Month: August 2013

By HY Markets Forex Blog

European Futures was seen extending losses, while the ongoing Syrian conflict builds up as international players including the US, France and the United Kingdom hinted they are considering military intervention on suspicion that the chemical weapons may have been used against civilians by the Syrian government. Security analysts warned that the US missile strike against the country is expected to come as soon as Thursday.

Futures of the European Euro Stoxx 50 rose 0.33% at 2,743.50, while the German DAX gained 0.29% to 8,229.80. While futures of the French CAC 40 added 0.27% to 3,960.50 and the UK FTSE 100 futures advanced 0.30% to 6,408.30.

Officials from Troika and auditors representing the IMF, ECB, and EC are expected to visit Portugal for a quarterly review of the country’s bailout program progress.

“A necessary ingredient for Greece, Portugal and Ireland to graduate successfully from their bailout programs is a substantial pick-up in growth, which provides assurance of debt sustainability. In that context, it is worth assessing to what extent fiscal austerity may have dragged on GDP growth in the periphery, and may continue to provide a headwind,” analysts from Bank of America Merrill Lynch wrote in a note.

European Futures – Conflict In Syria

The tension in Syria continues to drags stocks down for the second day while commodities and as safe-haven assets are seen advancing. The conflict in Syria started escalating earlier this week, after reports claimed that its government may have used chemical weapons against civilians.

Earlier this week, the US Defense Secretary Chuck Hagel said that the military may have to intervene and take action against the Syrian government. Senior US officials said the US military could hit Syria with missile strikes as early as Thursday.

French President Francois Hollande also shared his view on the conflict in Syria at the conference of French ambassadors.

“France is ready to punish those who took the heinous decision to gas innocents,” he said.

Find out how you can earn extra profit when trading European Stocks Online and open an account with us today! www.hymarkets.com 

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By WallStreetDaily.com

Talk about the past coming back to haunt you…

Way back in the 1990s, banks uncovered a novel way to save money on taxes and employee benefits by – get this – betting on their employees dying.

I’m not joking.

An obscure investment known as bank-owned life insurance (BOLI) made it all possible. The banks simply purchased life insurance on their employees in bulk, and named themselves as the beneficiaries.

So if an employee dies, the bank profits.

I know. Nothing could possibly go wrong with such an arrangement, right?

Of course, it did.

And now, some 20 years later, the involvement of one of the world’s largest financial institutions in these “dead money” investments is making its stock… well, a “dead money” investment, too.

Few investors realize it, however. Most people are being lured into thinking that the bank’s mega market cap of $192 billion – and respectable 3% yield – makes it a safe, blue-chip investment.

As you’ll find out in a moment, though, it’s anything but.

Better Off Dead

The way BOLIs work is pretty straightforward…

A bank purchases life insurance on employees. However, they don’t actually pay the premiums to an insurance company. Instead, they keep the money in a designated fund and invest it on their own. Hence, the bank-owned part.

If you know anything about how insurance companies invest premiums, you’ll immediately recognize what a coup the banks pulled off.

Instead of premiums being socked away in stodgy, low-return, low-yield investments – like cash and U.S. Treasuries – banks can be more risky with the capital to generate higher returns.

They get to keep all the profits, too. Not to mention, they pocket a payout upon an employee’s death.

Now, the banks can’t spend this money any way they want. It must ultimately be used to cover expenses for employee benefits. However, all the premiums invested, as well as any capital appreciation, aren’t taxed.

So BOLIs are essentially a tax shelter and cheap funding source for banks. No wonder they’re so popular, even today. (It’s estimated that almost 4,000 banks own $140 billion in BOLIs.)

There is a downside to BOLIs, however: If banks invest the premiums poorly, they’re on the hook for the losses.

In our world of never-ending financial innovation, though, it shouldn’t surprise you that banks found a way to eliminate that risk, too. And therein lies the problem…

No Such Thing As “No Risk”

The financial wizards over at JP Morgan (JPM) devised a way to assume much of the downside risk on BOLIs – for a fee, of course – using a derivative product known as a “stable-value wrap.”

