Month: October 2013

by Sasha Cekerevac, BA

As readers of Investment Contrarians are probably well aware, precious metals have been hit hard this year. Along with the drop in the price of precious metals, mining stocks have also significantly declined in price.

However, I think we might be entering a period of increased demand that should see higher prices for the precious metals sector and the associated mining stocks.

Longtime readers won’t be surprised when I mention two precious metals that are developing increased demand from industrial use: platinum and palladium.

In past articles, I have written extensively on both of these white precious metals and that there will be significant imbalances in the market—not the financial (paper) market, but actual physical demand for these precious metals.

As the majority of demand for both of these precious metals comes from industrial use, specifically in the construction of catalytic converters for the automotive industry, it’s quite easy to see where demand and supply will be moving forward.

Mining stocks involved in both of these precious metals are having difficulty increasing supply. The two nations that supply most of these two precious metals are Russia and South Africa. Mining stocks have had a significant amount of trouble over the past year especially in South Africa, with labor issues causing disruptions in production and higher costs.

Demand comes from vehicle sales, and with the cheap money being pumped worldwide, this means affordable financing for millions of people. As you probably know, car sales in America are booming once again. But a huge market over the next decade will be China.

When you consider there are still hundreds of millions of people who don’t have a car but will, over the next decade, likely begin buying vehicles, there is a huge potential opportunity here. And it’s a strong driver of demand for both platinum and palladium.

While most precious metals have suffered this year, palladium is actually positive year-to-date and close to its highs. This just shows how strong industrial demand is and how low supply is coming from the mining stocks.

However, this is one difficult situation with both of these precious metals, since many of the mining stocks involved in producing both platinum and palladium are located in South Africa. Because of the potential for labor strikes, costs are beginning to rise and supply is not guaranteed.

While supply disruptions might be positive for the price of the actual commodity, mining stocks themselves could face pressure in earnings if a violent strike were to erupt in South Africa. Last year, there were labor clashes and even deaths involved, with the related mining stocks ultimately raising salaries.

In my opinion, both of these precious metals will be priced much higher over the next decade, simply from the increased demand and lack of new supply. However, one needs to be careful to avoid mining stocks in that region, as they could be extremely volatile.

There are two ways to consider investing in these precious metals. One is through a company called Stillwater Mining Company (NYSE/SWC), which is an American-based firm that not only produces platinum and palladium from mining operations, but also has recycling facilities for spent catalytic converters. The company is the largest producer of platinum and palladium outside Russia and South Africa.

Another option for playing mining stocks in this area is The Sprott Physical Platinum and Palladium Trust (NYSEArca/SPPP), a closed-end fund that holds both metals physically.

Let’s face it: both of these precious metals are difficult to find and are located in only a few places around the world. We simply can’t print more platinum and palladium. However, industrial demand will continue to rise, especially as hundreds of millions of people start driving cars. The supply-demand dynamic over the next decade is quite compelling, in my opinion, for mining stocks in both of these precious metals.

This article Two Precious Metals with a Compelling Supply-Demand Dynamic was originally published at Investment Contrarians

The EURUSD Decreasing Slowly

The beginning of the new trading week was boring and uninteresting. The EURUSD was mostly under pressure and declining. At first the pair found support around the level of 1.3770, growth attempts were limited by the level of 1.3817. Thus, consolidation of the pair, after it has increased to 1.3832, continues. Recessions are limited: demand persists, that prevents the bears to test at least support at 1.3740. However, it is wise not to exclude a decline to this level as well as to 1.3709. The possibility of opening long positions should be considered. A breakout through resistance of 1.3832 will cause growth to 1.3850-1.3900.

