Month: September 2011

Fears that Greece is heading towards an inevitable default have increased significantly in the past two weeks. And now it appears that as the likelihood of a default increases, the fate of Greece has driven a wedge between the two main parties in Germany’s coalition government headed by Chancellor Angela Merkel.

On Tuesday, comments made by German Vice Chancellor Philip Roesler who heads the Free Democratic Party painted Merkel into a corner. Merkel, whose Christian Democratic Party leads the government only through the support of the FDP, was forced into damage control when Roesler brought up the possibility of Greece defaulting and being forced out of the Eurozone.

“To stabilize the euro, there can no longer be any taboos,” Roesler wrote in an article for the German Newspaper Die Welt. “That includes, if necessary, an orderly bankruptcy of Greece if the necessary instruments are available.”

Merkel immediately went on the offensive to reassure markets already in panic following Monday’s deep sell-off. Merkel pledged that she personally, and the government as a collective, are in agreement that “everything must be done to keep the euro area together”.

Merkel went on to suggest that the loss of Greece would lead to a “domino effect” that would soon engulf other debt-ridden countries within the region.

Greece Expected to Miss Deficit Target

One of the main conditions Greece agreed to in exchange for emergency funding was to reduce its 2011 deficit by 7.6 percent. Progress on this objective is currently being reviewed by representatives of the “troika” comprised of the European Union, the International Monetary Fund, and the European Central Bank. The preliminary results of this audit are not encouraging.

The latest evaluation is that Greece will fail to meet its deficit reduction target. According to the auditors, this failure is due partly to a lack of effort on the part of the government, but also because the Greek economy contracted more than had been anticipated. The weaker growth resulted in lower revenues leaving a wider-than-expected budget shortfall.

The big question now of course is will the government’s apparent failure to meet its deficit goal affect the next financial aid payment of 8 billion euros (US$10.9 billion)?

At this time, most analysts believe Greece will still receive the next tranche as scheduled but it will surely come with a stronger warning that Greece must take its deficit reduction goals more seriously.

In addition to the deficit shortcomings, Greek officials will also be taken to task over their lackluster efforts to privatize a series of government-owned agencies. Again, in exchange for emergency funding from its Eurozone neighbors, Athens was expected to sell a series of government-owned agencies and use the money to reduce the operational deficit.

The scheme is expected to raise 1.7 billion euros (US$2.3 billion) by the end of the month, and another 5 billion euros (US$6.8 billion) prior to the new year. Publically, the government claims it is optimistic that it will meet these targets but the troika remains unconvinced.

It is commendable that Merkel acted so quickly to defuse the comments of her Vice Chancellor but in the end, this may prove to be little more than window-dressing. Greece is clearly not on track to contain its deficit and the likelihood of a default – no matter what Merkel says – is higher today than it was just two weeks ago.

Scott Boyd is a currency analyst and a regular contributor to the OANDA MarketPulse FX blog

Sept. 14 (Bloomberg) — Nicholas Colas, chief market strategist at BNY ConvergEx Group LLC, talks about the outlook for U.S. and European markets and investment strategy. Colas speaks with Betty Liu, Jon Erlichman and Dominic Chu on Bloomberg Television’s “In the Loop.” (Source: Bloomberg)

The Central Bank of Kenya increased its benchmark lending rate by 75 basis points to 7.00% from 6.25% previously.  The central bank Governor, Njuguna Ndung’u, said: “The Committee observed that inflation, exchange rate and money market volatility continued to pose a challenge to the economy. Specifically, the debt crisis in Europe continues to have a significant impact on the economy through the exchange rate volatility. Events in the USA and Europe are expected to continue affecting  the exchange rate, inflation and the economic recovery.”

At its previous meeting the CBK held the rate unchanged, but had previously increased, and subsequently decreased the discount window rate by 75 basis points to 6.25%.  The Kenyan central bank last increased the benchmark lending rate by 25 basis points in May this year.  Kenya experienced inflation of 16.7% in August, up from 15.5% in July, and up sharply from 9.19% in March this year, according to inflation data from the Kenya National Bureau of Statistics.  The Central Bank of Kenya has an inflation target of 5 percent.  A Kenyan Ministry of Finance official noted that Kenya is expected to record economic growth around 5-5.5% this year, and 6% next year.