Don’t worry about learning the ins and outs of another esoteric investment. All you need to know is this…

Other major banks followed JP Morgan’s lead into this market. And now, thanks to recent changes in regulations (Basel III), they’re required to set aside more capital to cover the liabilities created by these long-term derivatives.

As Martin Zorn, Chief Operating Officer at the risk management firm, Kamakura Corp., says, “Times have changed: There are a lot of long-term derivatives on financial institutions’ balance sheets that have become very costly today, and will stay that way.”

Granted, these derivatives only account for a small percentage of the megabanks’ investment portfolios. But the point is, the increased capital they have to set aside comes with an opportunity cost.

In other words, since the money is just providing collateral, it can’t be allocated elsewhere to generate actual profits.

The situation can’t simply be unwound, either. Most of these derivatives are unique, so they’re not easily priced. They don’t trade regularly on exchanges. And there’s a limited pool of potential buyers.

Think about it… Banks aren’t exactly going to rush out to buy other banks’ long-term derivatives if they’re looking to unload their own.

Add it all up, and since the liabilities extend out for decades, banks are stuck with them. Or as Morgan Stanley (MS) Chief Executive, James Gorman, declared at the company’s annual meeting, these positions are “dead money.” Indeed!

Three More Risks Facing JP Morgan

JP Morgan is the biggest issuer of these derivatives, accounting for upwards of 30% of the market. In turn, it’s the most capital constrained. And if you’re in charge at JP Morgan, that’s not an ideal situation.

Not with the economy on the mend and interest rates rising.

We’re essentially on the cusp of entering the sweet spot of the economic cycle for banks and financial institutions. Yet the company can’t take full advantage of it.

That’s not the only reason the stock is a “dead money” investment, though.

Richard Bove, a well-known banking analyst at Rafferty Capital, sees “three clear risks” to JP Morgan’s earnings potential: lower investment-banking fees, slower payment systems profits and rising litigation costs.

Accordingly, he lowered his rating on the stock to a “Hold.”

My response? When will Wall Street analysts ever get a pair?

We all know their “Hold” is merely a euphemism for “Sell.” And that’s exactly what I think you should do if you own JP Morgan. There’s too much downside risk and too little upside potential.

If you need a suitable alternative, consider Bank of America (BAC). As I shared earlier in the year, it boasts strong fundamentals and a compelling valuation. But the tale of the tape pretty much says it all.

In the last year, JP Morgan is up about 40%, whereas Bank of America is up 80%. In more recent weeks, the divergence appears to be intensifying.

Since July 10, JP Morgan is down almost 6%, compared to an 8% rally for Bank of America.

Bottom line: If you’re looking for the lowest-risk, highest-return trade in mega-cap banking stocks, dump JP Morgan and buy Bank of America.

If you want to mitigate the market risk altogether, consider putting on a pairs trade: Divide the capital you plan to invest in two. Then use half to sell short JP Morgan, and use the other half to buy Bank of America.

Rest assured, regardless of which option you choose, it promises to be a much better alternative than sticking with a “dead money” investment.

Ahead of the tape,

Louis Basenese

The post Beware of This “Dead Money” Investment appeared first on Wall Street Daily.

Article By WallStreetDaily.com

Original Article: Beware of This “Dead Money” Investment

By Profit Confidential

Many central banks within the global economy are involved in printing more of their paper money (often referred to as “fiat” currencies). There’s a race to devalue currencies in hopes to revive economies and maintain a competitive stance. Countries believe that by printing more of their fiat currency, they can improve their exports to the global economy, because the goods will be cheaper for those countries that have a stronger currency.

Recently, we heard from the central bank of Brazil that it will commence a program “with the aim of providing FX ‘hedge’ (protection) to the economic agents and liquidity to the FX market…” (Source: Banco Central Do Brasil, August 22, 2013.) In simple words: Brazil’s central bank is going to make sure the country’s currency stays low compared to the currencies of its trading partners.

