Month: June 2011

I have to issue a major correction from last Thursday’s Smart Investing Daily article. In it, I said that the PowerShares DB Agriculture ETF (DBA:NYSE) was mostly made up of coffee futures. This is not the case.

I relied on Yahoo! Finance’s information on the ETF’s holdings, which claimed to be accurate as of May 31, 2011. Here’s a screenshot.

View Larger Image

I should have looked closer. There are some futures in there with an expiration of 2010. I sincerely apologize for the mistake. Thank you Smart Investing Daily reader J.U. for correcting me.

Corn Prices and Corn Consumption

So let’s go back to DBA, and the iPath Dow Jones UBS Grains ETN (JJG:NYSE) we talked about last Thursday…

But let’s talk about them in the light of a BusinessWeek.com article from Monday. Here’s an excerpt:

Corn purchases are accelerating as droughts and floods limit output gains in everything from soybeans to wheat, driving the Standard & Poor’s Agriculture Index of eight commodities 60 percent higher in 12 months. China, the world’s second-biggest consumer after the U.S., will use 47 percent more than a decade ago, adding an amount greater than the entire crop of Brazil, the third-largest producer.

You read that right… China’s corn consumption has grown more than the entire corn harvest of Brazil!

In the face of record corn harvests, the world is still “eating” more than its making.

(I put eating in quotes because this includes corn used for feed and fuel, which, as you all know, I’ll be more than happy to talk to you about at a later date…)

The USDA says the world will grow 866.2 million metric tons of corn — up 5.6%. Corn consumption, however, could be as high as 871.7 million metric tons.

This shortfall has analysts predicting corn prices at $9 a bushel by the end of the year. Any kind of hiccup in supply would send corn prices this high in a jiffy, pun intended. And we’re already seeing some major threats. There have been episodes of “extreme” weather in key states.

Things like flooding, severe storms and abnormally high temperatures have already hampered planting.

So what does this mean for investment vehicles like DBA and JJG? It could mean profits… but we’ll have to wait and see.

Here’s a time frame to keep in mind. Rabo AgriFinance says that July and August are key months for corn crops. Up until now, the group says, “More things have gone wrong than have gone right.”

We could see more short-term weakness for both DBA and JJG until we know more about the corn crops. But we don’t have long to wait.

I told you on Saturday to watch for prices to break below $51 for JJG. This point needs to provide price support for JJG in order to justify still holding it in your investment portfolio. If this level is maintained, you may want to keep holding.

Let’s keep an eye on DBA, too. There might be another point where DBA would be a good asset. I’ll certainly keep giving you updates on this ETF as we head into summer.

There’s another connection to higher corn prices, though, that I want you to know about.

Crude Oil and Corn Prices

We’ve witnessed unparalleled uprisings around the world because of sky-high food prices. Food inflation isn’t just making the Chinese government boost interest rates; it’s causing poor and hungry people to overthrow governments.

We saw this in Tunisia and Egypt. We’re still seeing conflict in Libya and Yemen, Syria and Bahrain. We even saw protests in Iran and Saudi Arabia.

These countries have something major in common. Crude oil.

Whether or not they produce crude oil, the nature of unrest in the Middle East makes oil prices jump. How else — in the face of worldwide economic troubles and a 6.2% slump in demand compared to 2007 — can oil prices be sustained above $90 a barrel?

None of these issues are going away soon. And we’ve already seen the cracks in the Middle East widen. On Monday, June 13, I told you how OPEC is having trouble maintaining its unity. By acting together, this crude oil cartel can have a strong effect on oil prices by controlling production.

But at its most recent meeting, the group came away heavily divided. Western allies like Saudi Arabia wanted to increase production, but other countries joined forces to stop the boost in quotas.

This kind of infighting spells trouble — both for stability in the Middle East and for crude oil prices.

Things could get ugly… Or uglier. A lot of folks think the unrest in the Middle East and North Africa is drying up.

This couldn’t be further from the truth. And your own investment portfolio and standard of living could be in the crosshairs, unless you’re prepared.

Written by Sara Nunnally for Taipan Publishing Group. Additional valuable content can be syndicated via our News RSS feed. Republish without charge. Required: Author attribution, links back to original content or www.taipanpublishinggroup.com.

If you are like me, you are nervous about the future of our economy. What happens to the stock market after QE2 ends and we are left with a cheap U.S. dollar, low home prices, and high food and energy costs? Not to mention high unemployment and spotty top-line growth for many American companies?

Some are even calling for a repeat of 2008… scary!

