Month: August 2013

By admiralmarkets.in

A strategy to maximize profit in the foreign exchange industry or forex markets should begin with knowing which currency pairs you should be trading. First, you have to learn that the first currency in a pair is called the base currency and the second is known as the quoted currency. Next, you need to know of the factors that could affect their trading values. As not all factors are equally significant, it is wise to invest your money only based on those factors that can cause a fair impact on global markets.

The 4 Major Pairs

1. British Pound Sterling (GPB) and US Dollar (USD)

The GBP/USD currency pair, sometimes referred to as Cable, indicates how many US dollars are necessary to buy a British pound. It follows that the British Pound Sterling is valued per US dollar.

2. US Dollar (USD) and Swiss Franc (CHF)

USD/CHF is defined as the amount of quoted currency needed to purchase the base currency. Swissie, as others call the currency pair, is dependent on the different interest rates of the Swiss National Bank and the Federal Reserve (Fed).

3. US Dollar (USD) and Japanese Yen (JPY)

Exchanging USD/JPY is alternatively termed as trading Gopher. It suggests how many Japanese Yens are necessary to buy a US dollar.

4. Euro (EUR) and US Dollar (USD)

EUR/USD is the amount of US dollars required to purchase 1 euro. Exchanging European and American dollars is also known as exchanging Euro.

What Are the Top Factors that Affect the Value of Each Pair?

– Consumer and Producer Index

– Gross Domestic Product

– Retail Sales

– Durable Goods

– Payrolls

In forex, it is known that a currency pair’s value is often related to both countries’ economic growth (both countries that make up the currency pair). If a country’s growth is stable, that country’s currency usually is too and vice versa. Because of the interdependent nature of currency pair trading, it is important to keep each country’s economic situations in the forefront of analysis. In the event when there’s a major change or intervention in a country’s economic outlook, it will immensely affect its currency’s strength and performance.

All in all, currency movement is often thought to be based on the activity of the exchange of products and services or trade balance of a country. If the trade status is positive, it implies that the country’s goods and services are in high demand which can boost a currency while a negative balance means that the market is weak for that country and may be seen through a less demanded currency. Letting this be the basis of what to exchange and when to exchange can often be a factor that could get you more for your capital.

If you wish to be successful in the foreign exchange market, you should take the time to learn about the different currency pairs and their trading characteristics. Discussed above were only the major ones. Especially if you’re planning to be in the business for a long while, you should be familiar with ways you can maximize your profit by analyzing the economics, currency history and unique characteristics of the major country’s of the world. Other than the fact that you’ll be using them extensively, you’ll be getting the best value for your exchanges.

Content Source, www.admiralmarkets.in

Source: Karen Roche of The Gold Report (8/5/13)

http://www.theaureport.com/pub/na/finding-bargains-down-under-with-rick-rule

Down markets are notoriously rife with good deals, and nowhere is this truer than down under in Australia. In this interview with The Gold Report, Rick Rule, founder of Sprott Global Resource Investments, explains how he takes advantage of Australia’s small, volatile market and investors’ ethnocentrism to find high-quality companies whose shares are, in his opinion, going for a steal.

The Gold Report: You recently said that this is your fourth cycle in a commodity sector in your 40-year career. Where are we in this current cycle, and how do you determine that?

Rick Rule: The bottom is usually marked by a two- or three-week period of capitulation selling followed by a standoff, where both the buyers and the sellers are exhausted. We haven’t seen that yet. We’ve had two or three different periods with a couple of days of capitulation selling but not a two-week period as we saw in 2000.

I wouldn’t be surprised if the downturn was four years, which suggests we have a year and a half to two years before we clean out the excesses. The junior sector is substantially overpopulated with companies, managers and agents. There needs to be a major cleansing over the next 18 months.

TGR: Will it be more cleansing or more mergers and acquisitions?

RR: Cleansing. Most of the walking dead juniors, the zombies, are a bunch of liabilities disguised as public companies. Their assets are liabilities; their financials are liabilities; mostly their managements are liabilities. It’s wonderful. Every 5 or 10 years you have this major reset in the junior sector. Although it’s extremely unpleasant to go through, it’s very healthy.

