Month: October 2011

The euro declined 0.4 percent to $1.3855 in late-day trading as it became increasingly unlikely that European Officials would arrive at a finalized plan for dealing with the growing European debt crisis during a meeting today in Brussels. German Chancellor Angela Merkel even went so far as to blunt expectations for a deal saying “the work’s not been done yet”.

One of the sticking points that continues to elude resolution is the question of the write-down percentage Greek bond holders will be forced to accept. Earlier rumors placed the “haircut” to be 50 percent – this is far greater than the 21 percent banking representatives suggested as being acceptable.

The spotlight also turned to Italy where, yesterday, the coalition government led by Prime Minister Silvio Berlusconi failed to implement a series of spending cuts imposed by European Union officials. The Italian government had agreed to reduce spending in exchange for a pledge by EU members to continue to buy Italy’s bonds. As a result of the government’s failure, Berlusconi spent the day working on a plan to demonstrate to EU officials that the government does have a credible plan to meet the spending reduction targets.

In addition to these developments, media outlets in Italy are reporting that Berlusconi has informed his coalition members that he will resign as Prime Minister by the end of the year. This was immediately denied by the Prime Minister’s office but pressure is mounting on the current administration.

Italy’s debt has ballooned to 1.9 trillion euros ($2.6 trillion) and is now equal to 120 percent of the country’s annual Gross Domestic Product.

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

Oct. 26 (Bloomberg) — Rajat Gupta, the former Goldman Sachs Group Inc. director once accused of feeding inside information to Galleon Group LLC’s Raj Rajaratnam, will face federal charges, a person familiar with the matter said, making him the highest-ranking executive to be named in the probe. Maryam Nemazee and Poppy Trowbridge report on Bloomberg Television’s “The Pulse.”

Oct. 26 (Bloomberg) — Randolph Koppa, president of the Trade and Development Bank of Mongolia, talks about Mongolia’s mineral wealth and the outlook for the nation’s economy. Koppa also discusses investment opportunities in the region. He speaks in Hong Kong with Rishaad Salamat on Bloomberg Television’s “On the Move Asia.” (Source: Bloomberg)

Want to Invest in India? Keep One Eye on its Coal Production

by David Fessler, Investment U Senior Analyst
Wednesday, October 26, 2011

I’ve said it over and over – economic growth requires a cheap source of home-grown energy.

It doesn’t matter what country we’re talking about. Without cheap energy, economic growth stagnates, plain and simple. If energy is expensive, transportation gets expensive, and the cost of goods gets expensive. Consumer spending slows, and economic growth stagnates.

India may be facing just such a problem… To continue its economic growth, which is running at about nine percent annually, India needs to add 75,000 MW of power generation over the next five years.

India burns coal to generate about half of its electricity. In 2011, it’ll import about 54 million tons to generate power.

Nearly 85 percent of new generation over the next five years is targeted to come from coal-burning plants. That translates into a 400-percent rise in coal imports – to about 213 million tons by 2016 or 2017.

This is particularly ironic in that India is sitting on 10 percent of the world’s coal reserves, or approximately 267 billion tons.

How can a country with such vast reserves of coal have to increase its imports four times in as many years? The short and simple answer is bad policy decisions on the part of the government.

Coal India, a state-run monster, is the country’s main coal producer. Its 2010 production was a stagnant 431 tons. It’s suffered from increased environmental hurdles, difficulty in obtaining land and lack of adequate investment by India’s central government.

India’s Growing Supply Gap

The widening power generation gap is particularly acute in India. Its rising middle class is demanding more shopping malls and air-conditioned homes and offices. The peak-power deficit (the amount of power needed versus what can be supplied) grew to 12 percent last year.

It’s going to get worse, and that could have a stalling effect on the country’s economic growth. Remember what happened here when oil prices shot through the roof?

India’s demand for coal has made Coal India the second-most valuable company in the country. Its 2010 IPO raised a record $3.5 billion. But even with that kind of investment, it will struggle to meet even a fraction of India’s additional demand for coal.

A report published by India’s Central Electric Authority, remarked “The Ministry of Coal/Coal India need to be impressed upon to formulate a contingency plan to meet the demand of the power sector.”

The reality is that there is no contingency plan. Even if the government came up with one, nothing would change short term.

The bottom line is that India will be importing four times the amount of coal it does now in five years. Countries and companies who export coal to India can sell all they can produce.

The demand from both India and China will keep a floor under coal prices, and the stocks of companies that produce and export it. Consider any one of the large coal exporters as a great place to start investing in the coal sector.

Good investing,

David Fessler

Article by Investment U

Canadian Finance Minister Jim Flaherty told a press conference on Tuesday that despite uncertainty in the Eurozone and a slowing U.S. economy, he expects Canada will remain resistant to recession. Nevertheless, the Finance Minister noted that he is prepared to act if necessary noting that the government will consider further stimulus spending if conditions warrant.

Despite the Minister’s optimism, recent feedback shows that the Canadian economy is slowing with a more modest level of growth now expected in the coming months. Acknowledging the revised outlook, the Minister noted that the government will keep close tabs on the situation and is prepared, if necessary, to provide stimulus as was done during the previous recession.

