Month: October 2011

Source: ForexYard

Coming in line with Monday’s statement on revised industrial production, this morning’s release on All Industry Activity in Japan revealed another sluggish month for the island economy. Expectations were for a mild downturn, making the report less surprising, however.

The results revealed a month-on-month contraction of approximately 0.4%. Following Monday’s release of industrial production, which fell short of market forecasts, makes this report more ominous for Japan. The yen may find itself coming under pressure as a result.

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The Banco Central Do Brasil dropped the Selic interest rate by another 50 basis points to 11.50% from 12.00% previously.  In its statement, Brazil’s Central Bank Monetary Policy Committee (Copom) said [translated]: “Continuing the process of adjusting monetary conditions, the Committee decided unanimously to reduce the Selic rate to 11.50% pa, without bias.  The Monetary Policy Committee believes that the timely mitigate the effects coming from a more restrictive global environment, a moderate adjustment in the level of the base rate is consistent with the scenario of convergence of inflation to the target in 2012.”

Brazil’s central bank previously also cut the rate by 50 basis points, after raising the Selic rate by 25 basis points to 12.50% at the June Copom meeting this year, which at the time amounted to total tightening for the year of 175 basis points (now net tightening of 75bps).  Brazil reported an annual inflation rate of 7.31% in September, compared to 7.23% in August, 6.87% in July, 6.71% in June, and 6.55% in May, and just outside the official inflation target of 4.50% +/-2% (2.5-6.5%).  

The Bank of Thailand held its benchmark 1-day bond repurchase rate unchanged at 3.50%.  Bank of Thailand Assistant Governor, Mr. Paiboon Kittisrikangwan, said: “The MPC deemed that the current level of the policy rate is appropriate in addressing upcoming inflationary pressure  and supporting economic adjustments amidst heightened uncertainty in the global economy. Meanwhile, with the floods not yet over, their impact on the economy was not fully evident. The MPC therefore voted 6 to 1 to hold the policy interest rate at the current level of 3.50 per cent, with one vote in favour of a 0.25 per cent decrease. The MPC would remain vigilant in monitoring developments of risks and stand ready to take appropriate policy actions.”

Norway’s central bank, Norges Bank, held its key monetary policy rate steady at 2.25%, and signaled no changes.  The Bank’s Deputy Governor, Jan F. Qvigstad, said: “The Executive Board is of the view that the outlook and the balance of risks now suggest that the key policy rate should be kept at the current level for some time ahead. If the economic unrest abroad intensifies, money market premiums remain high and the outlook for growth and inflation weakens further, the key rate may be reduced. If financial market turbulence subsides and there are prospects of higher growth and inflation, the key rate may rise.” 

At its previous meeting the Bank held the key policy rate unchanged, after increasing the interest rate by 25 basis points to 2.25% in May.  The Bank expects inflation to remain relatively low, but to progress towards the 2.5 percent inflation target (but with due upside inflation risks); Norway reported annual inflation of 1.6% in September, 1.3% in August, 1.6% in July, 1.3% in June, 1.6% in May, and 1.3% in April this year.  

By MoneyMorning.com.au

“China’s surging economy moderated to its slowest pace in more than two years in the third quarter, as it remains on track for a government-engineered ‘soft landing’ that has unsettled global investors.” – Financial Times

When we see the words “government-engineered”, it sends a shiver down our spine… hairs stand up on the back of our neck… and if it happens to be a full moon, we howl at it.

But that’s nothing compared to our reaction to the term “soft landing”. It’s one of the most dangerous words in the economic language.

Because shortly we’ll show how the U.S. Federal Reserve’s attempt at a “soft landing” in 2000 gives a clue to where the Chinese economy is heading next. And considering how crucial China is to the Aussie economy, understanding what’s happening in China is important to every Australian…

But before we go on, don’t forget to check out Slipstream Trader, Murray’s Dawes’ latest free weekly update on YouTube.