Boston Scientific (BSX) shares are getting a boost today after the company said it has tapped a Johnson & Johnson (JNJ) exec as next-in-line for its CEO job. Michael Mahoney, chairman of the medical device and diagnostics group at J&J, will become president of Boston Scientific as of October 17.

By Justice Litle, Editor, Taipan Publishing Group

When the Japan bubble peaked in the late 1980s, there were major warning signs. The same is happening in China too…

It’s the biggest and clearest sign yet: China is a giant bubble waiting to burst.

With Europe in the spotlight, few are thinking about China these days. And when China does come up, it is typecast as the wealthy uncle with deep pockets — the one player rich enough to help keep Europe afloat. (We saw that earlier this week, on hopes that China would buy Italian debt.)

China itself, though, is in the grip of a dangerous bubble, complete with “ghost cities,” infrastructure overload, Ponzi finance schemes and the potential for trillions in bad bank loans.

China’s finances are very opaque — and deliberately hidden from the public. It is hard to see from the outside in. This can make it hard to determine just how far things have gone in the bubble department.

But there are clues, just as there were with Japan’s monster bubble in the late 1980s.

If you’ll remember: For a window of time, Japan was going to dominate America and take over the world. The Japanese way of doing business was considered superior, unstoppable even, in comparison to the weaker Western way.

At one point — the peak of the frenzy — the ground under Japan’s imperial palace in Tokyo was deemed more valuable than all the real estate in California. Anecdotes like that one, amid other tales of mind-blowing excess, marked a multidecade top.

So what is the comparable China bubble sign?

Take a look at the building below (click to enlarge)…

View larger chart

What is it?

One could be forgiven for thinking the Palace of Versailles… or British Parliament… or some grand old Austrian estate dating back to the Habsburg Empire.

The source will be revealed in a moment. But first, below see two shots of the building’s interior — which is, if anything, more elaborate than the outside…

OK, enough of the suspense.

So what is this place? Some powerful new government ministry? A cultural center? A seven-star hotel to rival the Burj Al Arab in Dubai?

No. It’s a Chinese pharmaceutical plant. As in, a factory that makes pills…

The images come from ChinaSmack, a website that translates and reports popular Chinese news and trends. Via Chinese television anchor Li Xiaoming — as translated by ChinaSmack — we get the following:

Initial reaction, Harbin Pharmaceuticals Six is a state-owned enterprise… It is said that state-owned enterprises are the people’s enterprises, so the people should know how the enterprises’ money is used. This “palace,” would the people be delighted to see it?

It does look like a beautiful place to work:

The trouble with this sort of thing is, one rarely gets “a little bit of excess.” Wasteful spending tends first to come in trickles, then in floods — especially when funded by gushers of cheap capital.

And with a plain-Jane pharmaceuticals outfit — a pill factory no less — pushing such limits, one can only wonder what the other SOEs have done with their cash.

China’s “command and control” approach to keeping up employment and maintaining the boom involved staggering sums of lending from the state-controlled banks.

When determined bureaucrats push loans out the door on a quota — to the tune of trillions no less — the development of “palaces” (or other boondoggles) is not such a stretch.

It would be a stretch, however, to think China can get through its self-created real estate and finance bubbles unscathed.

As with invincible Japan in the 1980s and crack-up Japan post-1990, there is the initial perception and the aftermath. We may shake our heads over many more tales like Harbin’s after the smoke clears.

Publisher’s Note: China’s growth was a lie, a global scam to rip off the world. The whole thing is about to collapse around them — and it’s going to take your retirement with it. Unless you act immediately. Get the details on this China bubble.

Article brought to you by Taipan Publishing Group. Additional valuable content can be syndicated via our News RSS feed.

London Gold Market Report
from Ben Traynor
BullionVault
Wednesday 14 September, 08:20 EDT

U.S. DOLLAR gold bullion prices fell 1% in an hour Wednesday lunchtime in London, dropping to $1818 an ounce – a 2% loss for the week so far – before bouncing, while stocks gained despite news of a ratings downgrade for two French banks.