Comments from Bank of Canada

On the topic of stimulus spending, the Bank of Canada voted to maintain the current 1 percent overnight rate noting that “considerable stimulus” remains in the Canadian economy. This was due to previous government spending and the continuation of record-low interest rates. This comment was taken as a sign that the Bank of Canada does not intend to intervene at this point and interest rates are expected to remain unchanged well into next year.

The Bank of Canada statement did raise eyebrows, however, with a prediction that the Eurozone would likely fall back into recession next year. While the Bank expects the recession in Europe to be short-lived, the potential impact of negative growth in the Eurozone, together with a downgraded outlook for U.S. growth, were cited as potential risks to growth in Canada.

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

Today is the day of reckoning for the Euro as the market is expecting the final resolution to the Euro debt crisis. At this point it is still uncertain at exactly what time the details of the plan will be released so stay on your toes today and pay attention to the news!

Yesterday’s risk aversion and subsequent sell-off non-withstanding, the markets have been moving markedly higher since early October and it looks like we have put in a bit of a “V-bottom”, which I identified in yesterday’s chart of the day. It will be interesting to see if the market can sustain this rally in the face of the Euro announcement.

There are many rumors circling around the details of the plan so I will throw a few out there that I am hearing but take them with a grain of salt as they may be utterly worthless when the plan is announced.

For starters, Greek private bondholders will be taking a “voluntary” 50% haircut on their holdings, meaning losses. How this doesn’t constitute a technical default is beyond the scope of my limited understanding, but If I held bonds and CDS, I would push for default and not voluntarily agree to losses as I can get paid out 100% from the insurance. This may take a while to play out and I am as intrigued as anyone to see how it goes.

Next, the size of the EFSF is rumored to be in the $1 trillion dollar range, though it is uncertain if this comes as a combination of the current EFSF and the ESM (two separate facilities) or if they plan to leverage up the fund through the ECB. Banks will need to be re-capitalized to stem the losses from the haircut on the Greek bonds, and will need to be shored up if contagion occurs.

The idea of an SPV, or special purpose vehicle, is being floated that will allow private investors to invest with some sort of guarantee or backstop from the funds. This may be a way to funnel more IMF aid into the equation.

Lastly, there needs to be increased fiscal austerity, most notably now from Italy as they are the region’s 3rd largest economy and are currently being vilified as the next potential domino to fall. It is amazing to me that no one even talks about Portugal or Ireland any longer.

So what is my outlook? I think that the markets will rise on the announcement, perhaps dramatically, only to begin to fall once the details are released. I think EUR/USD can get above 1.40 today, but resistance up at 1.413 may hold so if the3 situation presented itself, I would probably be looking to short the pair in the high 1.40s with the hope that it could move down to 1.375 where at that point I would be a longer-term buyer.

Other news out there today is that CPI data in Australia came in lower than expected, reducing expectations for further rate hikes and actually putting rate reductions into play. While the RBA will likely hold for a bit to see how this all shakes out, they will be keeping a keen eye on inflation. Later tonight, the RBNZ will be out with New Zealand’s rate decision and a change is unlikely considering their lower CPI data reported yesterday.

Here in the US, durable goods orders fell less than expected which is a positive I suppose, but yesterday’s consumer confidence figures were absolutely atrocious. However it is important to note the discrepancy between what people say and what they actually do. Later this morning, new home sales will be out.

But all eyes and ears will be waiting for the Euro announcement. The markets appear poised to move higher as stock market returns have been flat for the year so if you’re a big-time money manager, you essentially have one quarter to make it happen and earn some cash or even keep your job. In addition, I think global inflation has been somewhat masked by the cloud of uncertainty of the euro debt crisis and we have seen recent big-time gains in commodities, most notably in oil and gold which are back above $90 and $1700 respectively.

The idea that QE3 may be on the table is likely contributing to Dollar weakness, but all of these other factors are important as well. US corporate earnings have largely been better than expected which means that companies gain make money in a downbeat economy and despite barriers created by bad government policies and potential higher taxes.

With a declining US dollar and next to nothing bond yields, the stock market is likely going to be the market of choice for investors to close out the year so I expect the correlations in the forex market to continue to keep up. The Dollar weakness theme is evidenced by a strengthening Japanese yen, which is at new all-time highs of 75.75. While Japanese officials are crying, there may be very little they can do about it.

So stay on your toes today and be quick to react. Don’t try to be a hero in front of these markets, as there is no telling what may happen. Good Luck!

By Mike Conlon, ForexNews.com

Oct. 26 (Bloomberg) — David de Garis, a senior economist at National Australia Bank Ltd., talks about the nation’s economy and central bank monetary policy. Australia’s underlying inflation slowed last quarter to the weakest pace in 14 years, sending the nation’s currency lower as traders bet the central bank will cut interest rates next week. De Garis speaks with Linzie Janis on Bloomberg Television’s “First Look.” (Source: Bloomberg)

Source: ForexYard

Typically US GDP is a high impact event in the foreign exchange market though tomorrow’s data may be overlooked given the tensions in Europe and the continued talk of QE3 by the Fed.

