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Most significant on today’s calendar will be the US publication of its Non-Farm Payrolls (NFP) data. Should today’s news foreshadow a modest growth in the largest economy’s employment sector, an assessment that seems less likely from data released just days ago, there is a possibility that more investment will get pushed towards the higher yielding abilities of the European currencies as investors seek to diversify their portfolios.
The EUR/USD was seen moving towards 1.4270 late yesterday as investors attempt to speculate on market direction ahead of today’s highly anticipated Non-Farm Payroll release. A weaker-than-forecast uptick in US private sector employment Wednesday added to risk sensitivity for many investors, leading some to await today’s news before entering more strongly.
With private sector employment rising in the US at a slower pace over the past few months, the value of the USD appears to be consolidating as riskier currencies like the EUR adjust ahead of this month’s interest rate decisions. Bank interventions in Japan are also making the appeal of safe-havens diminish, helping to prevent a strong rise in the dollar in this week’s trading.
Most significant on today’s calendar will be the US publication of its Non-Farm Payrolls (NFP) data. Should today’s news foreshadow a modest growth in the largest economy’s employment sector, an assessment that seems less likely from data released just days ago, there is a possibility that more investment will get pushed towards the higher yielding abilities of the European currencies as investors seek to diversify their portfolios.
The euro (EUR) was seen trading with largely mixed results yesterday as traders moved into and away from riskier assets across the region. Against the US dollar (USD) the euro was seen trading sideways in late trading as shifts away from the greenback, due to uncertainty about the US employment sector, caused several market participants to opt for other stores of value. The pair was last seen consolidating near 1.4270 in late trading Thursday.
The mixed reports out of Europe yesterday have appeared to confound traders who were anticipating a string of bearish results. Though debt concerns still loom in the region, optimistic data has had the impact of muting the EUR’s losses against its primary basket of currencies. With a heavy news day expected today, traders should see some added volatility in today’s EUR market.
On tap today, traders will witness the release of a highly significant report from the United States on its non-farm employment sector. Should the data come in bearish, we could see heftier shifts to safer assets in the days and weeks ahead. This would likely push the value of the EUR lower over the long-haul as traders flee risk.
The Australian dollar (AUD) was seen making leaps and bounds yesterday, as market reports showed modest growth across the boards. Despite recent reports on Australia’s shrinking housing sector, yesterday’s publication of Australian retail sales showed a broadening expansion striking several sectors of Australia’s economy.
Expectations for the retail sales report was for a modest growth of 0.3% from last month’s contraction of 0.1%. The actual figure of 0.5% growth has led many investors to push back into the Australian dollar (AUD) in recent trading. National data on housing and employment has somewhat halted this ascent as many investors hesitate to move into the once-burgeoning AUD. This data, combined with dismal HPI and building approvals reports, has so far caused the Aussie to still see gains, albeit weakly.
Crude Oil prices found solid support Thursday, moving towards $89 a barrel in late trading as sentiment appeared to favor mild stability in global manufacturing demand. Data releases out of the UK and Europe these past two weeks were driving many investors back into safer assets as most reports suggested contraction among the major industrial nations of the West would gain momentum. If proven accurate, the new outlook would have oil prices falling back into a bearish channel as demand decreases further, but so far traders are seeing market fundamentals push oil prices higher.
As investors seek shelter, the value of crude oil, which was seen holding steady all week, may see additional gains before today’s close. A sudden jump in dollar values due to a sudden return to risk aversion, as expected, could drive many investors into lower investments on physical assets; driving oil prices downward by the middle of next week.
Last Friday’s candlestick posted an outside day up. The EUR/USD has followed up this price action by breaking out above the falling resistance line off of the May high and triggering stops that were lurking above the 1.4520 area. Initial resistance for the pair comes in at 1.4540. A close above 1.4700 would open the door to the May high of 1.4940. To the downside the euro may find willing buyers at 1.4325 where the 20-day moving average is located. Further support is found at 1.4260 off of the rising support line from the July low as well as the long term trend line at 1.3940.