The GBPUSD Falls to Resistance at 1.6064

On Monday and during Tuesday`s trading Asian session the GBPUSD was more active. After an unsuccessful attempt to be consolidated above 1.6200, the pair was declining until it reached the level of support around 1.6124. After a pullback to 1.6165 a decline resumed and continued until the pound fell to the support at 1.6064, where on the 4 – hour chart the 100-day moving average was traversing. Placed bids allowed the pound to recover to the level of resistance around 1.6118 . Thus, the pair is clearly trying to create a peak above the 62nd figure. In this case, we will see a fall to the 59th figure, where the bulls can be activated. The loss of this support will increase pressure on the pair, and the rate will fall to 1.5800-1.5766.

The USDCHF Increases to 0.8972

The USDCHF continued to be consolidated after having fallen to 0.8889. From support around the level of 0.8922, the pair rose to 0.8962, and later – to 0.8972, where on the 4-hour chart a 50-day moving average is traversing. The interest in sales while a growth persists, it is better not to exclude growth to 0.9000-0.9044. We should consider a possibility of short positions opening. Growth and ability to be consolidated above 0.9200-0.9220 will confirm the formation of the base in the 89th figure. Then the bulls will be able to rely on testing the 93rd figure.

The USDJPY Risking To Return To the 97th Figure

The USDJPY was traded with positive sentiment, having tested unsuccessfully resistance at 97.75. Realizing the futility of attempts, the bulls were forced to retreat, and the dollar declined to 97.46. The pair continues to be traded in a range, but below the descending resistance line. Therefore, in the short term its rate could return to support around the 97th figure, a breakout of which will inspire the bears to test 96.56. A rise above 97.75 will improve the pair’s outlook, and then bulls will test 98.48.

provided by IAFT

By The Sizemore Letter

Investors have cooled on China in the past week.  Shares of the iShares MSCI China Large Cap ETF (FXI) are down about 5% from their recent highs.

The “reason” for the selling, if we are to believe the headlines, is that investors worry the People’s Bank of China is orchestrating another cash crunch to teach property speculators a lesson.  Call it the risk of Chinese tapering, if you will, but it is not something I would spend a lot of time worrying about.  The far more likely explanation is that, after rising by over 20% since July, Chinese stocks simply needed a breather.

I recommend you take advantage of this lull to accumulate shares of Chinese equities, whether it be via an ETF option like FXI or via purchases of your favorite individual Chinese stocks.  The Chinese economy is showing signs of life again, and Chinese equities have been in a long, sideways correction for nearly four years (see chart).

After the long, multi-year correction, Chinese shares are now ridiculously cheap.  By Financial Times estimates, they trade hands for 7 times earnings and yield 4.6% in dividends.  Navigating the Chinese market is tricky, as some share classes are restricted to Chinese nationals.  But even the liquid stocks available to international investors—such as those that comprise FXI—are incredibly cheap by world standards, trading at about 8 times earnings.

Could the recent surge in Chinese stock prices be yet another head fake?  Of course.  But the economic data suggest that the Chinese locomotive is starting to build up steam again.  Manufacturing production just hit a 7-month high, and new orders and new export orders are showing signs of life.  Estimates for GDP growth are coming in at 7.7% for the year, and Western firms are showing new interest in Chinese brands.  American private equity firm KKR just announced it would be making a $550 million investment in Chinese white goods maker Qingdao Haier.

As I wrote last month, home prices in most Chinese cities continue to rise, and government corporate and personal income tax revenues have come in stronger than expected.

Does any of this mean that a Chinese bull market is guaranteed?

Of course not.  But the conditions are certainly in place.  Pricing is cheap and sentiment towards China is as bearish as I’ve ever seen after years of stock market disappointment.  With Chinese data rolling in better than expected—and with the U.S. market starting to look a little on the expensive side—I expect investors to reevaluate China in the final months of 2013.

The last big bull market in Chinese shares saw FXI gain more than 300% between 2005 and 2007.  I don’t necessarily expect a repeat of that performance over the next three years.  But I do expect Chinese shares to outperform their American peers by a wide margin.

Sizemore Capital is long FXI.

