the current battle over who will take over from Dr Ben S Bernanke as chairman of the US Federal Reserve. Will it be Janet Yellen? Or perhaps Larry Summers? Or maybe Bozo the Clown?
Let’s get one thing straight: no one becomes chairman of the Fed with an agenda to rock the apple cart. So in the list of priorities that you should focus on, the race to lead the Fed should be somewhere near the bottom.
On the other hand, finding a way to earn up to $257,948 tax free should be right at the top of your priority list…
Who doesn’t want to earn tax-free dollars?
Our colleague, Vern Gowdie, editor of the soon-to-launch Gowdie Family Wealth, reveals all in the essay below.
However, before you can get to the stage that Vern talks about – the enjoying your retirement stage – there’s the small matter of building your wealth first.
In short, the easy bit is spending and enjoying what you’ve earned, the hard bit is getting to that point.
As you should know by now, your editor is a big advocate of the stock market’s wealth creation power.
But it’s fair to say that stocks have gotten a raw deal in recent years. If you ask most people, they’ll tell you the stock market is the biggest wealth destroyer going around.
Of course, that’s not really true. It’s just that they probably dabbled in the market and lost some money, or they heard of someone doing the same.
It doesn’t help the stock market’s cause (especially in Australia) when something like the 2008 stock market crash gets front page headlines, while at the same time house prices in Melbourne and Sydney barely budged an inch.
No wonder folks thought they were better off investing in houses rather than dabbling in the stock market.
That’s a shame. Because we bet they missed the rally from 2009. And we’re sure they missed the rally that started around the middle of last year. In both cases, the returns from stocks have been far better than any return from housing.
However, you shouldn’t ridicule the folks who refuse to give the stock market a go. Instead, you should use their caution as a reminder to never get in over your head…
Some investors get impatient when the market piles on big returns in a few months or even weeks. Having missed out on the initial rally because they were too scared, they see a quick 10% gain and panic-buy.
They become worried that if they miss out on this move they’ll never get another chance to buy stocks this cheap.
And look, that’s possible. Our view is that in the next five years at least, you won’t get the chance to buy blue-chip stocks at the 2009 low. That opportunity has gone, so forget about it – for now anyway.
In fact, if we’re right about the direction this market is heading, odds are you won’t get the chance to buy stocks at the 2012 low either. The Australian market would have to fall 20% from here, and quite frankly we don’t see that happening.
But we also know the stock market is risky. And if there’s one thing we’ve learned since getting into the markets nearly 20 years ago: that’s never to buy just because others are buying.
Besides, although it’s a great time to buy stocks, we still think it’s too risky to have much more than 40% of your total wealth in the stock market (that’s blue-chip income and growth and small-cap stocks combined).
We say that because we know that in the long run, a lot of the bearish analysts are right about the macro-economic view of the market. If we thought they were wrong, we’d tell you to put all your money in stocks.
But even so, we don’t know how long it will take for those predictions to come true. It could happen next week, next year, or 50 years from now. We don’t know about you, but we’re just not prepared to miss out on big gains waiting for something that may not happen for years.
Right now more news is lining up on the positive side rather than the negative side. As Bloomberg reported last week, ‘Of the 237 S&P 500 companies that have posted quarterly results, 74 per cent have exceeded analysts’ profit estimates.‘
That’s important. It tells you even the Wall Street moneymen have under-estimated the earnings power of US stocks. Now, that doesn’t inevitably mean stocks will rise. Stocks will only climb further if investors and analysts believe companies can keep growing profits.
If analysts think this is the end of the run, then stocks could tread water or even fall.
Personally, we don’t buy that idea yet. Low interest rates will continue to boost stocks for the foreseeable future. Plus, the end of political indecision in Australia with the federal election and in the US with a new Fed chairman could act as another boost for stocks.
We know. It seems ridiculous that anyone would base an investment decision on who becomes PM or central bank chairman, but it’s a fact of life…it happens.
As always, take note of these extra-curricular activities, but don’t let them rule how you invest, or worse, stop you from investing.
Cheers,
Kris+
From the Port Phillip Publishing Library
Special Report: The Sixth Revolution
Daily Reckoning: Living in a Keynesian Fictional Paradise
Money Morning: Money Weekend’s Technology FutureWatch 27 July 2013
Pursuit of Happiness: Foreign Family in Taxpayer Rort…Or Royal Celebration?
Australian Small-Cap Investigator:
How to Make Big Money from Small-Cap Stocks
‘Of course I am minimising my tax. And if anybody in this country doesn’t minimise their tax, they want their heads read, because as a government, I can tell you you’re not spending it that well that we should be donating extra!‘ – Kerry Packer, comments to the House of Representatives Select Committee on Print Media, 1991
If the big fella thought the Government wasn’t spending your taxes too well in 1991, he would be horrified with the waste taking place today.
Politicians splash around billions of taxpayer dollars on quick fixes. This and the interest costs only add to the mounting federal debt.
If you’re fed up with your taxes going to waste, fortunately for retirees, there is a way to earn up to $257,948 (after July 1, 2014) without having to pay tax. That means you get to keep more of your hard-earned dollars.
Superannuation – in spite of the constant meddling by cash strapped governments – is still the most tax effective method of saving and generating a retirement income in Australia.
But the very thing that makes super attractive – tax savings – is the reason many people think it’s complex.
The government wants to encourage people to save and build a nest egg to reduce reliance on the welfare system. In theory it’s a worthy aim.
Unfortunately the old rule of what the ‘Government giveth, the Government can taketh away’ applies to super. That’s especially so when they’re in search of some much-needed dollars.
The constant fiddling with the contribution rules (to minimise the amount claimed as a tax deduction) and withdrawal taxes, leaves most people scratching their heads on whether super is really that super after all.
But with the huge potential tax break on offer, you shouldn’t ignore it. So if you’re near retirement or you’ve retired let’s start with the basics. (Even if you’re not near retirement, take note so you can plan in advance.)