We will come out of this. But the question is not only when, but how volatile will the exit be? How do you trade and invest in such a confusing landscape?

To compound the problem, we live in an age of information overload. All that chatter creates noise and hides the truth behind the action.

How Do You Trade With So Much Uncertainty in the Financial Markets?

In Burton G. Malkiel’s book A Random Walk Down Wall Street, he pointed out three potential flaws in fundamental analysis:

1. Information and analysis may be incorrect.
   In gathering objective data, we may rely on many different sources to aggregate, sort or help us interpret data. During this process, data points may be bad, misinterpreted or miscategorized.
2. Analysts’ forward estimates of value may be incorrect.
   Analysts must make certain assumptions. Even with quality, organized, objective data, the analyst must make a subjective forecast that is dependent on a multitude of factors, none of which have to come to fruition and even if they do, the market may have already priced in that data.
3. The financial market doesn’t have to “find” estimated value.
   So let’s assume that your thesis and the analyst’s thesis is correct and that all of your assumptions become reality — your stock of choice may still decline in value. Perhaps because the “market” wants more from the company, maybe where value today is a P/E of 15, six months from now, the market thinks 10 is the right number (that might equal a drop in the stock’s price).

This is not to discourage you or make you think that all fundamental analysis is bunk; you must have a strong fundamental foundation. More importantly, these flaws are the precise reason I became an options trader.

We don’t have to be “exactly” right to profit.

You do not have to be a visionary or have an immense wealth of knowledge to trade the financial markets. In fact, overthinking can prevent you from not only making a trade, but also exiting a winning or losing trade. Either way the consequences are catastrophic.

If you have a strong conviction about a stock, don’t be afraid to act — remember, professionals and the media can be wrong.

Invest in What You Know

This is key if you are a newbie or unfamiliar with certain concepts or economic data.

Investing in companies that you have faith in or know really well and believe will thrive is certainly a method that has been proven to be somewhat successful over the longer term (10 or more years). Although his market-timing skills come up short, this is one of Warren Buffett’s mantras and has made him one of the most successful investors in history.

Simplify the Headlines and Look Around You

When it comes to my own investing, I look out of my proverbial window to make predictions in my little world. I look for trends and concepts I can comprehend. If I don’t fully understand something, I learn everything I can about it or stay away from it.

Because the stock market generally leads the way in and out of economic cycles, you need to put its movements into context. The movements, whether up or down, need to be supported by facts.

Think of economic data, consumer sentiment and corporate earnings strength as the “legs” of a table, which represents the stock market. The less support you have from your indicators, the less sturdy the table. As stocks move higher and higher the table becomes heavier and heavier, requiring more and more support.

If the market has been rallying and seems overbought, the failure of one or more of these legs can be catastrophic.

(Sign up for Smart Investing Daily and let me and fellow editor Sara Nunnally simplify the market for you with our easy-to-understand articles.)

Don’t Believe the Hype — Well, Not All of the Time

I am intrigued and amused at the same time when I hear analysts make extremely specific predictions about a stock’s price. How can a single individual accurately predict the emotions and actions of millions of people? What is more feasible is making an estimation and taking or giving odds where appropriate.

To an extent, I am guilty of this as well. In many of my appearances on CNBC for example, I speak with such conviction, not because I am trying to mislead anyone, but rather because I want to offer a firm, believable rationale that is the basis for my method of investing and risk management. Without it, I would never make the trade myself.

You see, no rationale, theory or method is flawless or without error. In playing the market game, the key is having a method that you can follow and rules that you can adhere to and that make sense to you. The rules can be bent, but your method and plan should tell you precisely how much they will bend.

The difficulty is finding the perfect balance between understanding the beliefs and behavior of market participants and combining that with the fundamental story of the individual stock. In other words, does the fundamental story and predictions coincide with the value the market has given to the company (price/earnings)?

Have a Plan!

Before entering a trade, you must decide how long you will maintain that opinion and what will cause it to change. Then once you are in the trade, you should be able, at any given moment, to act on a signal (in profit or loss) to exit that trade.

The most common issue with retail investors is that they are often either too late to finally make their trades or they lack conviction in that trade to maintain their position and stick to their plans (if they even have one at all).

I am a believer in investing and I believe in investing in quality companies that have demonstrated not only growth, but adaptability and viability over the long term with good future prospects. Companies that possess these qualities (think Apple, Google) can be strong candidates for longer-term investments when markets are volatile.