In the video released yesterday, Murray revealed the next few weeks could be “one of the best selling opportunities of the year.” That’s great news for short-sellers. And it’s also good news for investors who want to get out of stocks before the market tanks… again.

This morning the Aussie market is down more than 1% in early trading – thanks to lower commodity prices and…

As it turns out, Europe’s banks may be in better shape than many thought (remember everything is relative, the banks are still stuffed, just not quite as stuffed).

That means the bailout and stimulus programs may not be as big as investors had hoped… which means less money printing and a smaller boost to asset prices.

In other words, good news is bad news!

But the banks aren’t on our radar today. Because right now, the banking story is just noise hiding the real story. Which brings us to Mark Twain…

He supposedly wrote:

“It is not worth while to try to keep history from repeating itself, for man’s character will always make the preventing of the repetitions impossible.”

What Mr. Twain was getting at is that history provides a good indication of what could happen in the future. And that it’s wishful thinking to believe people will learn from mistakes.

We’re sure you’ve heard how U.S. Federal Reserve chairman, Dr. Ben S. Bernanke is determined not to make the same mistakes as the Fed did during the Great Depression. Yet everything we’ve seen from the Fed tells us Dr. Bernanke is helping repeat history, rather than avoiding it.

The problem is those who gain positions of authority believe too much in their own abilities. They believe they’re the only ones who can solve the problem… because only they’ve learnt from history.

Only, humans are fallible. And no single person can possibly know enough information to predict all possible outcomes – if it was possible you wouldn’t get unintended consequences.

Yet as we’ve written many times, despite the evidence, most believe those in authority will succeed. They believe chaps like Dr. Bernanke knows what he’s doing. And those same people also believe China knows what it’s doing too… that China can engineer the fabled economic soft landing.

So, let’s briefly describe just what a “soft landing” is…

In simple terms it’s the idea a central bank can gradually raise interest rates to slow down an economy. That rather than crashing to a halt, the economy will slow gradually to a more sustainable rate of economic growth.

Of course, as you can guess, the People’s Bank of China isn’t the first central bank to give it a go. For example, take this from the Philippine Daily Inquirer on 6 July 2000:

“The US economy is on track in the second half of this year to achieve the ‘soft landing’ desired by Federal Reserve policymakers, slowing just enough to hold inflation in check, according to economists surveyed by Bloomberg News.

“Growth will probably average a 3.7-percent annual rate in the final six months of the year… That’s down from a 5.5-percent first quarter growth pace and close to the consensus forecast of a 3.5-percent rate for the second quarter that ended Friday.”

The article continues with a comment from Paul Christopher, economist at financial services firm, AG Edwards & Sons:

“Whether the Fed closed their eyes and pushed the button or they have a remarkably good crystal ball, it seems like they are going to get the kind of slowdown they wanted.”

Turns out either the Fed did close its eyes… or the crystal ball was a dud. Because two years later the U.S. market had dropped 50%. And the economy was in recession:

Click here to enlarge

If that was the “kind of slowdown they wanted”, we don’t recall the Fed mentioning it in advance.

Let’s be honest, the idea that a central bank can engineer a soft landing is about as likely as you finding a pot of gold at the end of a rainbow.

Soft landings – if they happen at all – happen by luck, not design.

And right now, China is right out of luck. Because based on what we can see, the signs are that China is heading for a very, very hard landing… and for the most part, the market is blind to it.

Even so, the clues are obvious. Of course, there’s always a chance they’re too obvious and we’re wrong. But we don’t think so.

Our bet is the Chinese economic collapse will happen soon – perhaps very soon. And make no mistake, when it happens it will cause more damage to the world economy than anything the collapse of a few dodgy European banks could ever do.

So, what are the clues?

For that you’ll have to wait until tomorrow. We’ll fill you in on the details then…

Cheers.
Kris.