Government bonds fell and commodities were steady, while gold bullion prices in Euros dropped to €1325 per ounce as the Euro continued its rise after news that Brussels will consider introducing Eurobonds.

“There is a combination of factors that is sending gold down, predominantly the equity markets being crushed over the last few sessions and investors having to liquidate profitable metals positions to meet their margin calls in equities,” says a note from Swiss refiner MKS.

Silver bullion prices fell to $40.71 per ounce – 1.7% down on the week so far.

Ratings agency Moody’s downgraded the debt of French banks Credit Agricole and Societe Generale on Wednesday – while a third, BNP Paribas, had its downgrade review extended.

A day earlier BNP had to deny rumors that it could no longer obtain funding in Dollars from credit markets.

Moody’s cited the banks’ exposure to Greek sovereign debt, as well as their “continued reliance on wholesale funding” – meaning each bank must fund a significant portion of its operations via borrowing from credit markets.

Moody’s said it does not expect to downgrade the long-term debt of BNP by more than one notch as there is a “likelihood it will receive systemic support from governmental authorities if needed.”

France’s GDP, however, is around €2 trillion by International Monetary Fund estimates – while the balance sheets of French banks “are some 400% of that number,” says David Zervos, head of global fixed income strategy at securities and investment banking group Jeffries, which manages around $3 billion of assets.

“The banks are dead men walking with massive leverage…Europe as a whole is about to embark on a sloppy financial market socialization process.”

Banks across Europe are losing deposits, news agency Bloomberg reported on Wednesday. In France, deposits by financial institutions – which make up 50% of total deposits – have fallen 6% since June last year, according to European Central Bank data.

Financial institution deposits in Germany meantime make up one third of all deposits. They are down 12% since June 2010 – and 24% since September 2008, the month that saw Lehman Brothers collapse.

In Brussels meantime, the European Commission “will soon present options for the introduction of Eurobonds” – joint-government bonds collectively backed by all Eurozone nations – Commission president Jose Manuel Barroso told the European Parliament Wednesday.

French president Nicolas Sarkozy last month described Eurobonds as something that “can be imagined…at the end of the European integration process, not at the beginning.”

German chancellor Angela Merkel meanwhile called them a “last resort”, with her spokesman adding they are “simply not a sensible idea”.

Indebted countries “must put their houses in order,” Chinese premier Wen Jibao said Wednesday.

“The major developed economies should develop responsible and effective monetary policies, properly handle debt issues, ensure the stable operation of investment in the market and maintain confidence of investors around the world.”

Wen vowed that monetary policy in China – the second-largest source of private gold bullion demand worldwide – would remain “prudent”.

Official data show Chinese consumer price inflation was 6.2% in August – while benchmark deposit interest rates are at 3.5%.

Here in London meantime, new data showed the volume of silver and gold bullion cleared in August rose sharply compared to July, according to figures published Wednesday by the London Bullion Market Association.

An average of 805 tonnes of gold bullion a day – a 31.9% jump from July – was transferred between LBMA clearing members last month.

Over 5300 tonnes of silver bullion were transferred each day – a rise of 7.3% from the month before.

The total volume of silver and gold bullion traded each day will, however, be several times larger, since the clearing statistics only show net transfers of gold between London’s largest, market-making bullion banks.

Ben Traynor
BullionVault

Gold value calculator | Buy gold online at live prices

Editor of Gold News, the analysis and investment research site from world-leading gold ownership service BullionVault, Ben Traynor was formerly editor of the Fleet Street Letter, the UK’s longest-running investment letter. A Cambridge economics graduate, he is a professional writer and editor with a specialist interest in monetary economics.

(c) BullionVault 2011

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.

How to Beat the QE Blues

by Marc Lichtenfeld, Investment U Senior Analyst
Wednesday, September 14, 2011: Issue #1600

You hear that beeping sound?

That’s the sound of my truck backing up to load it with dividend stocks.

This may well be a historic time for some investors. One in which they’ll look back on fondly. While others were panicking, they created the building blocks of their fortunes.

Rates are at historic lows. The 10-year bond is at 1.98 percent. The 30-year is barely above 3.25 percent.

And rates, particularly short-term ones, could go even lower in the near future.

