Month: October 2011

By Mike Conlon, ForexNews.com on Oct 20, 2011

This morning all eyes are on Athens where the Greek rioters are protesting against further austerity measures which are to be voted to ensure that Greece is taking the steps necessary to continue the bailout discussion. The Troika will be reporting the economic state of affairs in Greece but so far the sentiment has been that that was Greece has done is insufficient to date.

Yet there is some positive news coming regarding the EFSF, though at this stage they are just rumors and not confirmed. Supposedly, the EFSF will be able to buy bonds on the secondary market provided there are no bank solvency issues. What this means is that they can be a “constant bid” to attempt to keep rates lower and then they can re-package and flip them or hold to maturity or whatever. However, the size of the fund is still in question and whether or not they will leverage that remains to be seen.

Producer prices in Germany came in slightly higher than expected, and the German government GDP forecast showed a growth rate of 1%, much lower than the 2.9% they have experienced.

In other news that just hit the wire, in Libya Momar Gaddafi is being reported dead.

Earlier in the UK, retail sales figures came in much better than expected, showing a monthly gain of .7% vs. an expectation of .2%. This could be a function of higher price expectations because the BOE is seen as being inflationary. But I must say, so far the BOE has been wrong in many of their economic assessments and should inflation persist, the UK economy could come to a grinding halt.

Here in the US, Initial jobless claims came in at the usual 400K, and later this morning we will get existing home sales figures, the leading indicators, and the Philly Fed. Throw in a little Fed speak and there is just enough to inspire some volatility.

We are very range-bound at these levels as the Euro debt crisis continues to maintain a stranglehold on these markets and the anxiety increases with every TV report of another Greek rioter lobbing a Molotov cocktail.

Yet US stock earnings have been coming in positively despite the economic climate as corporations are lean and mean and sitting on mountains of cash, yet the market uncertainty thanks to the political gamesmanship in Washington is keeping them from hiring. While lack of demand is always cited as the “cause”, it is actually the effect of bad policy and not the other way around.

The super-committee that is charged with deficit reduction here in the US is likely going to be ineffective so it will be more of the same. However, these problems seem minor compared to what is taking place in Europe and this weekends meeting may produce progress toward resolution, or it may not.

Meanwhile, my short gold trade triggered yesterday as the Bear Flag pattern completed, with an initial price target of $1500, and then $1440.

Tomorrow could be a risk aversion kind of day, so today we may see some cautious risk taking, though today is likely to be an “inside day” producing neither new recent highs or lows.

At this point the rumor mill is in high gear so there could be mid-day volatility based upon unconfirmed reports. This market is more conducive toward short-term trading at this point, as the uncertainty is still high and risk at a premium.

Regards,

Mike Conlon,
Senior Forex Mentor
www.forexnews.com

The Bangko Sentral ng Pilipinas kept its overnight borrowing rate unchanged at 4.50% and the overnight lending rate at 6.50%, and kept reserve requirements unchanged at 21%.  The Bank said: “The Monetary Board’s assessment of a manageable inflation environment and subdued economic conditions continues to support current monetary policy settings.  Latest average baseline forecasts show a lower inflation path, consistent with the 3-5 percent target range for 2011-2013, while inflation expectations remain well-contained, supported by easing commodity prices. Domestic economic growth has moderated as the global recovery has slowed down and as domestic public spending has been weaker than expected.”

The Philippine central bank also held the rate unchanged at its last meeting, and last raised its interest rate in May this year by 25 basis points to 4.50%, and increased reserve requirements by 100bps at its previous meeting.  The Philippines reported annual consumer price inflation of 4.8% in September, compared to 4.7% in August, 4% in July, 4.7% in June, 4.5% in May and 4.3% in April.  Inflation is currently tracking inside the Bank’s inflation target range of 3%-5%.  

The Bank of Ghana kept its key lending rate steady at 12.50%.  Bank of Ghana Governor, Kwesi Amissah-Arthur, said: “Looking ahead, wage pressures, payment arrears and recent depreciation of the exchange rate have increased the upside risks to inflation. In the short-term, the impact of these underlying inflationary pressures on the economy remains contained. The Bank’s inflation forecasts  show that the end year target will be achieved.  Movements in the exchange rate remain consistent with the delivery of the Bank’s inflation target.”

