Month: October 2013

By Michael Lombardi, MBA for Profit Confidential

These days, central banks are on a very dangerous monetary policy path. Paper money printing has become the norm. Major central banks around the world are taking the same actions; they have learned the phrase “quantitative easing” well. Economy’s soft; no problem! We’ll just print more money so our currency falls in value and our exports rise! (If only it were that simple.)

Two central banks are at the forefront when it comes to implementing paper money printing: the U.S.’s Federal Reserve and the Bank of Japan. And it isn’t a secret how poorly these two nations are faring despite their quantitative easing efforts.

In these pages, I have been very critical of quantitative easing.

With that said, to date, I have only heard one senior financial politician and one central bank head criticize the use of quantitative easing.

Canada’s Finance Minister, Jim Flaherty, at a private dinner with his G20 equals this week, criticized the use of quantitative easing by the U.S. central bank. The following day, he said, “It’s not good public policy.” He said the U.S. should have never implemented quantitative easing, but “Now that they’ve done it, they should get out of it as quickly as they can.” (Source: “‘Not good public policy’: Flaherty appears at odds with BoC, G20 as he criticizes U.S. quantitative easing,” Financial Post, October 16, 2013.)

The governor of the central bank of Canada, Stephen Poloz, has a similar take. He said, “[we] certainly agree that quantitative easing is one of the last things we want to be in a position to have to use.” (Source: Ibid.)

Finally, a finance minister and a central bank governor who have come out against quantitative easing! But no one is listening!

The Federal Reserve continues to print money through quantitative easing as it tells people it hopes to bring the unemployment rate down and stimulate the economy. But it’s not working! Banks are getting bigger, richer, and stronger because of quantitative easing, and the stock market is rising because of the easy money. As for jobs, they are being created in low wage-paying industries.

Yes, the big banks and Wall Street have benefited immensely from quantitative easing, but the average American Joe continues to struggle, as the poor get poorer in America and the rich get richer—that’s not how an economy is supposed to recover after a major recession.

The statements of Canada’s finance minister and the governor of Canada’s central bank have renewed my bullishness on the Canadian economy and its currency—it’s an economically strong country that isn’t printing its way out of its problems.

Michael’s Personal Notes:

More evidence consumer confidence in the U.S. economy is plunging…

The monthly Bloomberg Consumer Comfort Index, a consumer confidence indicator that shows the expectations of Americans about the U.S. economy, plunged to its lowest level in October since November of 2011. The index stood at -31 in October, down from minus nine in September. (Source: Bloomberg, October 17, 2013.) This index ranges from +100 to -100 (very optimistic to very pessimistic).

At the very core, consumer confidence gives an idea about consumer spending in the U.S. economy. The better the consumer feels, the more they spend: it’s just that simple. If someone doesn’t have a job but has expenses that need to be paid, they will not go out and buy that new flashy car or the house with the greener grass. They are more likely to keep what they have, and cut back on their discretionary spending.

The extent of bleak consumer confidence doesn’t just end here. In these pages, I have been talking about how companies in key stock indices are showing dismal revenues, but one sector is showing the opposite trend—discount stores.

Consider the corporate earnings of Family Dollar Stores, Inc. (NYSE/FDO); the company’s profits increased 27.5% in the fourth quarter of its fiscal year 2013 (ended August 31). Sales at Family Dollar Stores increased 5.8% compared to the same quarter a year ago. (Source: Family Dollar Stores, Inc., October 9, 2013.)

If all the pieces of the puzzle come together as expected (bleak consumer confidence leading to even lower consumer spending), I would not be surprised to see the gross domestic product (GDP) of the U.S. economy decline.

The main factors that drive growth in the U.S. economy are suggesting there isn’t much light at the end of tunnel. And I continue to question the so-called economic recovery we have been witnessing since the financial crisis.

The third-quarter corporate earnings season is underway and it doesn’t look good for the majority of public companies; expect their misery to continue well into the fourth quarter.