Obviously the best tax to pay is no tax. Here is where super comes into its own – especially if you’re 60 or older.
When you switch a super account from accumulation (savings mode) to pension phase, the earnings within the fund are currently TAX FREE.
From 1 July 2014 investment earnings in account-based (formerly known as allocated) pensions will be tax-free up to $100,000 a year for each member. Any earnings over $100,000 per member will attract a 15% tax.
In the world of financial theory, a couple with equal account balances (after 1 July 2014) can earn up to $200,000 per annum TAX FREE.
(NOTE: During the 2013/14 financial year there is no limit on the tax free income earned within an account based pension.)
In reality, individuals often have different super account balances – however there are strategies of withdrawal and re-contribution that members can use to even up the balances between two people. But we won’t get into that today.
In principle, super is a great vehicle for retirement income. But depending on your age there are rules around the tax treatment of earnings, accessibility to lump sum and contribution eligibility.
Now, before you rush out to put in place a strategy to keep the taxman’s hands off your funds, check with your accountant or financial planner on how the rules apply to you.
So back to our hypothetical case of the boomer retiree couple.
Assuming they are over 65, we know they can earn up to $100k each in their account-based pension.
That means for tax purposes their account-based pension payment doesn’t register on the taxman’s radar. In effect they have a completely clean slate for income tax reporting requirements.
In addition to their tax-free super income they can also earn other sources of income that have concessions for income tax purposes. This is courtesy of Senior Australians & Pensioners Tax Offset (SAPTO) rules.
Members can earn (from employment, interest, dividends, rents, royalties etc.) a further $28,974 each. Thanks to the SAPTO, they won’t pay tax on those earnings. That’s another $57,948 TAX FREE for the retiree couple.
If the members are over 60, but under 65, they can earn up to $20,542 each before paying any tax. That’s thanks to the Low Income Tax Offset – LITO.
There you have it – up to $257,948 per annum without the taxman getting a sniff of your money.
If you’re a single retiree over 65, the number is $132,279 TAX FREE ($100,000 tax free from the account based pension and $32,279 due to SAPTO).
If you do the math, with say a 5% return, our hypothetical couple could have just over $5 million invested and not pay a cent in tax (for a single retiree it’s $2.6 million).
Now, 98% of retirees don’t have this much retirement capital. So it goes to show how much scope there is for pending retirees and current retirees (based on certain age criteria) to minimise their personal tax to zip, zero, nothing.
But will this tax regime last? Who knows? Governments around the world are looking under every rock for a dollar.
However there is a big retiree and pending retiree demographic. Politicians of all stripes will tread carefully before inflicting more tax pain…or you’d think so anyway.
My personal view is there are a few more years before the loss of boomer tax revenue starts to really bite on the budget’s bottom line.
So each year you can legally avoid making a donation to Canberra is a good year.
You may as well make the most of these tax laws until Gen X&Y takes over the Treasury reins.
The big fella would be very proud of you.
Vern Gowdie
Editor, Gowdie Family Wealth
Ed Note: Vern Gowdie has been involved in financial planning in Australia since 1986. In 1999, Personal Investor magazine ranked Vern as one of Australia’s Top 50 financial planners. His previous firm, Gowdie Financial Planning, was recognized in 2004, 2005, 2006 & 2007, by Independent Financial Adviser (IFA) magazine as one of the top 5 financial planning firms in Australia. He is currently working with Port Phillip Publishing on the creation of a Family Wealth financial strategy for the challenging years ahead.
From the Archives…
Is This the Spark to Send Australian Property Crashing?
26-07-2013 – Kris Sayce
Why it’s Deflation…Not Inflation, that’s Heading Our Way
25-07-2013 – Vern Gowdie
Why You Must Avoid This Big Investing Mistake…
24-07-2013 – Kris Sayce
The Dark Side of Technology: Part 2
23-07-2013 – Sam Volkering
The Dark Side of Technology: Part 1
22-07-2013 – Sam Volkering
By OilPrice.com
The pace of oil and gas exploration is frightening, and discoveries are weekly, if not daily, with volumes investors would only have dreamt of a decade ago. With each new discovery, it becomes difficult to keep track of the playing field, and even more difficult to rank the potential. There are also a lot of juniors popping up on the scene now, exploring, finding and developing with the intent to lure the bigger players to buy them out. So we’ll make it easy for you here, with our list of 6 key oil and gas discoveries so far this year, followed by a short list of the companies we think have the best potential—and they’re not necessarily the ones who have made the biggest discoveries.
Last year, it was all about East and West Africa, with game-changing finds in Kenya, Mozambique, Angola, Ghana and Ivory Coast that have sent explorers on a feeding frenzy looking for analog plays in the region and finding plenty. This year, so far, we like the discovery revival in the Gulf of Mexico and handful of new sub-salt and pre-salt plays.
6 Key Discoveries of 2013
Shenandoah-2/Gulf of Mexico
In mid-June, Anadarko Petroleum (APC) announced a major new discovery in this deep-water play: more than 500 million barrels of crude oil in the Shenandoah-2 well. This find is important: the implications are massive and this means we could be looking at a major oil rush in the Lower Tertiary trend. (Anadarko shareholders should be thrilled). And it wasn’t easy (or cheap): Anadarko drilled through some six miles of rock in water at a depth of 5,800 feet.
The Lower Tertiary trend and its sub-regions could hold up to 15 billion barrels of oil. What this discovery means is that the US oil boom is far from over, and the Gulf of Mexico Lower Tertiary trend is still surprising us. Anadarko’s find solidifies a trend that began with ExxonMobil’s 2010 discovery of the Hadrian field (700 million barrels); Royal Dutch Shell’s discovery of the Appomattox field (500 million barrels); Chevron’s discovery of the Moccasin field (200 million barrels); and BP discovery of the Mad Dog field (est. 4 billion BOE).