The Bank of Ghana previously also held the rate unchanged after reducing its lending rate by 50 basis points to 12.50% at its July meeting, after also cutting 50 basis points at its May meeting this year.  Ghana reported annual inflation of 8.4% in September, August, and July, compared to 8.6% in June, 8.9% in May, 9.0% in April, and 9.1% in March.  The Bank noted that inflation remained relatively stable, and anticipates moderate inflation pressures in Q4.

Ghana’s economy grew 23% in the March quarter, compared to 9.5% in the previous three months, as Africa’s newest oil exporter saw export earnings boosted by oil sales, as well as a high gold price and cocoa volumes.  Ghana’s currency, the cedi (GHS) has weakened by about 10% against the US dollar so far this year, with the USDGHS exchange rate last trading around 1.62.

Oct. 20 (Bloomberg) — Mark Matthews, Singapore-based head of research for Asia at Bank Julius Baer & Co., talks about global financial markets and his investment strategy. Matthews also discusses Europe’s sovereign debt crisis and the U.S. economy. He speaks with Susan Li on Bloomberg Television’s “First Up.” (Source: Bloomberg)

Rally Ahead for Molycorp and Rare Earth Stocks?

By Justin Dove, Investment U Research
Thursday, October 20, 2011

Rare earth stocks such as Molycorp (NYSE: MCP) were all the rage with investors in early 2011. The Market Vectors Rare Earths Strategic Metals ETF (AMEX: REMX) hit its 52-week high of $28.91 per share in April. Molycorp stock, included in the Strategic Metals ETF, approached $80 per share.

That all changed over the summer. Molycorp stock fell 32 percent in the course of four days in September. Part of that was due to the overall market swings. However, it also had to do with lower prices for rare earths as companies find ways to lower dependence and cut steeply rising costs.

As shown below, prices seem to have flatlined or even fallen significantly of late. However, recent news could point to another upswing for rare earths and subsequently non-China rare earth producers.

(Courtesy: Wall Street Journal)

China Restricts Rare Earth Production

On Tuesday, China’s Inner Mongolia Baotou Steel Rare-Earth (Group) Hi-Tech, which produces up to 50 percent of the world’s rare earth supply, announced that it was halting production for one month.

An RBS analyst told The Wall Street Journal that this move could significantly affect the rare earth market.

“We would expect a month-long shutdown from the largest producer in the world to impact prices reasonably quickly,” said RBS rare earth analyst Sam Berridge. “Rare earth production is quite consolidated and the market is quite small, so one of the majors could influence the supply-demand balance quite easily.”

This also isn’t the first time the company has dabbled in propping up rare earth prices. In recent weeks, it bought significant amounts of certain rare earths for above market price.

According to the Financial Times, “Baotou’s move suggests that Chinese efforts to control rare earths prices could be greater than previously thought.”

China’s Stranglehold Over Rare Earth Metals

China’s control over rare earth production has been highly publicized over the last year. It’s said to account for 97 percent of the world’s production of these rare minerals, currently used in many high-tech applications such as camera lens manufacturing, high powered magnets and smartphones.

In the past year or so, China exercised this power over the market by setting mining and output restrictions. The drop in supply has driven prices up to record levels. Rare earths used to be mined all over the world. But in the 1980s, the Chinese undercut other producers so much that it became unprofitable to mine anywhere else.

The recent increase in prices is leading to other mining projects starting up in places such as Australia, Canada and the United States.

The lack of diversity in supply is so critical that large manufacturers such as Siemens AG (NYSE: SI) and Hitachi (NYSE: HIT) recently took steps to ensure supply from non-China producers. The Department of Defense also recently acknowledged the risk associated with China’s dominance in production of rare earths that are critical to its weapons and technology systems.

Rare Earth Prices Are Stabilizing

This move should at least stabilize falling rare earths prices. Hopefully for non-China producers, such as Molycorp, it also drives more demand for production outside of China’s stranglehold.