Charles Lewis Sizemore, CFA, is the chief investment officer of the investment firm Sizemore Capital Management. Click here to receive his FREE 8-part investing series that will not only show you which sectors will soar but also which stocks will deliver the highest returns. The series starts November 5 and includes a FREE copy of his 2014 Macro Trend Profit Report.

This article first appeared on InvestorPlace.

This article first appeared on Sizemore Insights as Buy China on Dips

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By George Leong, B.Comm.

The auto industry is back on its feet again, following some lean years during the recession in 2008 when General Motors Company (NYSE/GM) had to be saved by the government. And whether you agreed with General Motors (GM) being bailed out or not, the reality is that the company has rebounded via massive restructuring and better leadership with a stronger vision of where the company should be headed. Moreover, GM now employs over 210,000 people, which may not have been the case if the automaker had been allowed to fail.

GM is now a $50.0-billion company, and while it is no longer the stock market leader in its backyard, the company has been able to grow a very healthy and viable business in China, where GM is the country’s top foreign automaker. Apparently, the Chinese love their GM vehicles and associate the brand with prestige and quality. (Imagine that! Maybe Americans are missing out…)

Chart courtesy of www.StockCharts.com

For GM, China was the path to recovery. The country has invested billions of capital into the world’s largest auto market and so far, it has paid off.

In fact, GM now sells more vehicles in China than domestically. In the first half of 2013, GM and its joint partners sold a record 1.57 million vehicles, up 10.6% year-over-year, according to the company. Sales in China exceeded the 1.4 million GM vehicles sold in the United States. Now, you can say that China actually helped to save GM from the salvage yards.

The auto market in China is potentially enormous, and its growth will be largely dictated by government policies towards growth and the impact on pollution. A major issue for foreign automakers is the current move by the government to restrict the amount of cars on the road, as the country works to figure out how to best control its pollution issues. In the massively populated super cities of Shanghai and Beijing, there is currently a lottery system to buy vehicles.

Yet regardless, China will likely continue to be the top growth market for foreign automakers going forward. This will be especially true in the rural areas where car ownership is extremely low. So as the income levels rise, look for the car demand to rise accordingly.

The consensus growth estimated for China is around 10% across the board, which is pretty good, given the slowing that surfaced in 2012.

So if you want to play the Chinese auto market, consider taking a look at GM, along with other key foreign automakers, such as Ford Motor Company (NYSE/F) and Toyota Motor Corporation (NYSE/TM). I even heard auto upstart Tesla Motors, Inc. (NASDAQ/TSLA) is looking at expanding its sales network to China, which could be mind-boggling as far as potential goes. (Read “Consider This Surging Automotive Company.”)

This article Where to Find the Best Potential Growth in the Automotive Industry is originally published at Profitconfidential

By www.CentralBankNews.info     Hungary’s central bank trimmed its base rate by a further 20 basis points to 3.40 percent, its 15th rate cut in a row, but did not immediately issue a statement explaining its decision.
    The National Bank of Hungary, which has cut rates by 235 basis points so far this year, said last month that it may cut rates further due to muted inflation pressures and spare capacity in the economy.
    Economists had widely expected the central bank to continue its easing cycle, which began in August 2012 to counter slowing growth. Since then it has cut rates by 360 basis points.
    Earlier this week a Reuters poll showed that economists expect the central bank to continue cutting its policy rate until it reaches 3.0 percent, down from a previous forecast of 3.5 percent from August, due to the likelihood that the U.S. Federal Reserve will continue to purchase assets.
    But there are growing signs that the central bank is getting closer to pausing its rate cuts, with a member of bank’s rate panel telling the Wall Street Journal earlier this month that the bank has to tread with caution with further cuts to prevent a possible sell-off of Hungarian assets.

    Hungary’s inflation rate rose to 1.4 percent in September from 1.3 percent in August, still well below the central bank’s 3.0 percent medium-term target.
    Hungary’s Gross Domestic Product rose by 0.1 percent in the second quarter from the first, for annual growth of 0.5 percent, the first annual expansion since the fourth quarter of 2011, confirming the bank’s expectation that growth will gradually pick up on better automobile exports and some improvement in domestic demand.

        www.CentralBankNews.info
   
   

by George Leong, B.Comm.