After failing to make a close above the 1.6550 resistance level sterling was sold only to find support at its 55-day moving average near 1.6210. Rising daily stochastic oscillators hint at an additional test of the range between 1.6550 and 1.6615. A break here may have scope to the April high of 1.6745. Should the 55-day average fail to contain the pair support is found at 1.6110 where the 200-day moving average is floating. 1.6000 may also prove to be supportive.
The doji candlestick reversal has bought the yen some temporary respite from the selling pressure at the 76 yen level as the pair failed to test the all-time low last week. However, falling stochastics appear on both the weekly and monthly charts and hint at additional declines in the USD/JPY. A lack of support on the charts makes it difficult to find a target to the downside. A move higher could see resistance at last week’s high of 77.70 followed by 78.50 and the post intervention high of 80.20.
The reversal of the USD/CHF continues and the pair is beginning to show additional bullish signs. Traders should eye the close of the monthly candlestick. As it stands now the candle is set to close on hammer pattern, a potential reversal pattern that hints at additional gains. The pair is testing the falling trend line from the February high at 0.8090 and if broken could turn into support as often occurs with previously broken trend lines. Additional resistance is found at 0.8270 followed by the 100-day moving average at 0.8340.
Since peaking in early March the AUD/NZD has fallen from 1.3790 to a low of 1.2315. However, a bullish head and shoulders reversal pattern has formed on the daily chat with the neckline providing resistance at 1.2750. Forex traders should note that a measured move from the head of the pattern to the neckline measures 400 pips. In the past the 1.3180 level has served as an important resistance and support level.
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Article by Harjeet
Though there are excellent opportunities for investment in infrastructure, major investment concentration is seen in sectors such as roads and highways, ports and airports, railways and power. Infrastructure in India is gaining in importance and a number of public private partnerships (PPPs), targeted at US$150 billion, is receiving support from the government. India needed huge investment and the private sector has a major role to play on its own as also in association with the government.
New avenues for foreign investment
Several avenues have been opened up flow of foreign investment in the infrastructure sector. SEBI-approved mutual funds have been allowed to accept subscription by foreign institutional investors to help boost overseas investment in Indian companies including those engaged in infrastructure projects. FII ceiling on investment in infrastructure bonds has been raised to $25 billion from $5 billion and the overall limit for corporate bonds to $40 billion. FIIs can also invest in unlisted bonds with a minimum lock-in period of three years.
The Indian market offers a good deal to investors who can gainfully use their expertise in these sectors. The Indian Government is seeking investment in infrastructure from both local and domestic capital. To encourage FDI in infrastructure in India, the government is allowing 100% FDI in a large number of sectors. Even in those sectors where prior approval is required, it requires only between 6 and 8 weeks to get clearance.
Investment in infrastructure to be doubled
The Indian Prime minister Dr. Manmohan Singh wants investment in infrastructure to be doubled to about $1,000 billion during the 12th Five Year Plan ending 2017 and has advised the Finance Ministry and the Planning Commission to draw a plan of action for achieving this level of investment.
The optimism arises from the impressive performance by the telecom sector.
Concern areas in infrastructure is said to be power deficit and the aggregate losses of around 30%, causes mainly because of technical and commercial faults are worrisome. Other concern areas are low capacity addition in the port sector, a huge investment backlog in railways and low penetration of broadband services.
23% increase in infrastructure projects
In this year’s Union Budget the Indian Finance Minister has projected an increase in infrastructure projects by another 23%. There has already been a considerable hike in Government focus on investment in infrastructure. This further thrust is likely to give a tremendous boost to this sector.
As per reports of the mid-term appraisal (MTA) of the Eleventh plan (2007-12) private sector investment in infrastructure has risen in the last few years. This has encouraged the government to go on an overdrive regarding infrastructure creation.
It is expected that the private sector will contribute at least half of the over $1 trillion dollar (Rs 40.99 lakh crore) investment planned in infrastructure in the 12th plan (2012-17).