Coronado Prospect/Gulf of Mexico
In May, Chevron Corp (CVX) announced a new discovery at its Coronado prospect in the Gulf of Mexico, at the Walker Ridge Block 98-1 well. The well is some 190 miles off the coast of Louisiana in the Lower Tertiary sub-salt trend, in water of around 6,127 feet, but it’s been drilled to a depth of 31,866 feet! (One of the deepest wells ever drilled and probably cost at least $250 million, though we don’t know for sure). The scale of the reserves is still under appraisal for commercial viability, and Chevron currently holds a 40 percent working interest in the prospect. Other owners of the Coronado prospect are ConocoPhillips ( COP ) with a 35 percent stake, a subsidiary of Anadarko Petroleum Corp. ( APC ) with a 15 percent stake, and Venari Offshore LLC with a 10 percent stake.
Harpoon Discovery/Newfoundland
In mid-June, Norway’s Statoil announced it was evaluating a new discovery of high-quality oil off the coast of Newfoundland, about 500 kilometers northeast of St. John’s. The Harpoon discovery is under some 1,100 meters of water. While we don’t know the extent of the Harpoon discovery just yet, what we like is that it is only 10 kilometers from the earlier Mizzen discovery, which is estimated to hold between 100 million and 200 million barrels of oil. Statoil owns a 65% stake in Harpoon (the rest is owned by Husky).
Offshore Cote d’Ivoire
In late April, France’s Total SA announced a major discovery in the deep waters off the western coast of Cote d’Ivoire, encountering 91 feet of net oil pay while drilling in Block CI-100 in about 7,400 feet of water. It was the first block Total drilled. What is significant about this discovery is not the net feet of pay, but the fact that it confirms an extension of reserves in the Tano basin, home to the giant Jubilee field in neighboring Ghana. The Jubilee field is one of the richest oil fields in Africa with potential reserves eclipsing 1.8 billion barrels. This is the second major find in Cote d’Ivoire recently; last year Tullow Oil—which is also exploring in Ghana, made an offshore discovery here as well.
Gullfaks, North Sea
In April, Statoil said it could be sitting on 40-150 million recoverable BOE in the North Sea in its Gullfaks license, where it is still working to confirm its findings. Gullfaks is in the North Sea’s Shetland Group/Lista Formation. The Gullfaks finds are younger, shallower deposits than its primary areas. Gullfaks has three permanent installations that have so far produced over 2.4 billion barrels of oil and over 56 billion cubic meters of gas. Statoil is the operator of the license, with a 70% interest, along with Petoro (30%). The Gullfaks discovery follows two other recent massive discoveries in the North Sea: Johan Sverdrup and King Lear.
Santos Basin/Libra, Brazil
In May, Petrobras doubled the estimate for its Libra field to 12-15 billion barrels. This makes it Brazil’s largest ever discovery. Brazilian officials say it could easily produce a million barrels of oil per day once it is fully developed—that’s TWICE the output of OPEC-member Ecuador. Production could begin in five years, with plans for up to 12-18 production vessels permanently anchored on the field, each of them pumping up to 30,000 barrels per day. For state-run Petrobras, which owns the field, it means more expenditures and more debt (and it’s already drowning). The answer: Petrobras is taking the show on the road, preparing to offer foreign investors up to a 30% stake in this amazing prospect. (The Libra auction will take place in October, and 70% of the field will be up for grabs).
WHAT’S WORTH OWNING
Genel Energy (LON:GENL)
We can’t get enough of Anglo-Turkish Genel, which is advancing like a hurricane in Kurdistan (discovery after discovery and amazing drilling success), and also faring nicely in Africa. Shares in the company have advanced almost 50% over the past year on success in Kurdistan, and now it’s about to hit the roof as its crude oil pipeline nears completion and is slated to start pumping crude to Turkey by the end of September. There is a short window of opportunity here to get in while this is still a bit undervalued. (And there are a number of undervalued stocks operating out of Kurdistan).
Genel is the largest producer in Iraqi Kurdistan, and its holdings are impressive. We’re talking about 7 production-sharing contracts with some nice geological diversity. Its largest producing fields in Kurdistan are Taq Taq and Tawke, which have an estimated gross proven and probable reserves of 1.4 billion barrels of oil and gross proven, and probable reserves of 1.9 billion barrels. By 2014, Genel is aiming for a production capacity of 140,000 net bopd.
Anadarko Petroleum (APC)
Anadarko has great onshore assets in the US Gulf of Mexico and diverse offshore, deep-water assets off the coasts of Algeria, Ghana, Mozambique, Brazil, China, Indonesia and New Zealand, with proven oil and gas reserves at about 2,560 million BOE as of end 2012. We’re looking at liquids-natural gas ratio of 46%-54%. For 2012, Anadarko saw a 10% increase in overall production. This year, Anadarko plans to spend some $5.5 billion developing its onshore US assets alone, and about $1 billion on its overseas plays. So we expect another nice increase in production for 2013. The company will shift its key activities a bit to account for low natural gas prices, so we’ll see more focus and money spent on the Gulf of Mexico and less at the Marcellus shale, for instance. Anadarko is trading at $86.10 per share with a total market cap of more than $43.1 billion.
In the second week of June, shares of Anadarko rose 3.7% on the news of a major new discovery in the deep waters of the Gulf of Mexico (Shenandoah-2, mentioned above).
Noble Energy Inc (NYSE:NBL)
When you think about the Levant Basin these days, you think about Houston-based Noble Energy. In late May, Noble announced a new discovery in the Mediterranean Sea, just 20 miles northeast of its Tamar field in its Karish well after drilling to a total depth of 15,783 feet. The well encountered 184 feet of net natural gas pay, and Noble thinks it potentially holds up to 2 trillion cubic feet of natural gas. This brings its estimated combined resources in the Levant Basin—including the Tamar and Leviathan fields—up to 38 trillion cubic feet of natural gas. Noble is definitely on a roll in the Levant Basin, and this latest discovery is its 7th so far in the eastern Mediterranean.