Through this program, the central bank plans to sell US$500 million on Mondays, Tuesdays, Wednesdays, and Thursdays of every week. This intervention is expected to last until the end of this year, but the central bank also made it very clear that it will continue with its plan as long as necessary.

Similarly, Columbia’s central bank is taking steps to lower the value of its currency. It has bought significant amounts of U.S. dollars and printed pesos. The finance minister of the country, who also represents the government on the central bank’s board, stated that the government wants to keep the country’s currency value between 1,900 and 1,950 pesos per U.S. dollar. (Source: Reuters, August 20, 2013.)

Our own central bank, the Federal Reserve, has been putting pressures on the U.S. dollar. Though we are told the intention of the bank’s quantitative easing is not to create these pressures, it is clearly happening.

The European Central Bank (ECB) is “ready to do whatever it takes,” too. Last year, the Swiss National Bank (SNB) printed a significant amount of its currency, and the Bank of England continues to embark on its own version of quantitative easing.

Currency intervention looks to be the new norm, but its long-term effects are not great. The dark side of these currency wars is the hyper-inflation they will eventually bring to the global economy.

If the devaluation of a currency was the solution, then we would have seen Japan, which has become known for its notorious money printing, prosper to new heights—of course, that hasn’t happened.

Economic growth occurs through fundamental means, not money printing. The core problem in the global economy today is that demand is weak.

I see central banks in the global economy realizing fiat currencies are losing their purpose—they don’t store value. To protect their wealth, central banks are turning to the alternative currency of gold as a store of value. Dear reader, central banks are the most conservative of investors. When they are buying gold, it tells me they are positioning themselves for what they believe lies ahead.

Going forward, I see central banks buying gold bullion and printing more of their fiat currency at the same time. Have you looked at the chart for the U.S. dollar lately? The currency is on a roller coaster ride.

  Chart courtesy of www.StockCharts.com

And it’s not just the U.S. dollar that is falling in value in the global economy. The Japanese yen has tumbled, the Indian rupee is falling, and the euro is now prone to wild swings due to that region’s economic crisis. Overall, plummeting currency values are just one more reason for me to stay bullish on gold.

Article by profitconfidential.com

By Profit Confidential

At any given time, there are actually very few really good businesses to own. Money doesn’t grow on trees, but solid wealth creation is available from companies that make good products that the marketplace requires.

One such company is The Toro Company (TTC).

Based in Bloomington, Minnesota, this company manufacturers professional turf equipment for golf courses. Toro also makes sprinkler heads and all kinds of irrigation products for sports fields, golf courses, and home systems. The company also owns the “Lawn Boy” brand. According to its track record, both operationally and on the stock market, Toro is a great business.

This company typically reports its earnings later than most. In its 2013 fiscal third quarter (ended August 2, 2013), revenues grew 1.2% to $510 million; earnings were $40.1 million, or $0.68 per share, compared to $40.5 million, or $0.67 per share, last year.

Now these numbers might not seem to be that impressive, but this is a mature business. What’s important with a company like this is its consistency. Management cited improving business conditions, especially among residential landscape contractors. The company beat the Street handedly with its recent numbers and upped its full-year guidance.

Management now expects revenue growth for fiscal 2013 to be approximately four percent and earnings to be $2.55 per share, representing a solid gain of approximately 19% over fiscal 2012.

On the stock market, Toro has been a powerhouse wealth creator. Like every other equity security, it’s had its ups and downs, but generally, the company has proven to be profitable for shareholders. The company’s long-term stock chart is featured below:

Chart courtesy of www.StockCharts.com

I like businesses like Toro—companies that have proven track records in terms of financial growth, stock market wealth creation, and product innovation. The business of maintaining and irrigating golf courses is a good one; so is residential irrigation and snow removal.

If you read Toro’s financial documents, you will find an easy-to-understand business that just happens to pay a dividend. You will also see consistency in operations and financial growth, which is a tough thing to come by these days. For long-term investors, consistency is very meaningful.