Next week, the Federal Open Market Committee (FOMC) meets to decide what to do about the sputtering economy. One of the options being discussed is QE3 – a third round of quantitative easing.

Quantitative easing is when a country buys its government bonds. It serves two purposes. It drives down interest rates, making it less of a burden for consumers and businesses to borrow.

As a result of lower rates on savings, money markets and bonds, investors put their money into more speculative assets, increasing the prices for those assets, putting more money in the pockets (or portfolios) of investors, which then hopefully sparks growth.

Now, if you’re scared, you can lend the U.S. government your money for 10 years and receive 1.98 percent. Your capital is guaranteed. If you lend Uncle Sam $10,000, at the end of 10 years you’ll have $11,980 ($10,000 capital plus $1,980 in interest).

Chances are, 10 years from now, the cost of food, gas, medicine and other vitals will be more than 19.8 percent higher than it is today. And 19.8 percent is all you’ll have earned on your money over the 10 years.

Over the past 10 years, the rate of inflation change was 27.5 percent, or a compound annual growth rate of 2.31 percent. So if the inflation figures of the past decade repeat itself over the next, every year, your treasury investment would be falling behind the inflation rate by nearly half a percentage point.

In order to beat a 1.98 percent rate, you need to accept some risk. The stock market is certainly riskier than investing in a treasury. But with a 10-year horizon, it may not be as risky as you think.

Since 1937, including reinvested dividends, the S&P 500 has returned an average of 130 percent over 10 years or a compound annual growth rate of 8.7 percent.

Even if you think the stock market is going nowhere over the next decade, dividend stocks have the potential to create significant wealth.

Let’s use insurer AFLAC (NYSE: AFL) as an example. Most consumers know AFLAC because of the annoying duck commercials. But shrewd investors know AFLAC as a dividend aristocrat – a member of the S&P 500 that has increased its dividend every year for at least 25 years.

In AFLAC’s case it’s been 28 years in a row of dividend hikes.

The stock yields 3.5 percent. Solid in today’s low interest rate environment but nothing special by any means. Over the past five and 10 years, the dividend has increased an average of 21 percent each year.

Over the last three years, dividend growth has slowed to an average of 12 percent per year.

Let’s be conservative and assume that dividend growth is cut in half over the next 10 years and only averages 6 percent growth.

If you buy 100 shares at $34.50 and reinvest the dividend that grows by 6 percent per year, even if the stock goes absolutely nowhere in 10 years, your $3,450 investment would be worth $5,442.

If you reinvest the dividend, the power of compounding would really be kicking in and generating wealth or income at this point. Your 100 shares would now be 157 shares. And your dividend would be up to $2.02 per share. So your yield on your original investment would now be an extremely attractive 9.2 percent.

To get 9.2 percent today, you need to take significant risk. To get 9.2 percent in 10 years, you only need to take a little bit of risk in a stable company that has been raising its dividend for nearly three decades.

Again, this is assuming the stock doesn’t move for 10 years. If the market returns to close to historical averages and the stock goes up just 6 percent each year, your $3,450 investment becomes $8,240 for a 139 percent return or a compound annual growth rate of 9.1 percent.

There are a lot of great dividend stocks with healthy yields and years of consecutive dividend increases. This is a great time to load up on quality stocks that will build wealth for tomorrow with below average risk.

If you need some good dividend ideas, take a look at our Perpetual Income Portfolio.

I don’t know if stocks will be higher next month or next year. But I’m relatively certain that if you invest in a stock that pays dividends and increases its dividend every year — in 10 years, it will outperform nearly every other asset class.

Good investing,

Marc Lichtenfeld

Article by Investment U

By Jared Levy, Editor, Option Strategies Weekly, taipanpublishinggroup.com

I had a birthday over the weekend and I was fortunate enough to have my father travel 1,200 miles to be here with me. We caught up on so much… We learned more about each other even after all these years.

He’s extremely bright and always seemed to have the right answers growing up. One of the things I learned about my father this weekend is that he’s not as complicated as I thought he was. I always thought my father had some intricate process that took countless hours for every decision he made.