Harjeet is an Indian – born mass-market novelist, who covers the world internet related topics . He writes columns and articles for various websites and internet journals in the domain of Investment Opportunities and Investment Sectors.
If “legendary Wall Street figure” ever described anyone, it was turn-of-the-last-century financier J.P. Morgan. You can throw in “bigger than life” to boot.
Morgan was used to getting his way. His steely eyes cast a “ferocious glare.” His bulbous nose added to his imposing presence.
Beyond appearance and persona, Morgan was a one-man central bank. Historians credit him with bringing calm — and loads of liquidity — to the “Panic of 1907.”
While he “stared down” that financial crisis, even J.P. Morgan would be no match for today’s national debt. In 1907, the Wall Street legend gathered New York City’s biggest bankers into his office and demanded that they had 10 minutes to collectively pledge $25 million to keep the NYSE open. Morgan got his way.
At the time that was a lot of money. But let’s see how far an equivalent sum (constant dollars) would go today.
I used several methods to calculate constant dollars from 1907, and the highest estimate (relative share of GDP) converts $25 million then to some $11 billion today.
Yet $11 billion doesn’t even make a dent in our $16 trillion national debt.
Interestingly, the 1907 Panic eventually led to the 1913 creation of the U.S. Federal Reserve. Then as now, the central bank’s function is “financial stability.”
Specifically, the Federal Reserve serves as a “lender of a last resort” — the role Morgan and his banker friends played in 1907.
Fast-forward ninety years: In 2002, Robert Prechter published Conquer the Crash (now in its second edition), and said this about the central bank:
“Congress authorized the Fed not only to create money for the government but also to ‘smooth out’ the economy by manipulating credit (which also happens to be a re-election tool for incumbents). Politics being what they are, this manipulation has been almost exclusively in the direction of making credit easy to obtain.”
Sounds a lot like today, doesn’t it?
And just a few weeks ago, Fed Chairman Ben Bernanke said he wants to keep interest rates very low:
“Issuing a grim new assessment of the American economy, a divided Federal Reserve said it now expects to hold short-term interest rates near zero for at least two more years.”
Los Angeles Times, (8/10)
Since the start of the Great Recession, the Fed’s easy money policy has not restored health to the economy. Why should the same policy work in the next two years?
Notice how the above quote uses the phrase “a divided Federal Reserve.” With that in mind, here’s what Prechter published as recently as July 16:
“…when the trend in social mood turns down again, dissension will increase. The Fed is fracturing internally…”
Elliott Wave Theorist, July 2011
The U.S. Federal Reserve was created almost a century ago. Has it kept us financially stable? What does the future look like for America’s central bank?
 Get your Free Report titled Understanding the Fed, and learn more about America’s “lender of last resort.”This complimentary report goes way beyond the history of the U.S. Federal Reserve, and shines a bright spotlight on the central bank’s machinations today. Most importantly, your free eBook helps prepare you and your family for the “economy of tomorrow.” We see big changes just ahead.Gain instant access to Understanding the Fed by simply joining Club EWI — a membership community of over 300,000 of the independently-minded. Membership is also free. Simply follow this link for your quick and easy sign-up>>
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This article was syndicated by Elliott Wave International and was originally published under the headline Those Steely-Eyes of J.P. Morgan: Could They Help Us Today?. EWI is the world’s largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.
Michael Jordan was in the prime of his basketball career when I was a teenager. However, my most enduring memory of watching Jordan play was not one of his show-stopping slam dunks or one of his buzzer-beating fadeaway jump shots. Jordan had plenty of those, but the most distinct memory I have of watching this legend play was one of Jordan’s rare mistakes.
In an otherwise uneventful midseason game, Jordan stole the ball from a Detroit Pistons’ forward and raced across the floor, going coast to coast… only to miss an uncontested dunk. Jordan bricked the ball so hard on the back of the rim that it bounced all the way to the half court line.
Yes, even the great Michael Jordan made the occasional mistake.
I tell this story because 2011 has been a brutal year for everyone. However, some of the best traders in the business are having the roughest time of it on a very public stage.