Toro has competition, but not in the same way as Deere & Company (DE) or Honda Motor Co., Ltd. (HMC). Because of its golf course–specific turf maintenance equipment and the company’s focus on irrigation products, Toro is very much a niche business. Over the years, the company has branded itself to the golf sector, which is a lucrative target market.

Toro’s earnings and revenue growth are not the most robust because of the maturity of this business. But the stock is still worth buying on dips, because turf maintenance and irrigation have proven market demand. Calling Toro recession-proof would be a stretch, but I think recession-resistant would definitely apply. (See “The Only Way to Beat Rising Gasoline Prices.”)

A lot of money goes into designing and building a golf course. Annual maintenance costs are pretty much fixed and are a known expectation.

For long-term investors looking for an attractive niche business that offers consistent growth, a company like Toro fits the bill. The company’s expectations for the rest of its fiscal year are solid.

Article by profitconfidential.com

By Profit Confidential

Warren Buffett really is the master guru of the investment world; he sure knows how to make money and often does it via the use of stock warrants on companies he decides to invest in.

Buffett is an opportunist. He is a predator who seeks out companies that he feels can be turned around and saved. He rarely loses money, and more often than not, he makes tons of it.

When the banking sector was extremely fragile, Buffett spotted a great opportunity; he probably realized the Obama administration would not allow any of the major big banks to go under following the financial collapse of Lehman Brothers in 2008, which triggered the recession and massive global turmoil that followed. (Read “Why I Like These Two Banks Right Now.”)

Buffett invested $5.7 billion in ailing Bank of America Corporation (NYSE/BAC) in exchange for preferred shares that paid his Berkshire Hathaway Inc. (NYSE/BRK) fund around $300 million annually. The deal also gave Buffett’s holding company warrants to buy $5.0 billion of Bank of America at $7.14 per share.

Chart courtesy of www.StockCharts.com

With Bank of America around $14.37, Buffett has made about $5.06 billion in paper profits if he exercises. I suspect he will wait, as the warrants still have several years left for expiry and Bank of America will likely move much higher. He makes around $700.28 million for each one dollar rise in Bank of America stock.

To all those who thought the investment master guru wouldn’t fare well during the new realm of investing because of his disinterest in technology stocks or sectors he didn’t understand, all I can say is this: he continues to be the master investor that everyone else tries to emulate.

Buffett only buys companies that he understands. The business must be able to produce strong cash flow and have excellent market coverage, or he’s not going to give it a second glance.

Businesses that Buffett owns include insurance, banking, energy and power, transport, consumer goods, manufacturing, retail, and building and construction companies.

Stocks that he holds include American Express Company (NYSE/AXP), The Coca-Cola Company (NYSE/KO), ConocoPhillips (NYSE/COP), Johnson & Johnson (NYSE/JNJ), Kraft Foods Group, Inc. (NASDAQ/KRFT), The Procter & Gamble Company (NYSE/PG), Sanofi (NYSE/SNY), Tesco Corporation (NASDAQ/TESO), U.S. Bancorp (NYSE/USB), Wal-Mart Stores, Inc. (NYSE/WMT), and Wells Fargo & Company (NYSE/WFC).

Buffett is simply a human ATM machine.

I kind of wish he ran the Federal Reserve; I wonder how things would’ve turned out then.

Article by profitconfidential.com

By Profit Confidential

As gold bullion prices declined in the period from April to June of this year, so did silver prices. And just like gold bullion, the bullish case for the white metal’s prices continues to build.

Demand for the white precious metal is not just robust; it is rising. The chart below compares sales of silver coins at the U.S. Mint in the months of January to July of 2012 and 2013.

The demand for the precious metal is strong, having risen by 50% in the first seven months of this year compared to the same period a year ago.

Last week, Chris Carkner, the managing director of sales for bullion, refinery, and exchange-traded products at the Royal Canadian Mint, said, “Year-to-date, after the second quarter, we’ve had record (demand) volume for silver Maple Leafs, the greatest we’ve had in the over 25 years that we’ve produced them…” (Source: “INTERVIEW: Gold, Silver Product Demand Is ‘Very Strong:’ Royal Canadian Mint,” Kitco, August 14, 2013.)