A lot of money can be made in deep and cataclysmic market downturns, not just on the rebounds. People do egregiously stupid things out of panic at the bottom. They engage in capitulation selling with no regard to value. In that situation, you don’t need to buy in anticipation of news, because good news comes out and there’s no market reaction to it. You can wait for the news to get out, analyze and digest it and then buy it. That’s as much fun as you can have in this business.

TGR: Is this basically buy and hold? Find the good values now and ride through this down market?

RR: That has always been my technique. For me a market is just a facility to buy and sell assets. Juniors rise in value when they answer a series of unanswered questions; that takes time. I never go into a speculation with a planned timeframe of fewer than 18 months. I’m 60 years old now—the idea that I have to hold a stock for 18 months doesn’t give me apoplexy. I’m on my 31st cycle like that.

When I interview a junior I ask, “What are you going to do with the money you’re asking me for? Tell me how this $3 million is going to make the company worth twice as much.” About 70% of the time the junior doesn’t have an answer. That makes my life really easy. I just get up and leave.

TGR: That’s a pretty quick litmus test.

RR: It’s as though somebody is going to drive from Los Angeles to San Francisco and starts driving east. Those juniors don’t have a plan. They don’t have a map. They plan to pay down payables and then slam a few holes in the ground, and if there’s good fishing nearby, they’ll take advantage of that.

TGR: You’ve been focusing on Australia, which you’ve said is cheaper than North America and has better quality.

RR: It’s true in both cases. This is a wonderful topic because I can get the Australians and the North Americans mad at me at the same time. Compared to the North American market, Australia’s is very small and much more volatile. When outside money floods into it, the valuations explode and the market goes higher faster. When outside money pours out, the market contracts ridiculously.

The Australian equities market becomes very ethnocentric in a bad market. Australians focus within Australia and tend to sell non-Australian things more than Australian things. We like to go into Australia in bad markets and find the companies that have done a good job overseas but have been sold because of this ethnocentricity. We try to put equity into existing Australian companies and be supportive shareholders.

The Australian exploration community is extremely competent overseas, particularly in Africa. They’re used to Archean terrain and harsh climate conditions.

TGR: Can you highlight some of the companies you’re investing in that have projects in Africa?

RR: We’re following 70 or 80 exploration plays in Africa. Most are too low grade to ultimately attract our attention, but seven or eight deposits will almost certainly become mines.

With the number of companies active in West Africa, there’s going to be a fairly active consolidation. In several situations, we think we’re going to get what we laughingly refer to as a “double bump”: the property will prove itself up, and then the company that has the property will be acquired, and then the newly acquired property will provide a growth profile to the acquirer. You get a bump for being acquired and a bump for the earnings visibility of the people who acquired it.

This theme worked well for us in the early 1990s and coming out of the 1998–2002 market. Our hope is that West African consolidation over the next five years will give us several double, triple or quadruple bumps.

TGR: Australia-based companies in the Sprott portfolio that are doing business in West Africa includePapillon Resources Inc. (PIR:ASX), Birimian Gold Ltd. (BGS:ASX) and Perseus Mining Ltd. (PRU:TSX; PRU:ASX). Are those the types of double bumps you’re looking for?

RR: There’s a range of discussions there. Papillion is a first-rate deposit. It’s done a superb exploration job, and its deposit has size and grade. It could get over the 5 million ounce (5 Moz) market; it certainly has 3 Moz–plus potential. It could make a lot of money for its ultimate acquirer.

Birimian and Hummingbird Resources Plc (HUM:AIM) are attractive in their own right. They’re not as large as Papillion, but the potential profitability of their deposits stands out. Perseus has had operational failings that have caused people to reflexively sell them out of disgust. They’re just too cheap—the market is valuing their exploration and development assets at zero, and we don’t think they’re worth zero. A year and a half ago I would have said that Perseus would be a consolidator, but now I expect it will be consolidated because it’s selling for 80% less than it did 18 or 19 months ago.