Editor’s Note: The outlook for the economy isn’t good, but right now you could obtain a unique source of extra income… No need to get a second job, go back to school or work extra hours to potentially collect weekly income tips. This secret could consistently earn you extra money. Read on for the full details in this free report.

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Follow Carlos Slim and Fatten Your Portfolio

by Carl Delfeld, Investment U Senior Analyst
Thursday, June 23, 2011: Issue #1541

Do you know anyone who could be fined in the morning for a cool $1 billion for “monopolistic practices” and still have a great day?

I do.

He has built a portfolio of companies worth an estimated $80 billion, representing an incredible 40 percent of the value of Mexico’s entire stock market!

This makes Carlos Slim the world’s wealthiest individual by a comfortable margin over laggard Warren Buffett. You’ll soon see that Mr. Slim and Mr. Buffett share more than just living in homes purchased 40 years ago and driving their own cars…

Carlos Slim’s Telecom Empire

At the core of the Carlos Slim’s empire are two companies that have a lock on Mexico’s telecom market.

• America Movil (NYSE: AMX) is Latin America’s largest telecom company by assets.

• Slim also controls Telmex (PINK: TMLSF), acquired for only $1.7 billion.

These companies are being merged, setting the stage for his next move.

But this snapshot only gives us part of the story. More importantly, where is Mr. Slim headed next and how we can follow his wealth-building model to grow our own portfolios? And you can become a better investor just by paying attention to a few simple wealth-building lessons that I learned by observing him.

Five Wealth-Building Lessons From Carlo Slim

We can all become better investors by paying attention to a few simple wealth-building lessons that I learned by observing Carlos Slim…

• Follow the Growth – Mr. Slim was lucky in being born a citizen of an emerging nation with plenty of room for growth. It’s unlikely that he would’ve built his giant fortune on such a scale, and so rapidly, in a well-developed market like Canada or America.

• Follow the Monopolies – We all learned in Economics 101 that most monopolies are bad – unless you’re an investor. Slim takes Warren Buffett’s “economic moat” strategy to the extreme, going for outright control. America Movil dominates the cellphone business through Telcel, while Telmex controls 80 percent of Mexico’s landline market. Because of many emerging countries’ politics, culture and business practices, opportunities to invest in monopolies are much higher in emerging markets than western ones.

• Follow the Consumer – Slim’s companies are focused on the simple needs of consumers. Most of his companies provide a platform for people to communicate with each other – how simple is that?It seems his strategy for future growth is to smartly move up the food chain and target the rising emerging middle-class demand for value-added services such as internet content and video.

• Follow Diversification – While Slim’s telecom holdings get all the attention, he has been careful to build a widely diversified portfolio. Real estate, hotels, banking and finance, department stores, tobacco and even a 6.4 percent stake in The New York Times all have a place in his portfolio.

• Follow the Numbers and Be Mindful of Value – Getting the big picture right is important, but it must be coupled with old-fashioned number crunching. Slim’s ability to quickly read a balance sheet is legendary and his hobby of mastering baseball statistics speaks volumes about his inclination for cold-hard facts.

How Carlos Slim Keeps His Eyes on the Prize

Keeping his eye on the numbers also prevents Slim from letting his emotions get in the way of common sense. While many are pulling back from emerging markets due to their pullback and volatility, Slim keeps his eyes on the prize recently stating:

“Anyone who is not investing now is missing a tremendous opportunity.”

But his optimism about betting on the future of Latin America’s consumer is tempered by being very mindful of value and opportunistic in a time of crisis. One example is his plunge into Brazilian telecoms in 2002 as its stock market was crashing.

You and I may never top the Forbes wealth derby, but we can learn from those masters, like Mr. Slim, who show us the way.

Good investing,

Carl Delfeld

The oilprice suddenly fell 4-5 pct. Thursday afternoon. The reason? The International Energy Agency (IEA) has announced that they are releasing 60 million barrels of oil from their emergency stocks.

Senior Strategist Ib Fredslund Madsen comments on the announcement.

Legal information

Video by  en.jyskebank.tv/

June 23 (Bloomberg) — Marc Faber, publisher of the Gloom, Boom & Doom report, talks about his investment strategy and the outlook for global financial markets. Faber speaks with Rishaad Salamat on Bloomberg Television’s “On the Move Asia.” (Excerpt. Source: Bloomberg)

Since Last Year, It’s Been Nothing But “Drill, Baby, Drill”

by David Fessler, Investment U Senior Analyst
Thursday, June 23, 2011

When Michael Steele first coined the phrase “drill, baby, drill” during a speech at the 2008 Republican National Convention, he suggested the United States needed to increase drilling for oil and gas and to become more energy independent.