Data Source: U.S. Mint web site, last accessed August 23, 2013

Looking at the technical picture, the chart below clearly shows the bottom in silver prices and the new upward-moving price trend.

Chart courtesy of www.StockCharts.com

Yes, prices for the white precious metal are down for the year, but after breaking below $19.00 an ounce, they quickly recovered and found support, as shown in the chart above. Unlike gold, silver prices tested the same support level ($19.00 an ounce) on several occasions, and they always bounced above that level whenever it was tested.

Have silver prices hit a bottom? Price manipulation aside, fundamental demand and technical analysis both make a good case for higher prices ahead.

My loyal Profit Confidential readers know I am bullish on gold bullion. I think the yellow metal will increase in value and move past its record 2011 high of just above $1,900 an ounce. When it comes to silver prices, I expect price gains from this metal to do much better in percentage terms.

For gold bullion prices to rise 100%, gold would need to rise to $2,800 an ounce—a price level we have yet to see. On the other hand, for silver prices to rise 100%, they would only have to move to $46.00 an ounce—a price level we already saw in 2011. And that’s where I believe we are headed again with the price of the white metal.

I see an opportunity for investors in the major mining stocks. Just like gold stocks, after the recent correction in precious metal prices, the senior silver miners saw their stock prices fall to lows not seen in years. And while the stock prices of the major mining companies have come back a little, there is plenty of value still left in this sector—especially for those producers who are able to take the white precious metal out of the ground at a low price.

Michael’s Personal Notes:

The Bureau of Labor Statistics reported last week that real average weekly earnings (that’s earnings adjusted for price change) in the U.S. economy declined 0.5% in July from June of this year. (Source: Bureau of Labor Statistics, August 15, 2013.)

But this is just the monthly difference in real wages. I tend to look at the bigger picture.

According to Sentier Research’s monthly Current Population Survey, real median household income in the U.S. economy is down 4.4% from June 2009. In June of this year, median household income was $52,098. In June of 2009, it was $54,478. (Source: Sentier Research, August 21, 2013.)

Going back further, in December of 2007, when the U.S. economy was “officially” recognized as being in a recession, the median household income was $55,480. Yes, almost six years after the Great Recession started, real median household income is still down 6.5%.

In the midst of all the false optimism about economic growth, one question is going unasked. The Social Security Administration reports that in 2011, 66.6% of wage earners in the U.S. economy had a net compensation of less than or equal to $41, 211.36, adjusted for price change. (Source: Social Security Administration web site, last accessed August 23, 2013.) This means that two-thirds of Americans earn less than the country’s stated median income.

Wages are the very basic phenomenon that drive consumer spending. So the question that’s going unasked is: can the U.S. economy really see economic growth when wages are declining? My answer: of course not.

The illusion of economic growth created by the stock market is just that: an illusion. If the U.S. economy was indeed witnessing economic growth, real wages would reflect this. Unfortunately, the decline in real wages will simply lead to a pullback in consumer spending in the U.S. economy—something many major retailers are already complaining about.

What He Said:

“Even the most novice investor can now read the chart of the Dow Jones U.S. Home Construction Index and see that it is trading at its lowest level in five years. If, like me, you believe that stocks are an indication of what lies ahead, this important index is telling us housing prices are headed to 2002 levels! What would that do to the economy? Such an event would devastate the U.S.” Michael Lombardi in Profit Confidential, December 4, 2007. That devastation started happening in the first quarter of 2008.

Article by profitconfidential.com

By Profit Confidential

The Bureau of Labor Statistics reported last week that real average weekly earnings (that’s earnings adjusted for price change) in the U.S. economy declined 0.5% in July from June of this year. (Source: Bureau of Labor Statistics, August 15, 2013.)

But this is just the monthly difference in real wages. I tend to look at the bigger picture.

According to Sentier Research’s monthly Current Population Survey, real median household income in the U.S. economy is down 4.4% from June 2009. In June of this year, median household income was $52,098. In June of 2009, it was $54,478. (Source: Sentier Research, August 21, 2013.)