Back in the US, it’s more good news for Noble. In mid-June, Noble confirmed that its second Gunflint appraisal well in the deep waters of the Gulf of Mexico had an estimated gross resource of 65-90 million bbl of oil equivalent. This means Noble’s plans for a subsea tieback development at Gunflint are a green light for this year. Production is targeted for the end of 2015 at both Noble’s Gunflint and Big Bend deep-water discoveries in the Gulf of Mexico.
Oryx (OXC)
Sorry, but it’s got to be Kurdistan—again, but this time Oryx, a company we’ve written about before but you may not have heard of. If you haven’t you’re missing out. About a month ago, Oryx—the upstream division of AOG–offered up 17% of its shares (16,700,000 common shares) on the Toronto Stock Exchange for C$15 per share) with gross proceeds of $250 million. The proceeds will allow Oryx to complete its exploration and appraisal plans through mid-next year, and they expect some serious results over the next 12 months.
Oryx is the brainchild of Swiss billionaire Jean Claude Gandur, who made his grand entrance onto the oil and gas scene in 2008 with the sale of Addax Petroleum to China’s Sinopec for $7.2 billion. Since then, he’s been out of the fossil fuels game—so Oryx is his re-entry ticket. Gandur owns 77% of Oryx through AOG.
Oryx is exploring in west Africa and Iraqi Kurdistan, but it’s the Kurdistan assets we really like. Gandur is an excellent diplomat who can navigate power brokers, which will make or break a junior company in this territory. Oryx isn’t making any money yet, but it will, and that’s why we think now is the time to get in on this. It could very easily go the way of Addax, which was making about $300 million annually in net income when it was sold to Sinopec. Gandur has dumped $700 million into Oryx, which has been busy buying up licenses and drilling wells. It’s sitting quite nicely in Kurdistan right now with a 100% focus on oil and 143 billion bbls of proven oil reserves.
By. OilPrice.com Premium Analysts
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By Investment U
Barron’s reported this week that the Trading Commission’s weekly “Commitments of Traders” report – essentially commercial shorts on gold by gold miners, which has been the single-most accurate measure of gold’s price movement – is more bullish now than when gold was $300 an ounce. The highest bullish indication in 11 years!
Despite having dropped like a rock for most of 2013, demand for gold is exploding and it is giving off signs of another move up.
There has been a big increase in demand in Asia for physical gold. Edmund Moy, chief strategist at Morgan Gold, said in a recent MarketWatch article that lower gold prices have spurred a huge shift of physical gold from the U.S. to Asia, China especially.
And, according to Mark O’Byrne, of Gold Core, there was a 55% drop in gold inventories in one week in July at Brinks, one of the Comex’s storage companies.
Gold inventories are being exported to China at a rising rate, gold coins are at premiums, and there is a huge premium on the Shanghai Gold Exchange as well as record deliveries.
In the first six months of 2013 the Shanghai Exchange supplied 1,098 metric tons of gold as compared to 1,139 tons all of last year. O’Byrne says the market has not yet recognized the significance of this demand shift.
All of this gold has to be going somewhere!
And, this increased demand is coming at a time when the world’s largest producers of gold are announcing production cutbacks.
Based on China’s and India’s increasing demand, and lower worldwide production, O’Byrne is looking for a new bull market in the yellow metal by the end of the summer.
If I have learned anything about gold over the last 30 years, it is that it makes absolutely no sense… it sometimes appears to trade opposite the dollar, but that changes too… and it runs when everyone is looking somewhere else.
Watch gold!
Next up, speaking of bottoming and moving up, Barron’s says the EU is looking much healthier. They reported this week that economic indicators are signaling improving conditions.
Their purchasing managers index hit a 16-month high with marked improvements in Ireland, Spain, France, Italy and the Netherlands.
Business confidence improved in Germany in May and consumer confidence in Italy hit its highest level in a year.
Germany, the U.K. and Ireland are expected to see the strongest gains in 2014. Ireland, according to Barron’s, could see a 2.2% growth spurt in 2014. And Italy, Spain and Portugal, the weakest of the Union, could also exit the recession in 2014.
Nigel Bolton, the CIO and head of EU Equities at BlackRock in London, said the EU is particularly attractive, and fund flows into EU equities have risen for three consecutive weeks.
Analysts expect consumer-driven and hotel stocks to perform well in the next 12 months, and, on a P/E basis, EU stocks as a whole are cheaper than both U.S. and Japanese equities.
The unaddressed internal problems in France and Italy – the second- and third-largest economies in the EU – will still be a drag on the recovery. But ECB Chairman Mario Drahgi’s pledge to do whatever is necessary to defend the euro will go a long way to prevent any sovereign debt crisis, which has been the biggest impediment to a solution to the five-year dip.
The ECB umbrella appears to be working and that means opportunity for the contrarian-minded.
The EU!
This one will kill you.
The U.S. Marshal Service has a problem.
The Marshals are responsible for protecting judges, who put very dangerous people in jail – and these people have very dangerous friends who aren’t in jail yet. And they are also responsible for protecting people in the witness protection program, all of whom are on death lists of our less-admired citizens.
It seems the way these sheriffs communicate very sensitive, life-and-death messages within their agency is by encrypted radios. Encrypted means even if you can monitor their frequencies the transmission comes across garbled and unintelligible, so they are secure.
Well, it seems about 2,000 of these super-secret radios are missing. But wait: The higher-ups in the agency say they aren’t missing, not really, it’s just that no one knows where they are. That’s according to a recent Journal segment.
They may have been lost or given to other law enforcement agencies, but they aren’t missing. It’s just a case of poor recordkeeping, not missing radios.
Well, that sounds good except for the fact that one of these not-missing radios recently showed up for sale on eBay.
And, it seems after the Journal started requesting information under the Freedom of Information Act about this story, there was a directive within the U.S. Marshals to answer the requests by phone only, not email – and let’s hope not on the encrypted radios.