By George Leong, B.Comm. For Profit Confidential

Back in early August, I turned negative on the big banks and suggested that a bearish double-top was forming on the Bank Index chart. At that time, the Bank Index was trading at just over 65, as you can see on the chart below. (Read “Four Important Stock Charts Showing Warning Signs.”)

In early October, the Bank Index fell to around 61 (as indicated by the lowest shaded oval in the chart below). The index held and has since rallied back above the upper resistance, suggesting that it could be set for a breakout back up to its July highs. However, my feeling is that the easy money in the big banks has been made and going forward, the big banks are now dividend plays.

Chart courtesy of www.StockCharts.com

Investment guru Warren Buffett continues to like the big banks. I don’t blame him, as Buffett has made more than $5.0 billion in paper profits on his initial $5.7 billion investment in the ailing Bank of America Corporation (NYSE/BAC; dividend yield 0.30%), when the sector was in disarray following the Lehman Brothers collapse.

 So far in the third-quarter earnings season, the big banks have largely delivered decent results.

Bank of America reported earnings of $0.20 per diluted share on year-over-year revenue growth of 5.3% to $21.7 billion, beating the Thomson Financial consensus earnings-per-share (EPS) estimate by $0.02.

JPMorgan Chase & Co. (NYSE/JPM; dividend yield 2.90%) reported a loss of $380 million, or $0.17 per diluted share, but this included a massive $9.15-billion pre-tax charge for legal and government fees. The adjusted earnings of $1.42 per diluted share handily beat consensus by $0.24.

Wells Fargo & Company (NYSE/WFC, dividend yield 2.90%) came out and beat on EPS by $0.02 per diluted share after reporting earnings of $0.99 per diluted share.

And finally, Citigroup, Inc. (NYSE/C, dividend yield 0.10%) failed to meet estimates after reporting earnings of $1.02 per diluted share, short by $0.02.

While the easy money in the big banks has largely been made already over the past five years since the financial sector collapsed, there are some gains left—just know that the capital potential is limited.

The big banks are no longer the trades that they have been in the recent past. Those looking at buying the big banks should be doing so for the dividends, and not for the capital appreciation potential. On this note, Bank of America and Citigroup haven’t been be given the go-ahead to increase their dividend payouts yet; understandably, they are the lowest as far as dividend yields versus the other big banks and regional banks. Having said that, I expect Bank of America and Citigroup to surge once they are allowed to increase their dividends.

So unless you are simply looking for income, the big banks should no longer be considered trades for capital appreciation.

By Mitchell Clark, B.Comm. For Profit Confidential

Transportation stocks are now reporting their third-quarter earnings, and it’s important for investors to pay attention to what these leading market indicators have to say.

J.B. Hunt Transportation Services Inc. (JBHT) is one of the largest trucking firms in North America. The company reported a solid third quarter, but earnings came in just slightly below what Wall Street was looking for.

Third-quarter revenues grew 11% to $1.44 billion, which is solid growth for a mature business. Earnings were $89.5 million, or $0.75 per diluted share, compared to $78.2 million, or $0.65 per diluted share. Wall Street was looking for total sales of $1.45 billion, with $0.78 in earnings per share.

The company’s cash position and accounts receivable grew solidly, and so did shareholder’s equity. All in all, it was a good quarter for this trucking firm. If Wall Street consensus was a little too high, then it was. This was still a solid report, and the company’s financial health improved.

In the railroad industry, companies continue to deal with weakening demand for coal, but earnings are holding up on modest revenue growth and higher prices.

Union Pacific Corporation (UNP) reported third-quarter sales of $5.57 billion, growing four percent over the comparable quarter last year. The company’s earnings were $1.15 billion, or $2.48 per diluted share, compared to $1.04 billion, or $2.19 per diluted share.

Third-quarter revenues measured by total revenue carloads were flat. Most of the company’s gain in total revenues came from price increases. Earnings met consensus, while revenues were just a hair below.