China’s Hard Landing is Certain

By MoneyMorning.com.au

Within the space of 18 months, the debt crisis has grown from a hatchling in Greece, consumed a few bloated PIIGS, and then gestated into a full-blown, fire-breathing monster with a wingspan the width of Europe.

Europe’s debt crisis has grown into a monster very rapidly.

Politicians can scurry around and have as many emergency meetings as they want, but they’re delusional if they reckon they can fix debt with debt.

And all this debt is eroding the value of your cash.

But there are alternatives instead of holding onto paper notes.

Like precious metals.

It’s best to think of precious metals as an alternative to holding cash in a portfolio.

The risk, of course, is that gold and silver prices fall significantly. But I don’t expect this to happen. As you’ll know if you read my articles earlier this week…

It’s best not to think of gold and silver metal as a way to make you rich though. Think of it as something that will work for you as a store of value.

Even though the spot price of gold has dropped from its earlier highs – investor demand for the metal is outpacing supply.

The increase in popularity in bullion has left many investors new to the gold and silver market wondering which is the best way to get their hands on precious metals.

My favourite option is buying physical bullion.

Buying physical gold or silver is more expensive because dealers charge a premium. You then have the cost of delivery, storage and insurance. But the nice thing about it is you actually know you own it!

You can choose from coins, antique coins, nuggets and bullion bars.

Coins are pretty, but because of the detail they’re more costly to buy. Antique coins are a specialised market. And nuggets are great, but the price varies on purity and other factors.

If you’re investing for the long-term, in my opinion it’s best to do it with bullion.

You can buy the metal directly from a dealer’s office. Or put an order by phone or online. Delivery is easily arranged. But ask questions about the method used and whether it’s insured.

While there are plenty of bullion dealers in Australia, there’s another surprising way to get your hands on the shiny stuff.

Bizarrely, eBay has quite an active silver market! I’ve bought and sold successfully this way quite a few times.

This is much riskier than going through a registered dealer. And it’s essential to get the metal tested. This is as easy as going to a business that buys scrap gold and silver, and asking them nicely to scan it for you.

Importantly, stick with good sellers when you find them. And it’s a smart move to get the seller to send it recorded delivery and insure it.

Enjoy that bullion!

Alex Cowie
Editor, Diggers & Drillers

[Ed note: Alex gave subscribers a complete rundown on how to buy, hold and sell physical gold bullion in the May 2011 issue of Diggers & Drillers. If you’d like to know more about Alex’s investment advisory service and buying gold, click here…]

Related Articles

Why Chinese Monetary Planning Means More Volatility for You

Australia: The World’s Investing Casino

Why China’s Hidden Debt is Bad News for Aussie Stocks

The Great Indian Coal Rush

The Other Side of Short Selling

From the Archives…

Can You Beat Goldman Sachs?
2011-10-14 – Kris Sayce

Three Stocks to Sell Before China Slumps
2011-10-13 – Kris Sayce

Why Allocation Beats Diversification
2011-10-12 – Kris Sayce

Huge Rally – Is the Low In?
2011-10-11 – Murray Dawes

Queensland Housing’s 100-Year Slump
2011-10-10 – Kris Sayce

For editorial enquiries and feedback, email [email protected]

The Euro Zone’s Fire Breathing Monster

AUDUSD moved sideways in a range between 1.0102 and 1.0371. As long as 1.0102 key support holds, the price action in the range is treated as consolidation of uptrend from 0.9390, and one more rise to 1.0500 is still possible. On the other side, a breakdown below 1.0102 support will indicate that a cycle top has been formed at 1.0371 on 4-hour chart, and the rise from 0.9390 has completed, then the following downward move could bring price back to 0.9900 zone.

NZD/USD – Daily outlook 20 October

Three day’s ago on Monday we saw the Kiwi rejecting the 50% retracement level from its most recent down swing on the daily charts. Price action has not generated any bearish rejection signals until today where we’ve seen an inside bar forming on the daily charts and have almost completed a head and shoulders pattern on the 4hr charts.