George Soros—regarded by many, including myself, to be the best global macro trader in history—has had an awful year. His Quantum Fund, which has returned 20% per year for its entire multi-decade history, actually lost 6% in the first half of the year, and that doesn’t include the recent spate of volatility. Perhaps not coincidentally, Soros has also decided to retire as a hedge fund manager. He claims that he doesn’t want to comply with the new regulations that are coming into force, but one has to wonder if the Godfather of hedge funds has simply found a market that he no longer understands. He wouldn’t be the first.
John Paulson—the most successful trader in history who made an absolute fortune shorting subprime mortgage securities in 2008—has done worse than Soros this year. Much worse. His flagship Advantage Plus fund was down 31% for the year through August 5, taking losses far in excess of those taken by the S&P 500 or Dow Industrials. Paulson’s horrid performance is all the more remarkable when you consider that 16% of Paulson’s assets are in gold, which is the only asset besides Treasury bonds that has actually done well this year. (The website Guru Focus tracks Paulson’s current holdings here. )
I report Soros and Paulson’s misfortunes not to gloat—after all, even though our investment themes are basically working as expected, several Sizemore Investment Letter positions have taken a brutal beating in 2011 too—but merely to hammer home an important point:
Given sufficient time, the market has a way of humbling us all.
John Paulson’s undoing was to bet heavily on a recovery in the financial sector. Fully 30% of his fund was invested in financials, and another 23% was in energy and materials. His exposure to telecom—my favorite sector at current prices—is next to zero.
I have intentionally avoided the financial sector throughout the post-2009 bull market. This does not reflect any unique insight or inside information on my part. Quite to the contrary, in fact. I avoid financials not because of what I know but because of what I don’t know. I can’t get a proper grasp on the risks facing the sector or of what might be lurking in the shadows on their balance sheets. So, rather than take a gamble on something I don’t understand and can’t quantify, I simply sit this one out. I avoid financials.
I am following the advice of Warren Buffett and investing instead in attractively-priced companies I do understand. And right now, that means a heavy exposure to consumer staples and international telecom, among others. Ironically, Buffett himself has a rather large exposure to the financial sector through his investment in Wells Fargo, at 19% of his publically-traded portfolio, and American Express, at 15% of the portfolio. And this says nothing of his recent bailout of Bank of America, which potentially makes Buffett a 7% owner of the bank should he exercise his warrants. Apparently Buffett, unlike myself, can get comfortable with the sector. (Check out Buffet’s holdings on Guru focus.)
The normal knee-jerk reaction during a volatile time like this is to sell first and ask questions later. This comes from our natural fear of the unknown: What might the market know that we don’t?
If I were to have a large exposure to the financial sector, I wouldn’t be able to answer that question. And as a result, I would lack the confidence to hold them during a market rout like the one we’re experiencing today.
The vast majority of Sizemore Investment Letter recommendations are high-quality, high-dividend-paying companies with a global clientele and only modest amounts of debt. When bought at a reasonable price, your chance of permanent or long-term loss is virtually nil.
The key, of course, is “reasonable price.” While I would consider Intel (NASDAQ:INTC) to be a riskless bet at $20 per share—where it yields 4.4% and trades for less than eight times earnings—investors who paid nearly $80 for the stock when it was a tech darling in 2000 might beg to differ. Those investors might never see a return on that investment in their lifetimes. Investors who are today buying gold at over $1,800 per ounce or Treasuries yielding 2% are not likely to fare any better.
We live in a world that is often “Fooled by Randomness” in the words of Nassim Taleb and which makes the mistake of valuing short-term results — which can be skewed by good or bad luck — over process, which cannot.
There will be some investments that simply don’t work out as expected. There will be that occasional trade that looks like a slam dunk but ends up bouncing off the back of the rim. But don’t let a single bad investment or even a string of bad investments shake your confidence.