So there is growth out there, but it’s modest and not necessarily the result of improving business conditions.

The stock market, as measured by its key stock indices, is taking the news positively, and there is a definite willingness on the part of institutional investors to keep buying if earnings reports don’t disappoint too much.

The Dow Jones Transportation Average is trading right at its all-time record high, and so long as it is, I don’t see the broader market breaking down. This index has been and should continue to be a leading indicator.

CSX Corporation (CSX) slightly boosted its full-year earnings outlook. The Jacksonville, Florida-based railroad saw its share price retrench after reporting, based on several Wall Street downgrades.

Earlier, FedEx Corporation (FDX), a component of the Dow Jones Transportation Average, reported earnings growth of approximately seven percent, with revenues gaining only two percent. (See “Another Earnings Season Suggests Another Quarter of Slow Growth Ahead.”)

This position recently shot up significantly on the stock market after management announced a new 32 million share buyback program. While no time limit was placed on the buyback, this represents just a little more than 10% of the company’s current shares outstanding.

Modest earnings growth on even more modest revenue growth; stronger cash positions with new share buybacks; and some increased dividends: it’s the same metrics as the second quarter. The numbers support current share prices, but so far, the third quarter is looking pretty slow.

So in this slow economic environment, I still favor existing winners—those blue chip stocks that have done well since the beginning of the year. Of course, dividends, in my view, remain the most attractive aspect to the equity market in an environment of very modest top-line growth.

By www.CentralBankNews.info

The US debt drama is solved as the U.S. Congress agreed on raising the debt ceiling. Now focus moves back on a big earnings-week and economic data.

Tuesday we have the US jobrapport. But the big question is how investors will look at the late data.

How is the US economy doing? And how will Fed be reacting to this? Watch the full analysis of the coming week from Jyske Bank Senior Strategist Ib Fredslund Madsen.

Legal information

Video courtesy of en.jyskebank.tv

London Gold Market Report
from Adrian Ash
BullionVault
Mon 21 Oct 07:55 EST

The PRICE of gold was unmoved Monday morning in London, trading barely 25c higher at $1317.50 per ounce as European stock markets also halted their rise, holding global equities near 5-year highs.

Gold traded in Shanghai today pulled back to $7 per ounce above London benchmarks, with Australian bank ANZ saying trading looked “subdued” as a result.

Imports of silver bullion to China meantime fell 5.5% in September from August to 243 tonnes, new data showed.

 That was 13.9% lower from September last year, says Reuters.

 With the US debt ceiling resolved until January, says Jonathan Butler at Japanese trading conglomerate Mitsubishi, “Attention [in gold] should return to the strength of the US economy, Fed tapering (now less likely to start this year, in our view) and physical demand.

 “On a technical level, last week’s moves point to a mildly bullish outlook.”

 Calling last week’s price action in gold “a bullish engulfing pattern,” the latest chart analysis from Scotiabank says it offers “an encouraging sign that the bear channel of the past 2 months may be about to turn, though it is still early.”

 The US Dollar stemmed its response to last week’s 3-month fix to the US debt ceiling, finding a floor against the Euro at $1.3675.

 US jobs data in the Non-Farm Payrolls report – seen as key for the Federal Reserve’s monetary policy – will now be released Tuesday after being delayed by the debt-ceiling shutdown in Washington.

 Weekly data on gold and silver positioning in the US futures market remain delayed, meantime, as regulator the CFTC re-opened with other government departments.

 Like gold, US debt prices also capped their rise early Monday, holding 10-year US Treasury bond yields at a 9-week low of 2.58%.

 That compares to the two-year high of 3.00% reached in mid-September.

 “[The debt ceiling deal] may not be clean and neat,” Bloomberg today quotes Kit Juckes, global strategist at French investment bank Societe Generale, “but there’s still perception out there that Treasuries are risk-free.”