Article By Investment U
Original Article: Keep an Eye on Gold
The “Abe Trade” is back on…for now.
The “Great Bernanke Scare” of May and June hit Japanese equities hard, forcing the Nikkei into “official” bear market territory (a loss of 20 percent or more is considered a technical bear market by most analysts). But in the six weeks that have followed, Japanese stocks have recouped virtually all of their losses.
The yen—which tends to rise during times of crisis as traders cover their short positions—has resumed its gentle decline, and calm has returned to the Japanese bond market. After more than doubling from 0.45% to 0.93%, the Japanese 10-year yield has drifted back to 0.78%.
What conclusions can we glean from this?
To start, Japan is indeed “back” as a risk asset class. This is not to say that the Japanese economy is on the mend or that Japan’s long-term prognosis is anything but grim. But after years of indifference, it shows that traders see the Japanese market as being worth trading.
Secondly, Japan’s day of reckoning—which will eventually come—is not here yet. The bond market is calm—even complacent—and investors are unwilling to challenge the Bank of Japan.
So, what now? Is it too late to jump on the Abe Trade?
In my view, yes—or at least for the first half of the trade, going long Japanese equities. After roughly doubling in less than a year, Japanese stocks are no longer cheap. By Financial Times estimates, Japanese stocks trade for 19 times earnings and yield only 1.6% in dividends, making them downright expensive by world standards. As a point of reference, the U.S. S&P 500 trades for just 16 times earnings and sports a dividend yield of 2.5%. German stocks trade for less than 13 times earnings and pay out 3.5% in dividends.
But what about the second half of the Abe Trade—shorting the yen?
This would seem like a low-risk proposition. Barring another jolt of “risk off” volatility that led to short covering, it’s hard to see a scenario whereby the yen appreciates from here. The Japanese government is determined to push down its value, and the near-zero yields across the yield curve offer little in the way of resistance.
In a benign environment, shorting the yen should produce modest, albeit positive returns. But if I am correct about Japan eventually having a capital markets meltdown, then those modest returns could get eye-popping in a hurry.
The key here is the bond market. If the bond vigilantes finally awaken from their slumber and push Japan’s borrowing cost to something that actually reflects the underlying risk, Japan will be effectively locked out of the international bond market. It will be forced to commit that cardinal sin of turning to the Bank of Japan for financing…which will turn the yen’s orderly decline into a rout.
If you want short exposure to the yen, consider shorting the CurrencyShares Japanese Yen Trust ($FXY). And put the PowerShares DB 3x Inver Jap Gov Bond ETN ($JGBD) on your watch list. When Japanese yields start to rise again, JGBD will put you in position to profit.
Charles Sizemore has no position in any security mentioned. This post first appeared on MarketWatch.
By www.CentralBankNews.info
The trend in global monetary policy took another small step toward tightening this week as Turkey raised its overnight lending rate, India tightened liquidity and New Zealand warned it may have to raise rates, putting it on course to become the first central bank in a developed market to increase policy rates since early 2011.
But while a handful of central banks are reacting to pressure on currencies and inflation, the overall global trend is still toward lower policy rates due to “choppy” global growth (to borrow a phrase from the Bank of Canada) with one central bank cutting its rates this week and nine keeping rates on hold.
Hungary continued its year-long rate cutting spree, reducing its policy rate for the 12th time in a row, raising the number of rate cuts worldwide through the first 30 weeks of this year to 69 compared with 14 rate increases among the 90 central banks covered by Central Bank News.
The Global Monetary Policy Rate (GMPR), the average nominal policy rate, eased by one basis point to 5.64 percent after Hungary’s 25 basis point cut but the decline is clearly slowing as the GMPR was unchanged at 5.65 percent in May and June after falling rapidly in the first months of the year.
The fallout from the expected reduction in monetary stimulus by the U.S. Federal Reserve on financial markets has been truly all-embracing and global, triggering reactions this week alone from the central banks of Turkey, Hungary, Nigeria, the Philippines and even Trinidad and Tobago.
Illustrating the sudden rise in market volatility, the central banks of the Philippines, Turkey and Hungary all used the word “caution” this week to describe their approach to policy decisions.
Though both Turkey and India tightened their policy, they have not taken the more symbolic step of raising benchmark rates, keeping some of their ammunition dry. The other central banks that held rates steady this week include Colombia, Sri Lanka, Fiji and Moldova.
So far only Brazil and Indonesia have raised policy rates since Federal Reserve Chairman Ben Bernanke’s eye-popping testimony on May 22, but it is clear that global monetary policy is now starting to diverge, reflecting the different stages of recovery from the 2007-2009 financial crises.
The shift in global capital flows in May and June, which triggered a fall in emerging market currencies and higher global bond yields, exposed the structural weaknesses of some emerging market countries, with Turkey, India, Brazil and South Africa all saddled with current account deficits.
But countries with more solid economic fundamentals, for example the Philippines which is enjoying strong domestic demand and a current account surplus, have room to manoeuvre and have taken the small fall in their currencies in stride.
South Korea, Thailand and Colombia seem to be enjoying the competitive advantage of lower exchange rates and the benefits of government stimulus programs, a path that Russia is now pursuing.
While three central banks said they were cautious this week, the Central Bank of Nigeria showed firm determination by raising the reserve requirements on deposits that banks collect from the public sector to 50 percent from 12 percent.
Explaining why the reserve requirement was raised so much, the central bank’s outspoken governor, Lamido Sanusi, described the “perverse incentive structure” under which the country’s public sector deposits its funds at close to zero percent interest in banks. The banks then lend the money back to the government and public sector, charging interest of 13 or 14 percent.
Little wonder that the growth of private credit in Nigeria is sluggish when a bank can turn a profit on lending to the public sector.
Underscoring the stronger economic fundamentals of Asian economies, the Bank for International Settlements (BIS) released its latest preliminary banking data, showing a continuation of the recent trend: Higher lending to emerging Asia and lower lending to Europe.