Molycorp’s stock was struggling in relation to its performance in the first half of 2011. While its P/E is still very high at 145, it’s set to reach full production in its first phase next year. It also recently announced a new discovery of heavy rare earths near its Mountain Pass mine in California. Heavy rare earths such as dysprosium or terbium are rarer and have a higher margin than the lighter varieties.

Canadian companies Avalon Rare Metals (AMEX: AVL) and Quest Rare Minerals (AMEX: QRM) are smaller, more volatile companies than Molycorp. However, the lower cost means less required investment and they’re probably a bit less inflated than Molycorp. Quest’s Strange Lake and Avalon’s Thor Lake have the potential to be two of the largest deposits of rare earths in the world. But both companies have yet to turn a profit.

Rare Element Resources (AMEX: REE), covered by Investment U in August, also has the potential to capitalize in a rebound in rare earths.

Rare Earth Stocks Could Rebound

It appears that rare earth stocks may not have completely bottomed, as they continued through a rough patch on Wednesday. There’s also the risk that new supply from Australia, Canada and the United States will oversupply the market and send prices lower.

At least for the time being, supply disruptions and attempts to control the market in China are likely to prop up rare earth prices. The need for large manufacturers and for the DoD to ensure supply internally and outside of China should help companies like Molycorp.

Streetinsider.com reported that Molycorp’s analyst meeting at 12:15 on Thursday may provide a rally for shares if the news is favorable. It cites Morgan Stanley analyst Paretosh Misra, who gives the stock an ultimate price target of $90.

Although that’s probably a bit optimistic, Molycorp could possibly be headed for an uptick. It may be worth it for investors to keep an eye on the rare earth markets, as we may be approaching a bottom.

Good investing,

Justin Dove

Article by Investment U

By Cedric Welsch

Forex market hours are great for convenient trading. The market is available 24 hours a day. Whether is it during the very early morning, during a lunch break or after the close of the business day, finding out what is going on in the market is easy. Forex makes it easy to trade no matter where in the world a person is. Forex trading times and trading hours vary from country to country and city to city all over the world.

Currency trading is one of the easiest trades to become involved with. It is best to stay within workable business times. In the US the hours are from eight am to five pm, in Tokyo business occurs from seven am to four pm. There are times different countries will run into or overlap one another. London and New York overlap from eight am to 12 pm. This makes trading the Euro and the US dollar greatest during those hours.

Monitoring any trade is easy when dealing with Forex. It is a fast paced world that needs traders to strike while it is hot. A slow or placid market does not help anyone and should be avoided. A calm trader, however, is always a great idea. A trader that’s lets emotions get involved in this business will fail faster than an unemotional trader will. Anger or elation are emotions better kept out of business; especially when there is money involved.

It is always a good idea to try something before diving straight into it. There is a demo that allows users to try Forex before getting into it. Different ways of doing things work for different types of people. A great trader knows that there is always a system behind a really great trader. Without a system to work with, a trader might as well be going into it with a blindfold on and that’s a good way to lose money.

Keeping time with the currency traded is money management is what most traders call for. Managing money correctly and trading at the correct times for what is wanted is an idyllic way for things to work. More often than not with an experienced trader this is the way things will advance. The timing of trades, having a system, developing a simple plan and monitoring the trades as they come and go will benefit everyone who gets involved in the Forex market.

About the Author

Peddling within the boundaries of the forex trade arena is a highly dangerous game to play. Thousands of hopeful investors in the foreign exchange trading market are still peddling tirelessly.

Oct. 20 (Bloomberg) — Emil Wolter, the Singapore-based head of Asian equity strategy at Royal Bank of Scotland Group Plc, talks about the outlook for the global economy and stock markets. He speaks from Singapore with Linzie Janis on Bloomberg Television’s “First Look” (Source: Bloomberg)

Source: ForexYard

It has been a while since I’ve touched on the EUR/CHF as the SNB has done a good job of holding the floor at 1.20. However, today the pair has tested and failed to break above its long term falling trend line which puts the ball back in the court of the SNB to continue to weaken the CHF.