 “The hard truth for China,” says Li Jie, head of foreign reserves research at the Central University of Finance & Economics in Beijing, “is that there’s no alternative to US Treasuries.”

 Despite trimming $95 billion off their total $4 trillion position in US debt since July, foreign central banks know that “whatever happens, undertaking a massive selloff of US bonds is not an option,” says Li.

 In contrast to gold on Monday, silver rose sharply, adding 1.7% to near 2-week highs at $22.29 per ounce.

 Platinum meantime rose to 4-week highs, extending its spread above gold prices to a two-month high of $120 per ounce.

 Palladium recorded its best AM London Fix since the end of August.

 “We maintain our fairly pessimistic outlook for gold,” says a note from US investment bank Morgan Stanley, “as we believe prices have fully factored in a turn in the US interest rate cycle.

“Gold’s tepid response to the recent positive events confirms our view that tapering [of the Fed’s quantitative easing] has been postponed, not cancelled, and is expected by year-end.”

Saying that gold has “run out of steam”, analysis from Baclays Capital in London adds that “More worrisome has been the lack of physical demand support amid the seasonally strong period for consumption in India, making the floor for prices fragile.”

Adrian Ash

BullionVault

Gold price chart, no delay | Buy gold online

Adrian Ash is head of research at BullionVault, the secure, low-cost gold and silver market for private investors online, where you can fully allocated bullion already vaulted in your choice of London, New York, Singapore, Toronto or Zurich for just 0.5% commission.

(c) BullionVault 2013

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

by John Paul Whitefoot, BA

If you listen to mainstream media, the power struggle in Washington is over. The left and right came together valiantly, raising the debt ceiling and ending the U.S. government shutdown. At least, they temporarily did; they basically just put a glow-in-the-dark “SpongeBob SquarePants” band-aid on a compound fracture.

Washington voted to temporarily fund the government through January 15, 2014, and extend the $16.7-trillion debt ceiling through February 7. Then it starts all over again—and if it’s a repeat of the last three weeks, it isn’t going to be pretty.

The self-inflicted U.S. government shutdown, according to one estimate, took at least $24.0 billion out of the U.S. economy; this is after the Federal Reserve reported modest growth in September. (Source: Johnson, L., “Government Shutdown Cost $24 Billion, Standard & Poor’s Says,” Huffington Post web site, October 16, 2013.)

How the January/February deadlines will impact the U.S. and global economy is anyone’s guess in 2014. Or rather, it depends on who you ask; according to the Canadian Imperial Bank of Commerce (CIBC), the global economy is expected to turn a corner in 2014, thanks to economic improvements in the U.S. and Europe. World growth could accelerate more than four percent in 2014, while U.S. growth will climb to 3.2% in 2014 from 1.5% this year. (Source: Quinn, G., “Global economy set to ‘turn a corner’ in 2014, CIBC’s Shenfeld says,” Financial Post web site, October 17, 2013.)

This, of course, is in sharp contrast to the International Monetary Fund (IMF), which said that, as a result of the U.S. government shutdown and slow international expansion, the global economy will grow at a more tepid pace than was originally anticipated.

The IMF had initially expected 2014 global growth to come mainly from the world’s largest economy as a result of higher taxes and lower spending on the heels of the Federal Reserve’s gradual tapering of its $85.0-billion-per-month quantitative easing policy. But Janet Yellen, who is nominated to ascend the throne as Chairwoman of the Federal Reserve in early 2014, is a virtual clone of current chairman Ben Bernanke and isn’t expected to change current policy.

The IMF has since revised its guidance lower, and now expects the global economy to grow by 2.9% this year, versus a previous forecast of 3.2%, and to expand by 3.6% in 2014, down from 3.8%. It also revised its U.S. growth forecast lower to 1.6% this year and 2.6% in 2014. (Source: Elliott, L., “IMF cuts growth forecasts as global economic expansion slows,” Mail & Guardian web site, October 11, 2013.)