But BIS data also showed that banks were now more confident about lending to Asia, with their exposure to credit risk in that region rising at a faster pace than their actual lending.
Historically, banks have transferred credit risk on loans away from emerging markets but a significant shift happened in the first quarter of this year when the transfer of risk into Asia for the first time exceeded the transfer of risk out of the region.
The Reserve Bank of New Zealand’s (RBNZ) introduction of a tightening bias this week is the latest example of how central banks are increasingly sensitive to the impact of asset prices – in this case housing – following the experience of the global financial crises.
New Zealand is hardly alone in trying to keep property prices in check as the central banks of Sweden, Norway, Canada and Switzerland face similar challenges. Another similarity between New Zealand, Sweden and Canada is a tightening bias in monetary policy with Sweden earlier this month signaling that it would start raising rates in the second half of next year.
While warning about the potential spillover to inflation from the housing market, the New Zealand central bank assured financial markets that it expected to keep rates on hold through this year, and economists first expect a rate rise in 2014.
If the RBNZ raises rates next year, it is likely to be the first time a developed market central bank raises rates since early 2011.
On average global policy rates rose in 2006 and 2007 but then tumbled from October 2008 and continued to fall in 2009 and 2010. In early 2011 the global economy appeared to be on the mend, responding to massive government stimulus and extraordinary accommodative monetary policy, before it was derailed by Europe’s sovereign debt crises, political indecision in the United States, the Japanese tsunami and political upheaval in the Middle East.
Israel was the first developed country to tighten its policy in January 2011 but it reversed course in September and cut rates. Sweden also raised rates in February that year but reversed course in December 2011.
Since then, only emerging market and frontier market central banks have raised rates in response to inflation apart from Denmark whose rates are only adjusted to keep its currency around a narrow peg to the euro.
Through the first 30 weeks of this year 24.1 percent (69 decisions) of this year’s 286 rate decisions by 90 central banks have favoured rate cuts, down from 24.6 percent last week and 24.8 percent the previous week.
LAST WEEK’S (WEEK 30) MONETARY POLICY DECISIONS:
| COUNTRY | MSCI | DATE | RATE | 1 YEAR AGO |
| TURKEY | EM | 4.50% | 4.50% | 5.75% |
| NIGERIA | FM | 12.00% | 12.00% | 12.00% |
| HUNGARY | EM | 4.00% | 4.25% | 7.00% |
| SRI LANKA | FM | 7.00% | 7.00% | 7.75% |
| PHILIPPINES | EM | 3.50% | 3.50% | 3.75% |
| NEW ZEALAND | DM | 2.50% | 2.50% | 2.50% |
| FIJI | 0.50% | 0.50% | 0.50% | |
| MOLDOVA | 3.50% | 3.50% | 4.50% | |
| COLOMBIA | EM | 3.25% | 3.25% | 5.00% |
| TRINIDAD & TOBAGO | 2.75% | 2.75% | 3.00% |
NEXT WEEK (week 31) eight central banks are scheduled to hold policy meetings, including Angola, Israel, India, the United States, the United Kingdom, the European Central Bank, the Czech Republic and Egypt.
The Fed is not scheduled to hold a press conference after the meeting of its Federal Open Market Committee (FOMC), one of the reasons that markets are not expecting any major policy. The next scheduled press conference by Fed Chairman Ben Bernanke is Sept. 18 as there is no FOMC meeting in August.
| COUNTRY | MSCI | DATE | RATE | 1 YEAR AGO |
| ANGOLA | 29-Jul | 10.00% | 10.25% | |
| ISRAEL | DM | 29-Jul | 1.25% | 2.25% |
| INDIA | EM | 30-Jul | 7.25% | 8.00% |
| UNITED STATES | DM | 31-Jul | 0.25% | 0.25% |
| EURO AREA | DM | 1-Aug | 0.50% | 0.75% |
| UNITED KINGDOM | DM | 1-Aug | 0.50% | 0.50% |
| CZECH REPUBLIC | EM | 1-Aug | 0.05% | 0.50% |
| EGYPT | EM | 1-Aug | 9.75% | 9.25% |
It was this weekend I’d planned to show you an incredible piece of technology. It’s the Leap motion controller for PC and Mac. It’s a little device you plug into your computer and use hand motions to control. I’d written about it 3 months ago and mentioned how excited I was about this great technology. I also had expected delivery in May…it’s now almost August.
The Leap is ground-breaking. No more computer mouse, no more grubby, fingerprint coated screens. The ability to simply use hand gestures to control my computer is, or was, very exciting for me.
I should now be flipping through webpages like a symphony conductor. But I’m not. I’m still using the track ball on my computer mouse. Wires still shackle me to my computer. And I still have to point and click to get stuff done.
You see here’s the thing when you’re an early adopter. When you get a new piece of consumer technology, the technology might be amazing but the company is usually crap.
And unfortunately the whole experience with Leap from pre-ordering through to ‘delivery’ has been bad.
I’ve written about this very dilemma before, The Difference Between Great Technology and Great Technology Businesses. Sometimes the company can’t match the hype of its technology.
You can make as many cool YouTube videos as you want. Tweet to your heart’s content and blog like it’s something new. But at the end of the day sometimes the company just plain outright fails the end user.
What this also does is highlight the weakest link between technology and growth…people.
What if computers, robots and algorithms had been in charge of the whole process? I’d probably be posting a video to you this weekend showing the Leap in action.
But I’m not. Leap has not just let me down, but you too.
The upside of all this is affirmation that automation is the way of the future. Sure you need people to invent, design and bring a technology like Leap to market. But when it comes to the part of getting the thing from the warehouse to the consumer I say, ‘Bring on the Robots.’
Imagine…I click ‘Buy’ on the Leap website. A robot in the Leap warehouse picks a unit off the shelf. The robot sends it along a production line, its parcelled up and stamped with my address. It finds its way to a distribution centre. There it’s get an allocation to Australia with other Leap controllers heading in the same direction.