West Africa is superior exploration terrain. The amount of money being spent there and the quality of the people exploring there could yield the best exploration results of any region on the globe. It has a lot to give up, and we think it will give it up this cycle. Three or four players will come to dominate the sector. That theme has worked for us in Mexico, in Peru and in Nevada. We are confident it will work for us in West Africa.

TGR: Because Australia is such a small and volatile market, is it challenging for companies listed there to raise money? Do they start cross listing?

RR: They don’t necessarily need to cross list. Really good projects will finance themselves. We recently participated in a small financing of about $12 million for Hot Chili Ltd. (HCH:ASX), an unfortunately named copper explorer in Australia that’s mining in Chile. To raise that money, it talked to the top five people on its shareholders register. It didn’t have to go to the brokers or the institutions.

If Papillion needed to raise more money, I expect it wouldn’t have to engage the Australian broker/dealer community. It could engage the top 10 names on its shareholder register.

TGR: I noticed that all the major mining areas in Australia are in New South Wales or Western Australia. Is it critical that those locations are part of your investment strategy for Australia?

RR: We like the whole continent—the Gawler Craton and South Australia. We like New South Wales and Queensland, the eastern goldfields, a lot. We still like the iron oxide copper-gold exploration opportunities in Australia. We like the Archean terrain in eastern Australia and the western Australia goldfields. The Australian continent has an unusually generous mineral endowment.

Our existing participation is limited to the areas where people deliver good drill holes and the Australian valuations are insufficient. In other words, it’s limited to where we see bargains. We like what Peel Mining Ltd. (PEX:ASX) has been achieving up at Cobar. Cobar is familiar territory for us, which is an advantage.

TGR: Do you think Australia-based companies will get a bump up if Kevin Rudd comes back as prime minister and alleviates the mining tax?

RR: The mining industry has had a good 10 years in Australia and has unfortunately bragged about its good fortune so much that Australians think there’s more money to steal from miners. Similarly, wages are sticky. People competed aggressively for workers in Australia, and workers’ wages did extraordinarily well, tripling in many instances. It will take two to three years for those expectations to diminish—expectations on the part of the issuers, suppliers, workers, managements and government-sponsored entitlement beneficiaries.

TGR: There is a perception that Australia’s growth is linked to China’s due to the proximity of the two. If China’s growth is slowing, does that mean Australian mining could potentially slow?

RR: The perception that Australian growth is tied to Chinese growth isn’t really a perception—it’s reality. China has several problems, such as its weakness in the economies to which it exports, the misallocation of capital internally and the opacity of the lending and capital allocation system. China will have a rough 18 to 36 months working through the capital misallocation. The other part of me says that 5% or 6% growth from a huge base like that means a recovery is inevitable.

Looking at the incredible success of the Chinese diaspora globally, you see that as people become freer, they become richer. I think the process is underway and inescapable in China. You don’t put the toothpaste back in the tube. It’s just the way it works.

TGR: Australia has been getting a lot of press for rare earths, particularly heavy rare earths. Could it complement or overtake the Chinese production of rare earths?

RR: It has the ability to complement Chinese production. If the Chinese were to raise the rare earth prices, production would increase in South Africa, Congo, Australia and any place with Archean rocks and pegmatites. The Australians are leaders in Archean geology.

TGR: Australia is becoming a hotbed for oil and gas exploration. Are you looking at that sector?

RR: We certainly like Australian geology and Australian geologists, but we haven’t found the opportunity in conventional energy in Australia that we have found in mining there.

TGR: You are heading down to do a variety of presentations in the coming months. What message do you hope your audience takes away?

RR: I don’t know that I have an awful lot to say to conference attendees other than bear markets cause bull markets and that these are wonderful times if you’re an investor as opposed to a momentum player.

My message to the financial services industry and to the issuers in Australia is that while capital markets may be shut, Sprott is not. We are able to mobilize our own capital, and we have clients and partners with the same capabilities and outlook that we have.