In essence, the global economy was held hostage during the first few weeks of October because of schoolyard bickering in Washington. This did not sit well with China, Japan, and Russia; China has since warned the world it needs to de-Americanize itself, arguing that to rely on America to lead the way economically in the coming decades would be pure folly.

Where can investors turn? There are a number of interesting emerging market exchange-traded funds (ETFs) catching the attention of Wall Street.

For example, over the last three months, the S&P 500 has gained an anemic 2.6%. Over that same time frame, the Market Vectors Russia ETF (NYSEArca/RSX) climbed 9.6%. The iShares MSCI South Korea Capped ETF (NYSEArca/EWY) rose 18.8% over the same period, and the iShares MSCI Poland Capped ETF (NYSEArca/EPOL) jumped 19.4%.

During the U.S. government shutdown and debt ceiling debacle, the S&P 500 managed to eke out a one-percent gain. Those same three emerging market ETFs, on the other hand, seriously outperformed the S&P 500. The Market Vectors Russia ETF was up 4.2%, the iShares MSCI South Korea Capped ETF gained five percent, and the iShares MSCI Poland Capped ETF capped an 8.1% run.

While the U.S. is going to remain the world’s biggest economy and the greenback is going to continue to be the reserve currency, that doesn’t mean investors shouldn’t consider looking at emerging markets and correlating ETFs to help diversify their holdings, reduce risk, and increase their chances for growth.

This article How to Profit When Washington Inevitably Starts Bickering Again was originally published at Daily Gains Letter

by Mohammad Zulfiqar, BA

There’s always something investors are worried about. Recently, we heard about the U.S. government reaching the debt limit, shutting down, and inching close to defaulting on its debt. Investors reacted, and the key stock indices started to slide lower due to concern over what could happen.

Now, with a deal being struck to extend the debt ceiling and budget deadlines, those worries are over, meaning U.S. creditors will get their interest payments and the government will go on operating as usual.

This all brings one very critical question to mind: how can investors save their portfolio from situations like these?

In situations where investors are unsure about what will happen to their portfolio, they can follow these three simple investment strategies. These strategies can help investors not only rationally decide on what to do with their portfolio; but they may even find an investment opportunity as a result.

1. Assess the Situation

Take the recent debt ceiling issue, for example. There were concerns that Congress wouldn’t come to a consensus and the U.S. government would have to tell its creditors that they can’t pay them, causing bond prices to decline and portfolios heavy on bonds to suffer massive losses. But what a lot of investors forgot was that the U.S. economy has gone through similar acts many times before, having passed the debt ceiling 78 times.

The lesson here is that investors need to see whether or not the event/situation they are worried about is going to affect their portfolio in the long run. If it doesn’t—and historically, it hasn’t made much of an impact—they should just wait and see what happens before making any adjustments to their portfolio.

2. Change Weight

The idea of asset allocation in a portfolio is that if one asset class performs poorly, the hope is that others will do alright. For example, in 2008 and 2009, stocks were horrible for the portfolio, but on the other hand, bonds weren’t as bad.

The lesson here is that instead of panicking and losing sleep, investors can sometimes just change the weights of the assets in their portfolio by moving to investments that are neutral to the event or have a very small correlation.

3. Sell, Don’t Wait

The market sometimes moves against investors’ perception and new trends are formed. If an investor is holding an investment in their portfolio that’s developing a trend that they don’t want, the best idea would be to sell the position. It’s better to take a small loss than a substantial one.

The lesson here that investors have to keep in mind is that if a portfolio’s value goes down by 20%, it will have to increase by 25% for them to just break even. The bigger the losses, the higher the percentage gain needed to recover.