The reality is, many of the problems he faced came down to a simple, pragmatic decision-making process that allowed him to do what “felt” right. Sure he has been wrong from time to time, but overall he has managed to create a good life for himself without overthinking or overstressing over every last thing.

But there’s one thing he has been stressed about, and for good reason… The stock market.

Many “home gamers” (investors like you) often have difficulty finding the “trend” let alone timing the markets perfectly. We hear things like, “The trend is your friend,” and are expected to just know how to do that. (My father actually brought up that saying.)

But what the heck does that saying even mean and more importantly how in the world do you know what the trend even is at any given moment?

Quantifying Market Trends

Right now the only market trend seems to be confusion, which is not easy to follow and usually doesn’t make you any money.

Like my father, I try to reduce things to their simplest terms. Today, I am going to offer you three simple ways to spot a market trend. These three things will help guide you in your investment decisions.

It’s a super simple yet powerful system.

If you followed these guidelines in the Nasdaq 100 (NDX) over the past five years, you would have been up 153% as opposed to a buy-and-hold investor who would have been up barely 30% in the same time period.

Market trends come in different time frames. The guidelines I am going to show you today are for the longer-term investor. If you’re the type who buys and sells stocks in seconds, minutes, or in a day or two, these guidelines are not for you.

Those of you who hold positions for a month or more, you should see a dramatic change in your results.

Step One — Moving Averages

I have shown you the power of moving averages in the past. When you know what to look for, they can be powerful tools. Taking a quick glance at the moving averages will let you know if you are in a bullish or bearish trend.

The first step in determining market trends is to look at a DAILY chart (going back at least a year) and place 50- and 100-day simple moving averages on the chart.

It should look something like this:

View larger chart

The 50-day SMA (in orange on the chart) is what I call the trigger and the 100-day SMA (in blue) is the trend.

When the 50-day is above the 100-day and the stock price is above the 50-day, then the trend is bullish and you should remain long. When the 50-day crosses below the 100-day AND the stock is below the 50, the trend is bearish and you should sell your longs and get short.

The arrows on the NDX chart show you how this works with the entry and exit points as well as the trend.

Step Two – Peaks and Valleys

Next you want to determine if the trend is weakening or strengthening. Focus on a daily chart going back no more than six months. Find the current trend using the first step and see when it started. Then look at the peaks and valleys. In a bearish trend, you should see lower peaks and lower valleys. This is an indication that the trend is continuing.

In a bullish trend, you should see higher peaks and higher valleys.

Draw lines like I have done on the chart below to help you. Can you see the current trend with lower peaks and lower valleys?

This is a clear indication that we are currently in a bearish trend, my friends.

View larger chart

Step Three — Look and Listen

Step three is the most difficult. While the first two steps can give you a measurable trend, step three can be the early indicator of a change in trend.

When you turn on the evening news or read the headlines, try to find a general consensus of emotion. If the bulk of articles and stories seem pessimistic or cautious, then the news trend is bearish.

If the charts look bearish, but you see an emergence of hope, optimism and consumer confidence around the world, then you might want to begin to look for bullish opportunities as the trend may be reversing.

You see, the best traders and investors in the world aren’t just good at analyzing charts, financials and statistics. The best of the best can read people and spot trends as they are evolving.

While steps one and two can help you identify which way the market is trending, step three can help you predict where it is going.

As an independent, self-directed investor, it is your job to be smart about where you put your money. Don’t ignore the signals. If you look out your window and things seem bad, they probably are.

Right now the world is facing some serious adversity. While the human spirit is strong and nations have overcome worse obstacles, right now is not the time to get overly bullish. In the S&P 500, we saw the 50-day moving average cross below the 100-day moving average in early July.

The market trend remains bearish and until the world begins to believe otherwise… Expect it to continue. Stay flat to slightly bearish in the broad stock market.

Publisher’s Note: Jared just recorded a webinar called “3 Keys to Safely Making 30% in a Highly Volatile Market.” In what has quickly become one of our hottest videos, our guru lays out yet another way to take advantage of this volatile market. If you have not watched it yet, see it now.

Article brought to you by Taipan Publishing Group. Additional valuable content can be syndicated via our News RSS feed.