TGR: Can a regular investor who is not accredited take advantage of this extreme opportunity for financing, as Sprott is doing through private placements and private equity, by buying into Sprott funds?

RR: That depends on the domicile of the investor and his or her personal circumstances. Of course, we would solicit discussions that would lead to people participating with us or owning us. Our U.S. brokerage operation offers resource investment services to investors with portfolios of all sizes.

TGR: So if investors are interested, what should they do?

RR: The easiest way is to go to our website, http://www.sprottglobal.com. I encourage readers to click on the Sprott’s Thoughts tab and take advantage of the free subscription. That’s a free daily publication that draws information analysis and paradigm from 26 of Sprott’s thought leaders. The best way to get to know us is to listen to us on a daily basis for free.

TGR: Rick, I appreciate your time.

Rick Rule, founder and chairman of Sprott Global Resource Investments Ltd., began his career in the securities business in 1974. He is a leading American retail broker specializing in mining, energy, water utilities, forest products and agriculture. His company has built a national reputation on taking advantage of global opportunities in the oil and gas, mining, alternative energy, agriculture, forestry and water industries.

Want to read more Gold Report interviews like this? Sign up for our free e-newsletter, and you’ll learn when new articles have been published. To see a list of recent interviews with industry analysts and commentators, visit our Streetwise Interviews page.

DISCLOSURE:

1) Karen Roche conducted this interview for The Gold Report and provides services to The Gold Reportas an employee. She or her family own shares of the following companies mentioned in this interview: None.

2) The following companies mentioned in the interview are sponsors of The Gold Report: None. Streetwise Reports does not accept stock in exchange for its services or as sponsorship payment.

3) Rick Rule: I or my family own shares of the following companies mentioned in this interview: Papillon Resources Inc., Peel Mining Ltd., Hot Chili Ltd., Perseus Mining Ltd., Hummingbird Resources Plc and Birimian Gold Ltd. I personally am or my family is paid by the following companies mentioned in this interview: None. My company has a financial relationship with the following companies mentioned in this interview: None. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview.

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By HY Markets Forex Blog

The European stock market were seen trading mixed on Tuesday  , as investors raise concerns and fears over the possible start of the reduction of the asset-purchasing program ,after a Federal Reserve official made a comment that the central bank would begin to scale back its measures soon.

The European Euro Stoxx 50 advanced 0.05% to 2,810.55 during the market open, while the German DAX declined 0.05% to 8,394.06 at the same time. The French CAC 40 edged up 0.19% higher at 4,057.86, while the UK’s FTSE 100 declined 0.07% to 6,615.00.

The Fed President for Dallas Richard Fisher stated on Monday that the Federal Open Market Committee (FOMC) is expected to begin tapering the asset-purchasing program by fall.

“With the unemployment rate having come down to 7.4%, I would say that the Committee is now closer to execution mode, pondering the right time to begin reducing its purchases, assuming there is no intervening reversal in economic momentum in coming months,” Fisher said.

Meanwhile in Germany, Factory orders have been expected to rebound in June, as the reading expected to increase by 0.01% on a monthly basis, while on a yearly basis orders are expected to pick up by 0.2%.

Italy’s industrial production for June is reported to have picked up by 0.3% on a monthly basis, after the 0.1% increase in the month of May. While on an annual basis, the output declined 2.1%, according to reports from the National Institute of Statistics.

Italy is expected to release its gross domestic product (GDP) report for the second quarter, as analysts have forecasted the Italian economy to have fallen by 2.2%, on an annual basis.

The post Europe stock market mixed as Fed official hints tapering appeared first on | HY Markets Official blog.

Article provided by HY Markets Forex Blog

By HY Markets Forex Blog

The West Texas Intermediate was seen fluctuating during the early trading hours on Tuesday after declining for two days ahead of the expected government reports which may show that the world’s largest oil consumer drop in  crude and fuel stockpiles .  Investors continue to raise concerns over the ongoing conflict in Libya and Egypt.