A self-driving delivery van takes the Aussie orders to the airport. They’re loaded onto a freight drone which leaves on time and lands on time. It’s then loaded into another self-driving delivery van and driven out to the addresses.
Running complex algorithms, the delivery van customises a route to avoid traffic and road hazards, ensuring all deliveries are on time.
Oh I can dream…excitingly the technology is available now to do all that. But simply, the technology isn’t being utilised.
Until it does I will stay patient. I sit and hope the Leap will find its way to me eventually. I hope technology will help to forget the experience that the company has so far provided.
Nature demonstrates the most amazing miracles. Looking at the potential of what exists around us, scientists can unlock new discoveries in biotechnology and science.
What I mean is scientists often look to nature for the answers to their scientific problems. What nature can provide can also be used in modern medicine.
Take the Lotus flower as an example. Lotus flowers have superhydrophobicity. Meaning they are highly water resistant and self-cleaning. The reason why this occurs is due to the nano sized structure of the flower’s leaves.
If you take a microscope and look at a Lotus leaf you see tiny protrusions on the leaf. It’s a whole bunch of little spikes sticking out of it.
Therefore as a water droplet hits the leaf only about two to three percent of the water surface area actually touches the leaf. Since this discovery scientists have applied this principle to everything from NASA rockets to shoe coatings and paint.
And when it comes to the future of health and medicine, nature has a lot more to give.
Two of the most intriguing phenomena in nature are thanks to the Salamander and the Milk-white Flatworm. The Salamander can regrow its limbs and the Flatworm can regrow its head from its tail.
The key to both of these regenerative miracles is the structure of the creatures’ stem cells.
And it’s in the potential of stem cells that Regenerative Medicine holds the key for humans to live longer and healthier than ever before.
But don’t just take my word for it. Through extensive and lengthy research we’ve discovered a company involved in the science of stem cells that holds the key to eternal life.
You see scientists are on the verge of unlocking the full potential of stem cells. And when they crack it, it will turn the practice of medicine on its head.
I know it might sound a bit gross regrowing limbs and body parts, but that’s because it’s likely you still have yours intact.
Take a moment to think of someone that doesn’t have two arms and legs. They might have lost an arm or a leg while serving in the army. Maybe they were involved in a car crash.
But if through science they had the chance to get all limbs back and intact do you think they’d take the chance?
It won’t happen overnight, it might not even happen in our lifetime. And it’s more than likely you won’t be able to regrow a head.
But the science that nature gives us will lead to great breakthroughs in medicine. And it’s really thanks in part to a Salamander and a Flatworm.
This last week has seen some controversial news reports about the potentially harmful effects of wind turbines. Yes that’s right, claims that wind turbines are harmful to people’s health.
Before you burst into laughter…apparently the ‘infrasound’ from the turbines can lead to insomnia, anxiety and nausea. This is what the findings from a report completed in 1987 (26 years ago) said anyway.
Maybe wind turbines do create unintended medical issues for people? Maybe it’s an exacerbated form of paranoia, I don’t know. It does feel as though anti-turbinists have some ulterior hidden agenda though.
Seriously, how can you bring up a report from 1987 to strengthen an argument that wind turbines are detrimental to people’s health today?
Anyway, regardless of the lunacy that supports that argument, let’s say hypothetically that wind turbines might have some detrimental impact to health.
There is a simple solution to the problem. Take the wind turbines offshore. Don’t have them near domestic residences.
Source: http://graysharboroceanenergy.com
A report from the European Wind Energy Association highlights offshore wind is one of ‘the fastest growing maritime sectors’. And that by 2020, ‘4% of Europe’s energy demand could be met by offshore wind turbines.’
The offshore wind farms would be a mix of floating turbines and fixed turbines.
Harnessing the wind makes sense. The lucky part of living on Earth is that we’re never short of wind.
It’s not something we’re going to run out of anytime soon. So why not make the most of one of the most abundant sources of energy we have?
Wind turbines and wind farms are will be a part of the answer to achieving energy independence for countries around the world.
Australia has only recently started to appreciate that point and hence started building some of the world’s largest wind farms. The biggest in the Southern Hemisphere is here in Victoria, the Macarthur wind farm. It opened in April this year and has a 420 Megawatt capacity.
Apparently no one has dropped dead from any infrasound from Macarthur. But just in case, maybe it’s worth sticking some turbine farms off the coastline. There’s certainly enough wind, and certainly enough coastline.
It all might contribute to the future of Aussie energy being entrenched in the wind. We’re off to a good start with Macarthur. Here’s hoping it doesn’t stop there.
Sam Volkering+
Technology Analyst, Revolutionary Tech Investor
From the Archives…
Why Invest ‘Hard’ When You Can Invest ‘Easy’?
19-07-2013 – Kris Sayce
Read This Before You Buy Another Stock or Bond…
18-07-2013 – Murray Dawes
Could Uranium be the Best Investment in 2013?
17-07-2013 – Dr Alex Cowie
Asteroid Mining and the Commercialisation of Space
16-07-2013 – Sam Volkering
Why the Australian Share Market is Heading Even Higher
15-07-2013 – Kris Sayce
Today’s Money Weekend will touch on a familiar theme before revealing a metal play that could remake one of the world’s biggest industries.
But first, there was no avoiding China this week. Jim Chanos will be smiling. If you happened to catch last week’s MW, you’ll know Jim Chanos is ‘short’ US blue chip Caterpillar, a company highly leveraged to mining and construction, especially in China.
Well, Chanos is on track for the moment. Caterpillar reported this week a 43.5% drop in quarterly profit and cut its outlook for the year, according to Reuters.
The news this week out of China of a contracting Purchasing Manager’s index won’t have eased any worries in the Caterpillar boardroom, either. Preliminary data has the PMI at 47.7, an 11-month low. A reading above 50 means expansion. Of course, you wonder how reliable and useful any of these readings are. But there’s no doubt they shift sentiment, and in the short term, that moves markets.