While the stock market appears to want to move higher, we may be seeing a shift from high momentum growth stocks like Google Inc. (NASDAQ/GOOG) and priceline.com Incorporated (NASDAQ/PCLN)—which are both trading above $1,000 a share—to the more “boring” names.

The gains made by the momentum stocks have been spectacular so far, to the point where we are seeing overextension on the charts, which are warning of a possible correction.

Cyclical stocks, or those companies that swing with the U.S. economy, appear to be backing off. These include goods and services that are non-essential to the consumer. Spending on these discretionary goods and services tends to fall when the U.S. economy stalls and surges when consumers are spending during the good times, when jobs are plentiful.

Should the U.S. economy falter, you should look at reducing your stock market exposure to cyclical stocks, such as those in the automotive, furniture, retail, travel, and restaurant sectors. When times aren’t so good, consumers will look to cut spending in these areas first to save money.

While the cyclical stocks are continuing to fare pretty well, as shown by the chart of the Morgan Stanley Cyclicals Index below, I believe the stocks will be laggards if the U.S. economy continues to stall.

            Chart courtesy of www.StockCharts.com

What you should look at is the defensive sector. I know these may seem like boring stocks, but should the U.S. economy stall, I would look at these companies to outperform the broader stock market.

Defensive stocks are those companies that deliver steady earnings and dividends regardless of how the U.S. economy is doing. In bad times or when an economy is stalling, as may be the case, defensive stocks will fare better. Of course, this group will underperform when the U.S. economy is growing, which is when you should revert back to cyclical stocks.

Take a look at the chart of the S&P Consumer Staples Select Sector below. There’s currently some hesitation on the chart, but we could see a breakout if the U.S. economy begins to stall.

            Chart courtesy of www.StockCharts.com

When talking about defensive stocks, look at the utilities and consumer staples. These are the companies that continue to see spending, because the goods and services are essential to everyday living.

Some of the top defensive stocks to look at should the U.S. economy stall may be long-term widow stocks, such as Kimberly-Clark Corporation (NYSE/KMB), The Travelers Companies, Inc. (NYSE/TRV), CVS Caremark Corporation (NYSE/CVS), and The Clorox Company (NYSE/CLX). Whether its health, insurance, or household goods, these are the daily goods consumers need, regardless of the economy’s state.

This article “Boring” Defensive Plays Where the Action Is in This Kind of Economy was originally published at Investment Contrarians

by John Paul Whitefoot, BA

Numbers don’t lie: the rich are getting richer, and they’re using their money to increase their U.S. housing real estate portfolios. The rest of the country, on the other hand, is getting poorer, and has been priced out of the U.S. housing market, being forced to rent the American dream.

While U.S. housing prices are still down roughly 23% from their 2006 pre-recession highs, they’ve increased 16% since the beginning of 2012. This is more than enough to price those who have the income to pay a mortgage and desire to own a home out of the market—not so much as to deter investors (institutional and individual) from aggressively adding to their burgeoning real estate portfolio, though.

In fact, many first-time home buyers are being bid out of the market because of demand from investors. First-time home buyers accounted for just 28% of purchases in September; that’s a substantial decrease over the 30-year average of 40%, and a number that real estate professionals and economists consider to be ideal. These depressed numbers are the new reality; first-time buyers made up just 28% of all purchases in August, a bit worse than the 29% recorded in July. (Source: Mutikani, L., “U.S. existing home sales fall, price appreciation slows,” Reuters web site, October 21, 2013.)