WTI delivery for September were seen trading nearly flat , as it fell 0.20% to $106.35 a barrel , on the  New York’s Mercantile Exchange at the time of writing. While the September settlement for  Brent declined  , as it dropped 22 cents to $108.48 a barrel in London at the same time .

According to the median estimate survey taken by Bloomberg, the U.S gasoline stockpiles was most likely dropped by 500,000 barrels in the week ending August 2^nd, while heating oil and diesel is expected to fall by 400,000 barrels.

On Monday, the US non-manufacturing data released, showed that the US economy was still growing and improving. The reports released gave oil a push, even though it did not manage to end the day with green.

The weekly American Petroleum Institute (API) report is expected to be released later today and may show a further fall in US oil and fuel supplies, after last week’s reported fall of 740,000 barrels.

The official report from the US Energy Information Administration (EIA) is expected to be released on Wednesday and likely to show a massive drop in US crude inventories, as analysts have forecasted a 1.1 million barrel drop to 363.5 million barrels last week.

The post WTI Fluctuates ahead of US stockpiles data appeared first on | HY Markets Official blog.

Article provided by HY Markets Forex Blog

By www.CentralBankNews.info     Australia’s central bank cut its cash rate by a further 25 basis points to 2.50 percent, as widely expected, and said it “will continue to assess the outlook and adjust policy as needed to foster sustainable growth in demand and inflation outcomes consistent with the inflation target over time.”
    In recent months, the Reserve Bank of Australia (RBA) had said it had scope to adjust policy if required to support demand, but that statement was omitted today, signaling that it has now shifted to a more neutral policy stance.
    The RBA, which has cut rates by 50 basis points this year and by 225 points since October 2011, said the Australian dollar remains at a high level although it has depreciated by around 15 percent since early April.
    “It is possible that the exchange rate will depreciate further over time, which would help to foster a rebalancing of growth in the economy,” the RBA said, repeating last month’s statement and acknowledging the benefits of a lower exchange rate on the international competitiveness of its exports.
    The Australian dollar rose in response to the RBA’s outlook, to 0.898 cents to the U.S. dollar from 0.892 prior to the news. The A$ had been above parity to the U.S. dollar most of the time since early 2011 but then started to weaken in early May in response to the RBA’s first rate cut this year.
    Compared with the start of the year, it is down 13.5 percent against the U.S. dollar when it was trading around 1.038 to the US$.

    RBA Governor Glenn Stevens said Australia’s economy had been growing a bit below its trend over the past year and this “is expected to continue in the near term as the economy adjusts to lower levels of mining investment.”
    Unemployment has risen and inflation is consistent with the bank’s target. With growth in labour costs moderating, Stevens said inflation should continue in line with the bank’s target of 2-3 percent over the next one to two years, “even with the effects of the recent depreciation of the exchange rate.”
    Australia’s unemployment rate rose to 5.7 percent in June, continuing its climb this year and the highest rate since late 2009.
    In the second quarter of this year, the inflation rate eased to 2.4 percent from 2.5 percent in the first quarter, while the country’s Gross Domestic Product expanded by 0.6 percent in the first quarter from the previous quarter for annual growth of 2.5 percent, down from 3.1 percent in the previous two quarters.
   Easier monetary policy over the past 18 months has supported interest-sensitive spending and asset values and further effects can be expected over time, Stevens said, adding that the pace of borrowing had been relatively subdued but there were signs of increased finance demand by households.
    Looking abroad, Stevens said global growth is a bit below average this year but there were reasonable prospects of a pick-up next year.
    Financial conditions remain very accommodative, though he admitted that sovereign bond yields has risen “noticeably” from exceptionally low levels following the reassessment of the outlook for U.S. monetary policy. This had led to higher volatility in financial markets, particularly affecting a number of emerging economies, he added.

    www.CentralBankNews.info
   
   

By Profit Confidential

Earnings season continues and the deluge of results is positively affecting the S&P 500, which is pushing new record highs.