The question that hangs, of course, is how the Chinese authorities will respond to the continuing slowdown. In the past, any slowdown has been veered off from a familiar playbook: more credit and ‘stimulus’.
It probably boils down to the usual two choices from Washington to Canberra to Beijing. If China stays tight, credit and liquidity could dry up and a lot of industry will get the shakes. That means unemployment and protests, which threatens political stability. The second is to turn the credit tap on again, keeping the growth engine happening to keep millions employed rather than rioting in the streets.
The IMF showed last week that China’s total credit has grown from $9 trillion to $23 trillion since 2008. That’s now 200% of GDP.
Source: IMF
In other words, as yet there doesn’t seem to be any sign of the famous ‘rebalancing’ that’s supposed to be occurring away from investment toward consumption. Chinese Premier Li has made it known previously he isn’t a fan of another major credit expansion. But what about this little snippet in the Australian Financial Review on Friday?
‘Chinese Premier Li Keqiang said the nation will speed railway construction, especially in central and western regions, adding support for an economy that’s set to expand at the slowest pace in 23 years…
‘Additional spending would help the world’s second-largest economy, after the government signalled this week it will protect its 7.5 per cent growth target for this year following a second straight quarterly slowdown.’
You know what they say about old habits…
Is there a limit to this? Greg Canavan over at Sound Money Sound Investments says yes, and that China’s economy is more unbalanced than ever. This is the endgame he’s been hunting, and the reason he expects a panic. But it’s mostly government and politics, not markets, that put the figures you see there that high, so can those same things send them higher again? We don’t think you can rule it out.
Of course, you can’t rule out anything these days. The New York Times revealed this week that Goldman Sachs might be manipulating the base metal market in quite a bizarre way. This is, of course, the investment bank that has the reputation that brought out Matt Taibbi’s memorable line to describe them as a ‘great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.’
The apparent scheme is to keep aluminium traded on the major US commodity exchange in storage for longer via bogus bottlenecks to clip more rent while it sits there. That’s a cost that shows up for the end user, like any time a bloke in the US cracks open a tinny. It’s not strictly illegal, more like a lucrative loophole. And when has a bank ever passed up an opportunity like that?
Check it out!
‘The story of how this works begins in 27 industrial warehouses in the Detroit area where a Goldman subsidiary stores customers’ aluminum. Each day, a fleet of trucks shuffles 1,500-pound bars of the metal among the warehouses. Two or three times a day, sometimes more, the drivers make the same circuits. They load in one warehouse. They unload in another. And then they do it again.’
But the main reason this caught our eye is the metal itself. Aluminium is not a headline metal like gold or silver, but in the latest edition of Australian Small Cap Investigator, Kris Sayce showed how the aluminium market is locked in a high stakes battle with steelmakers for market share in one of the world’s biggest industries: car manufacturing. Any false cost embedded in the metal will be showing up there too.
We’re reliably informed that Goldman’s game is up because ownership of the London Metal Exchange (that regulates the warehousing) has changed hands. The new chiefs in Hong Kong want to put a stop to it. This could bring more supply of aluminium out and bring the price down.
If so, the takeaway for investors is aluminium could became even more attractive to manufacturers. Kris Sayce says it already is something like a ‘magic metal’ because it can reduce car weights and increase fuel efficiency. Had you heard that? No, neither had we. It’s a technological innovation that could be good for your pocket and the environment if the car industry makes a major switch in how they produce their cars.
Kris says the mainstream missed the story completely. Intrigued? You can see what he says here.
Callum Newman+
Editor, Money Weekend
From the Port Phillip Publishing Library
Special Report: The Sixth Revolution
Daily Reckoning: Productive Investments
Money Morning: Is This the Spark to Send Australian Property Crashing?
Pursuit of Happiness: Foreign Family in Taxpayer Rort…Or Royal Celebration?
By www.CentralBankNews.info Trinidad and Tobago’s central bank held its benchmark repo rate steady at 2.75 percent as inflationary pressures are well contained and private sector investment remains subdued.
The Central Bank of Trinidad and Tobago, which trimmed rates by 25 basis points in 2012, said the economic recovery was still dependent on the slow but steady performance of the non-energy sector as significant downside risks stem from the energy sector.
“Business lending, however, contracted for the sixth consecutive month in May 2013, suggesting that the low interest rate environment is yet to encourage a strong revival in private sector investment,” the central bank said.
The domestic economy expanded by an annual 1.6 percent in the first quarter, the third consecutive quarter of growth, driven by a 2.5 percent rise in the non-energy sector while the energy sector only rose by 0.5 percent due to supply constraints from maintenance and security upgrades at energy companies. Works planned for September continue to weigh on economic recovery for this year.
In May, the central bank said it was forecasting growth this year of 2.5 percent, up from 0.2 percent in 2012, based on a rebound in natural gas production.
Despite low interest rates, the central bank said growth in private sector credit grew by an annual 3 percent in May from 2 percent in December though consumer lending had picked up in recent months.
But business lending contracted by over 5 percent in May, the sixth consecutive monthly drop.
Liquidity in the financial system is still elevated but a $1 billion central government bond from May, along with tax payments in late June and July, had helped remove some excess liquidity.
To further contain liquidity, the central bank said it had opened for auction another central government bond, to be issued on August 6, whose proceeds would be sterilized and thus withdraw some $1 billion from the banking system.
Headline inflation accelerated in June to 6.8 percent from 5.6 percent in May while core inflation, which excludes food, slowed to 2.2 percent in June from 24 percent.
The recent rise in global yields following news that the U.S. Federal Reserve may reduce monetary stimulus, is “expected to influence the trajectory of rates in Trinidad and Tobago given the country’s open capital account,” the bank said, adding that it would keep an eye on monetary conditions, “including those related to the tapering off of quantitative easing in the United States.”
www.CentralBankNews.info