Going back further, in December of 2007, when the U.S. economy was “officially” recognized as being in a recession, the median household income was $55,480. Yes, almost six years after the Great Recession started, real median household income is still down 6.5%.

In the midst of all the false optimism about economic growth, one question is going unasked. The Social Security Administration reports that in 2011, 66.6% of wage earners in the U.S. economy had a net compensation of less than or equal to $41, 211.36, adjusted for price change. (Source: Social Security Administration web site, last accessed August 23, 2013.) This means that two-thirds of Americans earn less than the country’s stated median income.

Wages are the very basic phenomenon that drive consumer spending. So the question that’s going unasked is: can the U.S. economy really see economic growth when wages are declining? My answer: of course not.

The illusion of economic growth created by the stock market is just that: an illusion. If the U.S. economy was indeed witnessing economic growth, real wages would reflect this. Unfortunately, the decline in real wages will simply lead to a pullback in consumer spending in the U.S. economy—something many major retailers are already complaining about.

What He Said:

“Even the most novice investor can now read the chart of the Dow Jones U.S. Home Construction Index and see that it is trading at its lowest level in five years. If, like me, you believe that stocks are an indication of what lies ahead, this important index is telling us housing prices are headed to 2002 levels! What would that do to the economy? Such an event would devastate the U.S.” Michael Lombardi in Profit Confidential, December 4, 2007. That devastation started happening in the first quarter of 2008.

Article by profitconfidential.com

By The Sizemore Letter

Jeff Reeves and I chat about the prospects for the housing market.  Read Jeff’s comments from his write-up on The Slant:

Charles Sizemore stopped by the office last week to talk about the current state of the housing market, and demographic trends that could mean long-term growth for real estate even if the short-term outlook is rocky.

In a nutshell, we are facing a bit of muddled data right now as the big run-up off the bottom of the real estate market has created some froth in the markets. Homebuilder stocks including Toll Brothers (TOL), PulteGroup (PHM) and KB Home (KBH) have all been battered in 2013 after a strong 2012, and mixed data on housing starts lately is starting to hint that real estate isn’t as bullish as it was last year.

But Charles said that while there is admittedly a cooling off, in part because of fears of tighter central bank policy boosting mortgage rates, housing remains buoyed by long-term trends including the aging Millennials and an increase in household formation.

In short, in about five to 10 years folks will start a family and settle down in bigger numbers simply because of demographics. They are going to buy houses and boost real estate and housing as a result, so any short-term softness may in fact be a big long-term opportunity.

Charles Lewis Sizemore, CFA, is the editor of the Sizemore Investment Letter and the chief investment officer of investments firm Sizemore Capital Management. As of this writing, he had no position in any stock mentioned. Click here to learn about his top 5 global investing trends and get your copy of “The Top 5 Million Dollar Trends of 2013.”

This article first appeared on Sizemore Insights as Is There Still Upside in Housing?

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By MoneyMorning.com.au

‘Local investors stuck to the sidelines today amid global worries about an escalation of the conflict in Syria coupled with lingering expectations the Federal Reserve will soon cut its massive stimulus.‘ – The Age

If you follow us on Google+ you’ll know we’ve had a lot to say about the bloodthirsty clamour for war in Syria.

The Age says that investors are sitting on the sidelines waiting for news of a potential war in Syria.

We remember the beginning of the Iraq War in 2003. It coincided with the bottom of the market. George W Bush declared war…stocks took off, barely looking back for more than four years.

So, can investors read anything into the current bout of war mongering? We’ll give you our take now…

Last night the Dow Jones Industrial Average fell 170 points and the NASDAQ fell 2.2%. But the reality is that you can never be 100% certain how investors will react to certain news.

Proof of that has been the ‘good news is bad news’ and ‘bad news is good news’ market mentality of the past few years. (Although sometimes it has been ‘good news is good news and bad news is better news!’)