Today US core durable goods orders for the month of September climbed 1.7%, handily beating consensus forecasts of 0.5%. The better than expected result combined with this past month’s surprisingly positive NFP jobs report may help to shift investor expectations higher regarding tomorrow’s Q3 GDP report. Consensus forecasts are for 2.4% growth but perhaps the US economy is growing at a faster pace than forecasted?

Unfortunately, this data may be overshadowed by growing expectations for QE3 regardless of the growth data as unemployment levels remain elevated. This could keep pressure on the USD despite the tensions in Europe and today’s USD gains. A better than expected US GDP would also be positive for the “risk on” trade.

At print time the recent trend line rising from the October low remains intact with the EUR/USD failing to make a decisive break. A move below this line could find a bid at 1.3650 from where the October 18th low and the 20-day moving average converge.

Cable is down more than one cent today but yesterday’s current account numbers speak well for the UK economy. GBP/USD failed to move above its 100-day moving average which is just above the 50% Fibonacci retracement from the April to October decline but the pair has support at 1.5850 from the top of last week’s consolidation pattern. A deeper move could have sterling bulls lurking at 1.5780 from the rising support line off the October 12th low.

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The Old School Visionary Who Bested Steve Jobs

by Carl Delfeld, Investment U Senior Analyst
Wednesday, October 26, 2011: Issue #1629

With the passing of Steve Jobs, the media attention is a bit overwhelming, yet richly deserved. The fanfare surrounding this week’s release of Walter Isaacson’s biography of Jobs rivals the launch of the iPad itself.

However, there was very little said about another visionary who passed away only a week after Steve Jobs.

In many ways, he was an old school version of Jobs and his contributions to how we communicate with each other were even more significant. That man was Robert Galvin, who passed away October 11 in Chicago, Illinois. He was 89.

Robert Galvin headed Motorola for more than three decades before retiring in 1990.

Like Jobs, Galvin was a college dropout. But the contrasts between them are striking.

While the vegan Steve Jobs represented new-age California, Galvin, a meat and potatoes man all the way, was American heartland to the core. Born in Wisconsin in 1922, Galvin would eventually settle in Illinois.

Galvin served in the Signal Corps during World War II. It might be hard to imagine Jobs in the military given his constant questioning of authority.

Galvin started in the stockroom, Jobs early on launched his start up.

Jobs was a brilliant innovator, Galvin was an inventor and industrialist.

Galvin enjoyed tennis, alpine skiing, water skiing and wind surfing in his spare time, while Jobs seemed to have been completely focused on Apple. Apple was anything but a family business and Jobs’ family life was a bit of a mystery, while Galvin took over for his father, Paul Galvin, the founder of Motorola (formerly Galvin Manufacturing Corporation), in 1986. He would later turn the reins over to his son, Christopher. Under his leadership, Motorola sales grew from $216.6 million in 1958 to $6.7 billion in 1987, long before Apple became the darling of the high-tech world.

I was fortunate enough to meet Mr. Galvin in Tokyo in the 1980s during one of his countless Asian business trips (he was way ahead of his time in recognizing the growing markets in Asia). Motorola and Galvin’s accomplishments deserve much more recognition. Let me offer just a few to think about:

• During his time, the company invented the first mobile phone and the first mobile network.

• The company developed wireless pagers, hearing aids and the first 8-track player.

• Motorola created cutting-edge communication equipment for police and U.S. armed forces.

• It also supported NASA, and the 1969 moon landing introduced the first cordless portable TV in 1960 and led quality management breakthroughs such as the Six Sigma Program.

This legacy led to many more breakthroughs after Robert Galvin retired – namely smart cellphones.

Apple vs. Google – The Acquisition Game

With a touch of irony, just a few months before the passing of Steve Jobs and Robert Galvin, Motorola swung over to the camp of Apple’s chief rival – Google.

As Apple introduced the series of products that dazzled consumers and investors alike, competitors were looking for any edge they could find. Investors who are able to figure out chief rival Google’s next strategic step can profit in a big way.

On August 15, Google bought smartphone maker Motorola Mobility for $12.5 billion – a hefty 63-percent premium to its share price. This is a major boost for Google in smartphones, as Android mobile phones currently have a 48-percent share of the global smartphone market. Motorola Mobility also has 24,500 patents and pending patents – the legacy of Robert Galvin.

Apple’s new iOS 5 is now going head to head with the new Android 4.0 Ice Crème Sandwich. You have to love it.

This Motorola-Google deal underscores that the companies are largely battling through acquisitions in search and advertising technology, as well as music and mapping software.

Who will win? I think that both will thrive, but my bet is that Google will gain the upper hand due to its $25-billion cash equivalent war chest – double that of Apple’s $12 billion.

Good investing,

Carl Delfeld

Article by Investment U

Oct. 26 (Bloomberg) — Brian Jackson, a strategist at Royal Bank of Canada in Hong Kong, talks about Europe’s sovereign debt crisis and its implications for Asian economies and financial markets. Jackson speaks with Rishaad Salamat on Bloomberg Television’s “On the Move Asia.” (Source: Bloomberg)