No kidding…

But since then – believe it or not – “drill, baby, drill” is exactly what’s been happening…

How Much Drilling is More Drilling?

Domestic production is currently at its highest level since 2003. In spite of a massive spill in the Gulf of Mexico, and an administration largely opposed to increased drilling and fossil fuels in general.

If you need proof, look at the Baker Hughes Inc. (NYSE: BHI) weekly rotary rig counts. The oilfield services company keeps track of all rigs operating in the United States and updates that count every week. (You can download the free app for your iPhone or iPad, if you have one.)

According to Hughes’ numbers:

• This time last year there were 1,539 drill rigs operating in the United States. That number includes both land and water-based rigs.

• This week, that number is 1,860.

That’s nearly a 21 percent increase over last year.

Where’s All The Increase Coming From?

Last year it was gas shale plays. Then the price for natural gas cratered.

As evidence, the number of rigs currently drilling for natural gas in the United States is down.

• The number currently stands at just 864 rigs.

• That compares to 953 at this time last year, a decrease of 10 percent.

Global tensions being what they are, the price of oil has remained relatively high… and it looks to be headed higher – Greece debt-worries notwithstanding.

That’s shifted the focus away from natural gas and towards drilling for crude. Like natural gas, much of America’s crude is locked up in tight shale formations.

Oil Drilling in U.S.  Steadily Increases

Hughes reports the number of rigs drilling for oil in the United States increased by 10 to 984 in just the last week, and by 410 in the last year.

That’s a whopping 71 percent increase in the number of rigs drilling for oil.

That makes oil and gas services companies like Baker Hughes, Schlumberger Limited (NYSE: SLB) and Halliburton Company (NYSE: HAL) worth a look.

All three saw significant gains this year, but all are well off their highs reached in early June. Demand for oil is as strong as ever, and so is the push for energy independence.

That will keep existing drills turning, new ones being brought online weekly and companies like the three mentioned above with lots of business.

Good investing,

David Fessler

Rumors are circulating this week that an article in the Dodd-Frank Act will bar US traders from participating in over-the-counter precious metals trading beginning 15 July 2011. The story began when Forex.com announced to its customers that its precious metals operations would be closing shortly due to regulatory pressure.

The regulation apparently will not affect the trading practices of other countries; it will merely limit the influence the US investment establishment has over the volatile pricing of precious metals like gold, silver, and platinum.

Several lawyers and economists claim that the law in question, Section 742(a) of the Dodd-Frank Act, however, does not in fact prohibit commodity trading in such a way. It merely limits who can participate in the commodity markets. Many analysts are claiming that Forex.com’s maneuver is an overreaction to regulatory pressures and not representative of the international forex brokerage environment.

Read more forex trading news on our forex blog.

The trade balance report from Switzerland this morning revealed a sudden jump in its surplus, signaling far more exports than imports for the Alpine nation. The forecasted 1.68B surplus was trounced by an actual 3.31B gap between imports and exports.

Recent downturns in Swiss economic data may be partially behind today’s trade surplus reading. It has widely been argued that Switzerland’s currency, the franc (CHF), is approaching, or breaching, record highs against several currency counterparts and this may in turn be gouging exports. However, the downtick in value recently may have boosted exporting capabilities to previous levels and boosted the nation’s trade surplus.

Read more forex trading news on our forex blog.

The Confederation of British Industry (CBI) published its realized sales report this morning reflecting the turndown in consumer optimism and spending. The news comes only days after many nations reported a contraction in retail sales and consumer spending levels. Expectations were for mild growth in the index, but the actual figure came out with a reading of negative 2, signaling a contraction in spending at the wholesale and retail level.

The news has so far had little impact on the British pound, however, as most investors are focusing on flash services and manufacturing data out of the euro zone that is highlighting an impending dismal second quarter. The news only adds to the risk averse nature of today’s trading environment.

Read more forex trading news on our forex blog.

By Chris Vermeulen

A Short Post with my current thoughts on the Financial Markets (US Dollar, Crude, Gold, Stocks).

1. Yesterday was do or die day for stocks and commodities to breakout but they failed once again at resistance.
2. The US Dollar in overnight trading has made a strong move up and that is putting pressure on stocks and commodities.
3. Gold touched a key resistance level yesterday as expected and sellers quickly sold it back down along with silver.
4. Crude Oil continues to pullback to our target of $88 per barrel.
5. We continue to let the market work it’s self out before taking anymore action.

Also feel free to check out my latest trading Video for further explanation.