This article Three Ways to Prevent Irrationality from Entering Your Portfolio was originally published at Daily Gains Letter

By HY Markets Forex Blog

European stocks were seen trading flat on Monday, clearing some of Friday’s closing gains. German’s DAX closed last week sessions with record highs, the pan-European Euro Stoxx 50 reached a two-year high, while the French CAC index marked a five-year high as investors speculate  on whether the Federal Reserve (Fed)  would cease on tapering its $85 billion monthly bond-purchasing program, due to the US government shutdown.

The pan-European Euro Stoxx 50 advanced 0.04% at 3,028.50, while the French CAC 40 edged 0.19% lower at 4,280.80. The UK’s FTSE 100 gained 0.12% standing at 6,631.50 as of 8:12am, while Germany’s DAX 30 declined 0.07% lower at 8,859.80 at the same time.

The German software company, SAP AG (SAP), posted a growth in its net profit in the third quarter ended September 30. Net profit advanced by 10% to €724 million, while revenue rose by 4% to €4.06 billion.

While electronics and healthcare makers Philips posted a triple profit in a year, with its net profit rising to €281 million compared to €105 million recorded last year, the office report confirmed. Sales increased by 3% to €5.62 billion.

German producer prices edged up 0.1% higher on a monthly basis in September, compared to the decline of 0.1% seen in August.

European Stocks – Australia

Australia’s benchmark S&P/ASX 200 index closed 0.57% higher at 5,351.77 points, driven by the mining stock gains and reaching it’s highest since 2008.

Fortescue Metals traded 1.7% higher, while BHP Billiton was seen 1% higher. Meanwhile the National Australia Bank and ANZ assisted the benchmark index, each trading 1% higher.

In Japan, the country’s benchmark Nikkei 225 index edged 0.91% higher at 14,693.57 points, while Tokyo’s broader Topix index advanced 0.57% to 1,212.36 points. The export growth in Japan eased to 11.5% in September, while the country’s yen weakened after the trade data was released at 11:50pm GMT, trading 0.33% lower at ¥98.09.

European Stocks – FOMC Speech

On Thursday, Chicago Fed President Charles Evans made a speech hinting a possible delay in tapering the Fed’s asset purchasing program due to the delayed data reporting because of the US government shutdown. Evans also commented on the inflation rate which remains below the Federal Reserve’s target and the unemployment rate remains high.

Minneapolis Fed President Narayana Kocherlakota also made a speech on Thursday, supporting the QE due to the high unemployment rate.

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By HY Markets Forex Blog

Crude oil futures started off the week lower on Monday, as investors focus on the delayed US inventories data which is expected to be released later during the day. Last week, crude oil prices traded in a range of $3, after the commodity was facing pressure from the continuous turmoil in Iran and the US debt deal. The delayed US inventories data remain in the spotlight, after it was delayed by the US government shutdown and is expected to be released later on Monday.

West Texas Intermediate crude oil (WTI) edged 0.07% lower to $101.25 a barrel, while the European benchmark crude Brent declined 0.06% a barrel at the time of writing.

Crude Oil Futures – Inventories

The Energy Information Administration did not publish its release last week due to the US government shutdown and are expected to release US inventories data for the week ending October 11 on Monday. Meanwhile on Wednesday, additional data from EIA will be published reviewing oil supplies for the following week.

US crude stockpiles advanced by 5.94 million barrels two weeks ago, data from the American Petroleum Institute confirmed last Wednesday.

The US has overtaken Saudi Arabia as the world’s largest producer of oil according to consultant firm PIRA, which also expects the US to maintain its position as the largest oil producer in the world.

Last year, the US accounted for 21% of global demand, BP’s statistical Review of World Energy confirmed and according to the International Energy Agency forecasts, the same percentage is expected to remain the same this year. Saudi Arabia is the world’s largest oil exporter, the country gas increased its oil exports by 325,000 barrels a day in the month of August compared to the previous month to 7.795 million barrels per day, data posted by the Joint Data Initiative (JODI) confirmed. Crude production from the Middle Eastern region has increased to 10.19 million barrels a day, up from 156,000 barrels a day from July.

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