For the not-so-average American, it’s a U.S. housing boon. Investors (those who purchased 10 or more properties in the last 12 months) accounted for 14% of all residential sales in November; that’s up three percentage points both year-over-year and from the previous month. Incredibly, all-cash sales climbed to 49% from 40% in August and 30% one year earlier. (Source: Howley, K.M., “‘The little guy can’t win’: U.S. families stuck renting as big investors pay cash to snap up homes,” Financial Post web site, October 24, 2013.)

Institutional buyers purchased 25% of properties sold in Georgia and Nevada, 17% of properties in Missouri, and 16% of homes in Arizona. In a nutshell, deep-pocketed investors have been snapping up rental homes in the areas hardest hit by foreclosures; squeezing out families looking for a place to live.

And by deep pockets, I mean deep pockets. The Blackstone Group L.P. (NYSE/BX) has spent $7.5 billion over the last two years acquiring 40,000 houses, creating the largest single-family rental business in the U.S. American Homes 4 Rent (NYSE/AMH), the country’s second-largest single-family home landlord, has spent more than $3.0 billion to purchase about 20,000 homes in the last year. (Source: Hallman, D. and Berman, J., “Here’s What Happens When Wall Street Builds A Rental Empire,” Huffington Post web site, October 25, 2013.)

Where is the average American investor who cuts the grass and shovels the snow on their rental property to turn? Many investors may not be able to get on the U.S. housing ladder, but there are still a large number of areas they can consider for parking their investment dollar.

Aside from The Blackstone Group, America’s biggest landlord, there is Apartment Investment and Management Company (NYSE/AIV), one of the nation’s largest apartment owners/managers.

If you want to get your hands dirty, home improvement retailer The Home Depot, Inc. (NYSE/HD) is up 22% year-to-date, while Lowes Companies, Inc. (NYSE/LOW) is up more than 40% year-to-date.

Thanks to rising home prices, mortgage rates, stagnant wages, and high unemployment, U.S. housing affordability isn’t possible for the average American. And as long as the Federal Reserve keeps the tap on its easy money policy flowing, the U.S. housing market will continue to be out of reach for most Americans.

So long as new and existing home sales remain strong, regardless of who’s actually purchasing them, U.S. housing stocks, including real estate investment trusts (REITs), home improvement stores, and home appliance stocks, will continue to offer investors excellent opportunities for growth.

This article My Favorite Picks to Ride the Recovering U.S. Housing Market was originally published at Daily Gains Letter

By Mohammad Zulfiqar, BA 

No one is talking about gold producers these days. The reason behind this is both simple and apparent: gold bullion prices have declined. As a result, gold producers are facing pressures. Pessimism towards gold producers is very high; some are even calling them the worst investment to hold in your portfolio.

Just look at the chart below of the Market Vectors Gold Miners ETF (NYSEArca/GDX), an exchange-traded fund (ETF) that tracks the performance of well-known gold producers. This ETF has lost more than half of its value since 2012, with a majority of the losses coming in 2013. So why would an investor want to buy this ETF? After all, no one wants to catch a falling knife.

            Chart courtesy of www.Stockcharts.com

Well, the drop in gold bullion prices has caused a significant amount of damage to the gold producers. That said, I wouldn’t call them the worst investment—though I am slightly pessimistic about their movement in the short term—and continue to be bullish in the long run.

You see, in the short run, companies producing gold bullion or looking for the metal have to make a lot of changes. These changes range from deciding on what kind of reserves in the ground they should exploit to how much they should produce. Gold producers, in the short term, have to make decisions on what to do with their expensive operations, how to cut costs, and how to build up cash positions.

While we are already seeing this happen, I believe more is needed.

The reason I remain bullish on gold producers is because I am bullish on the shiny yellow metal. My reasoning behind this is very simple: gold producers actually provide leverage returns to the gold bullion prices.

For example, if an investor owned gold bullion, and prices went from $1,300 to $2,000, this would equate to a profit of about 54%. Now, if a gold producer is able to extract the precious metal from the ground at $800.00 an ounce at a sell price of $1,300, the company’s profits would be $500.00 per ounce. At a price of $2,000, its profits would increase to $1,200 an ounce, or 140%. And the stock price would reflect this.