Investing in AeroVironment (Nasdaq:AVAV)

Clean Energy and Spy Bots

The biggest problem with most clean energy companies is the speculation involved. Most aren’t profitable, at least not yet, especially in the electronic vehicle (EV) market. It’s a guessing game trying to figure out what products or brands will take off.

For instance, a company such as Ecotality (Nasdaq: ECTY) could end up being a future leader in EV charging systems. It announced last Thursday that it was chosen to install 200 EV charging stations around the Houston area. But the company’s tiny market cap of $53.96 million and lack of profitability makes Ecotality a relatively shaky investment. Its beta of 2.38 shows it’s more than twice as volatile as the market as a whole… and the market as a whole hasn’t been very stable.

Plus, nobody really knows how the EV market will shake out. There are certainly some who feel they will never directly compete with gas-guzzlers – at least not in our lifetimes. Then there’s the presence of giants such as General Electric (NYSE: GE) or Siemens (NYSE: SI) in the industry that could blow everyone out of the water if and when it’s profitable to do so.

That’s why AeroVironment (Nasdaq: AVAV) is such an interesting play on the EV market.

Spy Bots!

AeroVironment designed the very first commercial EV prototype, the EV1, for General Motors (NYSE: GM) back in the mid 1990s. But the EV isn’t the company’s breadwinner. The biggest moneymakers for AeroVironment are the unmanned aerial vehicles (UAVs) they design and build for the U.S. military.

These aren’t your grandfather’s drones, either. One of the most sophisticated is called the Nano Hummingbird. It’s a remote controlled robotic hummingbird with a camera that weighs less than an AA battery. It can fly in every direction, just like a real hummingbird.

(Courtesy: Wikipedia)

Another is called Shrike, which is a quad-rotor helicopter that takes off and lands vertically. It can hover and record video for about 40 minutes or perch on a surface and record for hours.

(Courtesy: AeroVironment)

Then there’s the Raven, which AeroVironment just signed a $15-million deal with the U.S. Army to provide. The Raven is a remote-controlled airplane with high-powered cameras. From AeroVironment’s website:

“With a wingspan of 4.5 feet and a weight of 4.2 pounds, the hand-launched Raven provides aerial observation, day or night, at line-of-sight ranges up to 10 kilometers. The Raven delivers real-time color or infrared imagery to the ground control and remote viewing stations.”

But perhaps the most Orwellian UAV by AeroVironment is the Switchblade. The U.S. Army recently paid $4.9 million for the first batch, and for good reason. Imagine surveillance UAVs that are shot out of a rocket launcher and can be controlled by remote. When the controller spots an enemy, it can lock onto the target, ram it and explode. It’s almost scary to think these types of things are already possible.

There are plenty more, too. But there’s a fear that the government will curb military spending in upcoming years. That would certainly hurt AeroVironment’s bottom line… or would it?

EV Charging

If AeroVironment is lucky, it can replace any lost revenue from its UAV business with an expanding market for EV charging terminals.

When Nissan and BMW needed home charging systems for the EVs that are being released, both companies came to AeroVironment.

NRG Energy (NYSE: NRG) teamed up with AeroVironment this year in an effort to install 70 charging stations in the Dallas/Ft. Worth area by 2012. And Oregon recently employed AeroVironment to install 22 more charging stations along its most heavily traveled corridors. AeroVironment has a network of 2500 stations in 25 states, and the list continues to grow.

There’s hope that once a solid infrastructure is set up for EVs, the market will start to improve. Then, AeroVironment could have a leg up on any competitors.

AeroVironment’s Bottom Line

But that’s no sure thing, and until then AeroVironment’s bottom line will be driven mainly by its successful UAV business.

Its Q1 fiscal 2012 report released last week showed increased revenue for the fourth straight quarter. A $65.5-million contract in August for its Puma AE UAV helped drive profits up 62 percent over Q1 of 2011.

Sales in its UAV business improved $18.8 million over the same quarter last year and the EV solutions sector improved by $5 million.

Those are pretty good numbers for the stock that’s fallen more than 20 percent since July.

Department of Defense spending and the EV market are no sure things going forward. But with a diversified business plan and recent innovations in both markets, AeroVironment may be a better option than pure plays in either field.

Good Investing,

Justin Dove

Article by Investment U