Also continuing its positive upward trend are biotechnology stocks, which still harbor a lot of price momentum from institutional investors.

Ligand Pharmaceuticals Incorporated (LGND) has been very hot since the beginning of the year. The company produced a very strong first half as second-quarter revenues grew 67% to $9.6 million. Earnings were $6.1 million compared to a net loss of $2.5 million.

We’re now seeing a larger number of smaller companies report. They typically take longer to produce their quarterlies because they don’t have the large accounting departments multinational companies do.

Unscientifically, among the large number of companies I follow, I am noticing a more positive second quarter compared to blue chips. This is important, because smaller companies are much more tied to the domestic U.S. economy and, without question, they are stronger drivers of new employment. (See “This Benchmark Company Is Shocking the Street.”)

Mohawk Industries, Inc. (MHK), which is a flooring manufacturing company for residential and commercial customers, leaped higher after reporting second-quarter sales grew 35% to $2.0 million. Earnings per share jumped 61% to $1.84 after unusual charges. Company management said that it is increasingly confident regarding the U.S. market. The position jumped nine percent on the stock market after reporting.

ServiceSource International, Inc. (SREV) is a small company that’s in the business of providing cloud applications to grow recurring corporate revenues. This company announced a solid 13% increase in its second-quarter sales, reaching $67.7 million.

Adjusted earnings were flat, but ServiceSource’s revenue growth was good and the position moved higher on the equity market.

I’m still not a fan of buying many stocks with the main indices at their highs. My key index to watch remains the Dow Jones Transportation Average, and it has been pushing up strongly since toying with the recent low of 6,000 in June.

All in all, investor sentiment is still positive enough (with the Fed onside) for further stock market gains on good news. If a company beats consensus, even on only one financial metric, the Street will bid the shares.

This is very much a difficult market in which to make predictions and be a speculator. There’s momentum out there, but stocks are sitting on a hair trigger when it comes to anything from the Fed.

I view large-cap company earnings this season as uninspiring. Of course, some blue chips are doing better than others. The general trend of little to no top-line growth met with consensus earnings due to cost control remains.

But this isn’t a stock market that is going to come apart without some catalyst, and we know with a good degree of certainty that the Fed is onside (right or wrong) for quite some time. This is what pleases Wall Street, but it’s not necessarily what is good for the long run.

Company earnings expectations have been coming down lately and so have expectations for economic data. As I see it, this market is just one big hold right now. Dividend payments continue.

Article by profitconfidential.com

By Profit Confidential

 I don’t usually talk about dividend stocks. Now, that’s not to say I don’t favor them; it’s just that my specialty is in small-cap stocks and special situations.

But you cannot ignore the fact that strong dividend-paying companies perform very well over the long term—I mean decades. We are talking about the likes of Colgate-Palmolive Company (NYSE/CL) with a 2.3% yield, and The Procter & Gamble Company (NYSE/PG), with a three-percent yield.

Then there are also the traditional dividend payers—the banks.

Yet in these are pricey stocks for some of you who may be looking for more obscure dividend-paying stocks.

Let’s look at a few that offered above-average dividend flow and capital appreciation.

In the investment management sector, take a look at small-cap Och-Ziff Capital Management Group LLC (NYSE/OZM), which is near its 52-week high and pays an impressive 9.9% dividend yield. The company runs money from pension funds and other areas. In the second quarter, Och-Ziff beat on both revenues, up 16.5% year-over-year to $207.8 million, and earnings, beating the Thomson Financial consensus estimate by $0.02, reporting $0.16 per diluted share. According to the company, its assets under management have increased to $36.6 billion as of June 30, 2013, up 12% from the end of 2012.

Chart courtesy of www.StockCharts.com

 Also in the investment management area, Fortress Investment Group LLC (NYSE/FIG) looks pretty good as reflected by the steady rise in its stock price since June 2012 (as shown in the stock chart below).

The company manages about $54.61 billion in assets under management as of the end of June, up 14% year-over-year. Fortress also pays out dividends of $0.24 annually for a yield of 3.1%.