Those who are looking for opportunities in the gold mining sector have to be very careful about what they buy. The first step they should take is to do extensive research on the companies they think are good contenders, making sure about their costs. At the same time, investors also have to make sure that the company’s management is willing to work and take action.

Investors who already own gold producers and are not seeing much change in their position should consider taking some losses and looking for other companies if they are fixated on having exposure to the sector.

This article Why Investors Shouldn’t Lose Interest in Gold Producers was originally published at Daily Gains Letter

By HY Markets Forex Blog

Asian shares were seen declining on Tuesday, as the strong yen dragged Japanese stocks lower and market investors  awaits the decision from the US Federal Reserve two-day meeting over the future for its monetary stimulus.

Analysts are predicting the Fed to delay tapering its $85 billion monthly asset-purchasing program until next year, following the 16-day government shutdown.

The Japanese benchmark Nikkei 225 index declined 0.98% to 14,254.49 as of 1:07am GMT, with the firmer yen dragging exporters to decline, while Tokyo’s broader Topix index dropped 0.65% lower to 1,190.53.

Meanwhile, shares in Nissan Motors and Isuzu Motors dropped by more than 1% as the stronger yen dropped dragged the company lower.

In China, Hong Kong’s benchmark Hang Seng index climbed 0.5% higher to 22,920.00, while China’s mainland benchmark Shanghai Composite advanced 0.17% to 2,137.40, both as of 1:31am GMT.

The Australian benchmark S&P/ASX 200 index was dropped 0.27% lower at 5,426.80 as of 1:25am GMT, while the Korean benchmark Kospi index edged 0.26% lower to 2,042.79 and New Zealand’s NZX 50 index was little changed at 4,862.48 at the same time.

Asian Shares – Japan Retail Sector

According to data reports released, Japan’s retail sector advanced 3.1% higher in September against last year’s levels, exceeding analyst’s expectation of a 1.8% rise in September.

A separate data released on Tuesday showed a rise of 3.7% in household spending in Japan.

Australia

Meanwhile in Australia, the Governor of the Reserve Bank of Australia, Glenn Steven gave a speech on Tuesday summarizing the state of the Australian economy.

“It seems quite likely that at some point in the future the Australian dollar will be materially lower than it is today,” Stevens said. “While the direction of the exchange rate’s response to some recent events might be understandable, that was from levels that were already unusually high,” Steven said.

“These levels of the exchange rate are not supported by Australia’s relative levels of costs and productivity,” he added.

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By HY Markets Forex Blog

Gold prices were seen trading flat during the Asian trading hours on Tuesday ahead of the Federal Reserve’s two-day meeting, which will begin today.

Yellow metal futures edged 0.08% higher at $1,353.30 an ounce during the Asian trading session on Tuesday, while silver futures declined 0.02% to $22.535 an ounce at the time of writing.

While holdings in the world’s biggest gold-backed exchange-traded fund, SPDR Gold Trust came in at 872.02 tonnes on Monday.

Gold Prices – Federal Reserve Meeting

Policymakers from the Federal Reserve are expected to meet this week and release its statement by Wednesday, with predictions that the Fed will delay tapering its monthly asset-purchasing program after the release of the disappointing US payroll data and the 16-day government shutdown.

“We believe the tapering will definitely be delayed and that’s positive for precious metals,” Brian Lan, managing director of GoldSilver Central, said, “gold prices will close above $1,400 by the end of the year,” he added.

Gold Prices – US Data

On Monday, a report released by the Federal Reserve showed that the US industrial production rose 0.6% higher in September on a monthly basis, compared to the previous reading of a 0.4% rise in August. The report was expected to be released on October 17 but was delayed due to the partial government shutdown.

Meanwhile, the US National Association of Realtors posted a report showing the pending home sales advanced in September by 5.6%, compared to the decline of 1.6 seen in the previous month.

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