Over time, a sound process will generate better returns than luck, as good and bad luck will ultimately cancel each other out. Reasoned analysis will prevail over wild emotions. As Benjamin Graham said, the market acts as a “voting machine” in the short term, subject to human emotions and the madness of crowds, but over the longer time it acts as a “weighing machine.”
Today, investors are scared, and they are “voting” by dumping their stock investments and running to perceived safe havens. Take advantage of this volatility by buying some of those high-quality blue chips you always wanted to own but could never justify the price.
If you liked this article by Sizemore Insights, you’d probably enjoy The Sizemore Investment Letter, our premium members-only newsletter. Click here for more information.
Sept. 1 (Bloomberg) — Fan Cheuk Wan, head of Asia-Pacific research at Credit Suisse Private Banking, talks about the outlook for Asia stocks, the global economy and her investment strategy. Fan speaks with Susan Li, Zeb Eckert and John Dawson on Bloomberg Television’s “Asia Edge.” (Source: Bloomberg)
In an age where central bankers are attempting to increase transparency in the policy making decision process the Brazilian central bank gave a prime example of how not to conduct monetary policy communications when it unexpectedly slashed interest rates by 0.50%.
Leading up to today’s 50 bp interest rate cut the Central Bank of Brazil had increased interest rates in its last five consecutive meetings to a rate of 12.5%. The central bank cited the risks for lower potential growth in the global economy which could bring a bout of disinflationary forces. Copcom said the “moderate adjustment” in the interest rate is consistent with inflation expectations in 2012.
When comparing today’s move with those of the world’s two leading central banks the Fed and the ECB the contrasts are startling. Central bank policy is sometimes compared to that of an aircraft carrier making a 180 degree turn rather than a two propeller speed boat. Wording is carefully chosen. Former Fed Chairman Alan Greenspan was famous for hour long speeches which could leave analysts guessing if the Fed chief’s wording hinted at a hawkish or dovish monetary policy. Ben Bernanke learned the hard way early in his tenure as Fed Chairman when an off the cuff comment at a dinner to Maria Bartiromo caused the stock market to tumble once his comments were published. The ECB is famous for its traffic light system indicating its intention to adjust interest rates.
In a day and age when the Federal Reserve Chairman has increased transparency by opening the floor to questions from reporters, how does the Central Bank of Brazil explain its preemptive strike in the currency war from a tightening cycle to a loose monetary stance without providing the markets with any warning? Both FX and rates traders will have to wait for the release of the central bank’s meeting minutes to get a glimpse in the Copcom’s thinking. Until then more volatility may be seen in both the yield curve and in the rate of the Brazilian real. A couple assumptions can be taken from this policy move; inflation expectations are declining in both developed economies (UK) and in the emerging economies (Brazil). Perhaps Brazil is betting on a global recession in which inflationary pressures play second fiddle to that of steady growth rates.
Read more forex trading news on our forex blog.
A Sweet, Sweet Gambit for Investors
by Carl Delfeld, Investment U Senior Analyst
Thursday, September 1, 2011: Issue #1591
Keeping a keen eye on politics can lead to profits – both here and abroad.
That’s why I’m keeping one on Washington and the possibility of big changes to the next farm bill. Particularly in terms of how we subsidize ethanol production in this country.
Right now, there is surprising momentum to end or scale back ethanol subsidies. And this would be a big win for American consumers and taxpayers.
But while all of this is happening, I’ve got my other eye on our chief agricultural rival, Brazil. While the end of our subsidies would be a big deal, Brazil is going in the complete opposite direction in an effort to double its ethanol production from sugarcane. (When you hear ethanol, you may think it’s only produced with corn. But in Brazil, they use sugarcane.)
And investors who focus on Brazil could see a sweet return from South American ethanol producers if they know how to play the market. Let’s dig deeper…
Reversal of Fortunes
In June, Sen. Tom Coburn’s (R-OK) efforts to repeal $6 billion in ethanol subsidies and remove a $0.54-per-gallon tariff import tax on the fuel came up short. Nonetheless, political pressure and timing suggests the blank check to corn farmers may soon vanish.