Now, some will say that it’s somewhat distasteful to think about investing in the context of war. But heck, you can’t put your head in the sand and pretend it’s not happening. By not doing something you’re effectively taking an investment position, so doing something about it isn’t that much different.

As we see it, it all adds to our reasons for not having too much exposure to the stock market. If another war has a negative impact on stocks you need to make sure you don’t have too much of your wealth tied up in the market.

On the other hand, if the past few years have taught you anything, it’s that investors are a plucky bunch who have a habit of brushing aside perceived problems…

If in Doubt, Blame Greece

Look at the following chart of the S&P/ASX 200 index:

Source: Google Finance

Since stocks bottomed in March 2009 the ASX has gained 63.5%. That’s an average annual gain of 14.1%. Although we will acknowledge that three-quarters of that gain came within six months of the market bottom.

Even so, with everything that has happened since then, only the grouchiest of bears could say the market’s performance hasn’t been impressive.

We can’t even remember the entire roll call of problems that have hit the market over the past five years…

Portugal, Ireland, Italy, Greece, Spain, Greece, Dubai, US debt ceiling, Greece, China, Japan, Greece, QEI, QEII, Greece, Operation Twist, Greece, the Sequester…Greece.

That’s not to mention all the problems around the European Central Bank and its various debt programs. Oh, and let’s not forget Cyprus…which in a way is connected to Greece too.

Blame the Greeks. They’re as good a scapegoat as anyone.

Despite all that, the Australian stock market is 63.5% higher than it was in March 2009. Anyone who missed out on those gains because they focused on all the negatives mentioned above (plus the ones we’ve forgotten about) must surely be kicking themselves.

US Consumers Looking on the Bright Side

This is exactly what we mean when we say it’s hard to know how the market and investors will react to certain events.

So far, despite a lot of volatility, the overall response by investors has been positive. Only time will tell if investors will keep feeling that way. But if this report from Bloomberg is any indication, the good times for markets may not be over yet…despite last night’s action:

‘The U.S. is weathering federal budget cuts and higher payroll taxes, growth is picking up and some economists predict the expansion, now in its fifth year, may last longer than most.

‘The signs of resilience are everywhere: Households continue to spend. Businesses are investing and hiring. Home sales are rebounding, and the automobile industry is surging. Banks have healthier balance sheets, and credit is easing. All this coincides with the economy shedding the excesses of the past, such as unmanageable levels of consumer and corporate debt.‘

Don’t worry, we’re not falling for all that spin hook, line and sinker. For a start, according to the Federal Reserve Bank of St Louis, while US household debt to GDP is much lower than it was four years ago, in dollar terms it has only fallen from around USD$14 trillion to USD$13 trillion.

So we would hardly call that ‘shedding the excesses of the past‘.

But what we think about that doesn’t matter. What’s important is to understand what others think and how they may react.

Right now, with the market poised as it is, our sense is that investors are looking for any excuse to keep buying the market. Whether they will or not is another story. Remember, the market never rises or falls in a straight line.

But as things stand, even another war in the Middle East may not be enough to knock the market from its upward trend. The US indices fell last night, but they fell just before the Iraq War started too.

For stocks, it could be 2003 all over again.

We’ll see.

Cheers,
Kris+

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From the Port Phillip Publishing Library

Special Report: Panic of 2013

Daily Reckoning: The Federal Reserve’s Crucial Next Step

Money Morning:  Why The 30/20 Tax Rule May Rise Again

Pursuit of Happiness: War: The Reason to Own Gold

Australian Small-Cap Investigator:
How to Make Big Money from Small-Cap Stocks

EURUSD stays a in trading range between 1.3298 and 1.3451. The price action in the range is likely consolidation of the uptrend from 1.3206. As long as 1.3298 support holds, the uptrend could be expected to resume, and further rise to 1.3500 area is possible after consolidation. On the downside, a breakdown below 1.3298 support will indicate that lengthier consolidation of the longer term uptrend from 1.2756 is underway, then deeper decline to test 1.3206 support could be seen.

Provided by ForexCycle.com