Wednesday’s have typically been good for the EUR/CHF as a weekly SNB meeting leads to speculation of further policy moves by the Swiss National Bank. When the end result is nothing but market rumors the Swiss franc will often strengthen on Thursdays. This is the case today with the EUR/CHF down 200 pips. With a lack of stabilization in the euro zone and a respite in the defense of the Swiss franc by the SNB, the risk is increasing for speculators to begin to test the resolve of the SNB to hold the 1.20 line in the sand.

Should additional downward pressure be felt then the pair could test the supports of 1.2210 from the mid-September and October lows and the key 1.2000 level, setting up a showdown between speculators and the SNB.

Read more forex trading news on our forex blog.

Forex Market Analysis provided by ForexYard.

© 2006 by FxYard Ltd

Disclaimer: Trading Foreign Exchange carries a high level of risk and may not be suitable for all investors. There is a possibility that you could sustain a loss of all of your investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with Foreign Exchange trading.

An Income Strategy for Emerging Markets

by Carl Delfeld, Investment U Senior Analyst
Thursday, October 20, 2011

“You may delay, but time will not.” – Benjamin Franklin

I don’t know how many times I have read and thought about a great idea – only to miss the boat due to inaction.

A good example is missing the 25-percent run by Standard Chartered (OTC: SCBFF.PK) over the last two weeks. This hesitation was despite my conviction that this pink-sheet, blue-chip quality bank (nine consecutive years of up revenue, profits and dividends) was undervalued and poised for a rebound after pulling back 37 percent since May 2011.

A habit of delay can be deadly. The key to breaking it is to take that first small step.

Let’s apply that to emerging markets, which have certainly taken it on the chin lately. During the last three months, the MSCI Emerging Markets Index (AMEX: EEM) is down a hefty 22 percent.

The pullback and volatility are scaring off investors just when they should be getting interested, since these markets are dirt cheap – trading around book value with a dividend yield of five percent.

In addition, as you can see from the chart below, emerging markets are beginning to trend up.

While we wait to see if this favorable trend holds, here’s an easy way for you to make a move.

Why not begin with a basket of emerging market companies that have rich dividends and a history of being less volatile?

Consider This Bushel of Dividends 

This is the recipe for the EGShares Emerging Markets High Income Low Beta ETF (AMEX: HILO). HILO is a basket of 30 companies with a dividend yield of 5.5 percent. It’s well diversified, with 15 percent exposure to wireless telecom and 14 percent to diversified telecom.

Oil and gas, transportation and power producers account for 22 percent, and auto and real estate together make up 10 percent of the basket. These are big companies with an average market value of $11.5 billion.

HILO is a passive ETF designed to provide high income and to be significantly less volatile than the MSCI Emerging Markets Index through the utilization of low beta stocks. HILO is broad based, with exposure to multiple countries and sectors with quarterly income distributions.

No one company can make up more than five percent of the basket, and country exposure is capped at 25 percent. There are no games to produce superior income – HILO doesn’t use any options, derivatives, or leverage in attaining its income distribution.

The country breakdown and the top 10 positions are listed below.

Index Country Breakdown

Top 10 Holdings (Holdings are subject to change.)

It might surprise you to see Malaysia leading the list, but I highlighted in past articles Malaysia’s strengths as a solid middle-income country of 27 million, rich in natural resources, with a strong financial sector and currency.

This profile differs from the MSCI Emerging Market Index, which has Taiwan, Brazil, China, South Korea and South Africa together making up 70 percent of its basket.

Consider HILO if you’re trying to get back into the emerging market game. It offers lower volatility and higher income than other emerging markets ETFs.

Good investing,

Carl Delfeld

Article by Investment U

Oct. 20 (Bloomberg) — A French-German split over Europe’s rescue strategy emerged as finance ministers prepare to meet in Brussels tomorrow under pressure to craft a solution to the region’s debt crisis. Owen Thomas and David Tweed report on Bloomberg Television’s “Countdown.”