The best news is that if Congress does nothing (their specialty), the subsidies will expire at the end of this year. Sure, special interests will fight hard for a delay. But budgetary pressures loom even larger.
Even Sen. Grassley (R-Iowa) and other farm state lawmakers now support legislation to reduce the tax break without eliminating it for several more years.
The timing could not be better for Brazilian ethanol manufacturers. Brazil is already the largest ethanol exporter in the world, and is second only to the United States in production.
And as the U.S. cuts back, Brazil’s government has recently launched new financing and other tax incentives for sugarcane ethanol manufacturers in hopes to double the country’s national production by 2020.
Brazil’s giant state-run development bank will soon turn on the spigots and unleash about $20 billion to fund expansion in the sugarcane sector through 2014. This is a serious wager, equivalent to about two-thirds of the industry’s annual output.
Where Ethanol Supply Increases Meet Vehicle Demand
There are plenty of vehicles ready to tap into this increased ethanol supply. About 85 percent of all vehicles in the country (it is a surprising 75 percent right now) are projected to be “flex-fuel” by the year 2020. “Flex-fuel” vehicles are able to operate on gasoline, ethanol, or any mixture of the two.
Since 1976, the government has mandated that flex cars in Brazil run on a blend of gasoline and ethanol. Since 2007, the blend has been at 25 percent ethanol and 75 percent gasoline.
As that demand rises, the market should see more and more sugar diverted toward ethanol. In 2010, 54.2 percent of all Brazilian sugarcane went into ethanol production. That figure will rise to 68.5 percent by 2020.
But more sugarcane for ethanol should mean less sugar on world food markets. This can only mean higher sugar prices down the line – and they’re already at a 30-year high.
Two Great Plays in Sugarcane Ethanol
First, take a look at Brazil’s Cosan (NYSE: CZZ). The company produces sugar and ethanol and trades for near book value.
Earlier this year, Shell and Cosan launched a $12 billion biofuels joint venture. The new firm, Raizen, will merge its ethanol, sugar and conventional fuel divisions to become the fifth largest company in Brazil based on revenue.
Another play is Bunge (NYSE: BG), a global agribusiness and food production company. Bunge just announced a $2.5 billion investment to boost its sugar and bio-energy capacity in Brazil through 2016.
The cash will go into eight of the group’s mills and will expand crushing capacity by 50 percent. It will also “be primarily focused on the bio-energy sector, mainly ethanol,” said Adalgiso Telles, Bunge’s director of corporate affairs.
This sugarcane gambit could yield some sweet profits. But be sure to use trailing stops to protect your investment and your profits.
Good investing,
Carl Delfeld
The American economy published two figures early Thursday afternoon which suggest working conditions and wages are on the rise at the start of the third quarter. The Bureau of Labor Statistics issued a revised version of its Non-Farm Productivity report which revealed a 0.7% decline in productivity, which is assumed to be equivalent to a similar increase in worker wages.
Confirming this assumption was a second quarterly report, also revised, on Labor Unit Costs. The expectation was for a rise in labor cost of 2.3%, up from last quarter’s 2.2%. The actual result revealed a 3.3% increase for the cost of labor, supporting the notion that wages are on the rise across the non-farm sector of the US economy. This is expected to translate into higher consumer spending and capital investments over the coming months, and may help the US dollar (USD) rise from heightened demand over the long-term.
Read more forex trading news on our forex blog.
The reading from this morning’s SVME purchasing managers index (PMI) out of Switzerland underscored a moderate uptick in the level of economic optimism among purchasing managers. The forecast was for a dip from last month’s 53.5 reading to 51.1. The actual results came in at 51.7, suggesting better conditions than were previously assumed.
Data on retail sales from Switzerland, however, seemed to contradict the notion of healthy growth. Economists were expecting the retail sales report to dip from last month’s reading of 7.9% growth, year-on-year, to 4.6% in the month of August. The actual results were far more dismal at 1.9%, suggesting an impending bearish turn for the Swiss franc (CHF) from decreased demand.
Read more forex trading news on our forex blog.