Article by profitconfidential.com

By Profit Confidential

“Michael, the Federal Reserve is doing a great job. It’s made my job a lot easier by making the markets easy to predict,” a trader friend of mine told me late last week.

“Here’s how it works,” he tells me…

“When we hear quantitative easing will continue in the U.S. economy, all you have to do is buy stocks, buy bonds, and sell the U.S. dollar. On the other hand, if we hear the Federal Reserve hint at tapering off its asset purchases, we sell stocks, sell bonds, and buy the U.S. dollar. It doesn’t matter about the fundamentals. It’s that simple.”

I can see his point. My bet is that many traders and speculators are playing the game my friend described above. But is that what quantitative easing has become? A trade for speculators and traders to profit from with no real benefit to the average American Joe?

As I have written extensively, quantitative easing was needed in the U.S. economy at the height of the credit crisis in 2008, when it seemed our financial system was on the verge of collapse. But I’m in the camp that believes money printing has gone on for too long.

At the very core, quantitative easing portrays the U.S. economy has improved as the stock market rises and real estate prices come back. But the economic fundamentals remain anemic.

The jobs market is in a rut, real wages are declining, consumers are struggling, and businesses are staying away from spending, opting to hoard cash or buying back their own shares.

Last we heard, the Federal Reserve will continue on with its quantitative easing program—creating $85.0 billion a month in new money out of thin air to buy government bonds and mortgage-backed securities (MBS). No firm date has been provided as to when the “money-out-of-thin-air” program will end.

But we have been told by the Fed that quantitative easing will continue until the unemployment in the U.S. economy reaches 6.5% and the inflation outlook two years out is 2.5%. (Source: Federal Reserve, July 31, 2013.) In other words, quantitative easing will go on for some time still.

Until the Fed pulls back on quantitative easing, key stock indices in the U.S. economy may just continue to make new highs in the immediate term. But my readers know where I stand: the higher the markets go because of quantitative easing, the bigger the drop will be—and there is no doubt in my mind that this market will fall hard once the money printing plug is put into place.

As I have been saying for months now, the “bear” has done a masterful job at luring investors back into the stock market. And the icing on the cake? Quantitative easing has prolonged the bear market rally in stocks and is setting up key stock indices in the U.S. economy for a massive drop.

Michael’s Personal Notes:

The Chinese economy, the second-biggest economy in the world, is witnessing a significant decline in manufacturing. The HSBC China Manufacturing Purchasing Managers’ Index (PMI), compiled by financial information company Markit, fell to 47.7 in July from 48.2 in June. (Source: Markit, August 1, 2013.) Remember: any reading below 50 represents contraction in the manufacturing sector.

In July, the manufacturers in China reported a contraction in new orders—the sharpest drop in eleven months.

Manufacturing accounts for a very significant portion of the Chinese economy. According to the World Bank, it accounted for 30% of China’s gross domestic product (GDP) in 2011. (Source: World Bank web site, last accessed August 1, 2013.)

What’s happening with China’s manufacturing leads me to believe that the estimates of growth we have seen for the Chinese economy this year and next are just too optimistic.

The Chinese economy grew at an annual pace of 7.5% in the second quarter of this year. It wouldn’t surprise me if this growth rate declined further. And let’s not forget that this growth rate of 7.5% for the Chinese economy is notably lower than its historical average of 10%.

I keep pounding this on the table: U.S. stock markets will suffer as the Chinese economy contracts.

Here’s what the CEO of The Coca-Cola Company (NYSE/KO), Muhtar Kent, said on the company’s second-quarter earnings conference call: “As is well publicized, China’s economy has been slowing and this is now being felt in consumer spending. [Our] China first half retail sales were the slowest in 10 years… As a result, our volume performance in China remained soft and was even for the quarter, cycling 7% growth from the prior year.”

This is just one example of a large American company seeing softer demand because of the economic slowdown in the Chinese economy. It’s a major risk that shouldn’t go unnoticed.

Article by profitconfidential.com