In the chart below you can see resistance has been sitting strong at the 0.8020 area which in the summer months held as support for the pair. The 0.8020 area also ties in with the 50% retracement of the most recent down swing. Although recent weeks have seen the bulls taking charge of this market the 50% retracement & rejection suggest we could be in for further moves to the downside in the coming days.

To support the daily chart price action we can take notice of the head and shoulders pattern that has almost formed on the 4hr charts, again rejecting the same 0.8020 area mentioned above.  You can see the downwards sloping ‘neck line’ further supporting a push lower. At the present moment we are approximately half way to completing the final stage of the 2^nd shoulder.

Should we see a break of the ‘neck line’ we could expect the kiwi to lose further ground against the Dollar in the coming days/weeks.

http://www.vantage-fx.com

Oct. 19 (Bloomberg) — Christian Gattiker, head of research at Bank Julius Baer & Co, talks about the risk of a credit crunch and plans by European banks to shrink balance sheets. He speaks from Zurich with Francine Lacqua on Bloomberg Television’s “On the Move.”

Times They Are A Changin’ – Your Investment Strategy Should Not

by Marc Lichtenfeld, Investment U Senior Analyst
Wednesday, October 19, 2011: Issue #1624

“There’s something happening here. What it is ain’t exactly clear.” – Buffalo Springfield

It’s been very easy to dismiss the Occupy Wall Street movement as a bunch of pot-smoking hippies ironically protesting capitalism while texting on their iPhones. The media has been having a good time poking fun at the protesters, often referring to their scent as “patchouli smelling ” or “badly in need of a bath.”

The Occupy Wall Street movement hasn’t yet solidified to a concise message. But it would be wrong to ignore the emotion behind the movement.

When the Tea Party first started, some members of the media labeled it a racist movement. Whether that element was there, it is still highly debated in the media. But the group soon found its message and became a viable political force, calling for lower taxes and less government spending.

The mainstream media is ignoring the very real emotion behind Occupy Wall Street, instead trying to impress viewers with snarky remarks about the movement, which has grown beyond the media’s wildest imagination.

And while the message may not yet be clear, it still resonates with how many Americans feel.

The Focal Point of Occupy Wall Street’s Anger

I don’t think the protesters’ issues are “other people are rich and I’m not and that’s not fair.” Or even a protest against capitalism. Other than those who are true socialists, most people believe that the capitalist system works and can lead to fulfillment of the American Dream.

What I see as the focal point of their anger is the belief that the American Dream is no longer attainable. That it has been hijacked by those who head up big corporations and by politicians.

As Nicholas Kristof wrote in The New York Times on Saturday, “The banks have gotten away with privatizing profits and socializing risks…” That isn’t capitalism. I’m going to guess that if the banks (and their executives) that made the bad loans actually suffered as a result, the way capitalism is supposed to work, there would be no Occupy Wall Street.

The banks (and other corporations) have gotten away with it because they’ve bought Congress and the White House. They own it, plain and simple. All that’s missing is the title.

So even though politicians offer all kinds of promises about changing the system, the truth is they want to keep their jobs just like most Americans. Perhaps even more so with their lucrative pensions and first class healthcare benefits.

The way to keep their jobs is by getting along, taking the lobbyists money and doing their bidding. And if their constituents actually are aware of what’s going on and try to vote them out, the lobbyists’ money will buy a lot of campaign ads that belittles their opponent’s military service or makes you believe the challenger is an imbecile or a crook.

Call me naïve, but I believe most people in this country aren’t asking for a handout. They want to get up every morning, grab their briefcase or their lunch pail and do an honest day’s work for an honest day’s pay. They want the opportunity to succeed at their job/career/business.

Economic Growth Curtailed by Bailed-Out Banks

What is maddening for these people is the idea that growth is being curtailed by banks sitting on billions of dollars that they won’t lend. Particularly when those banks were bailed out by taxpayers for really stupid business decisions. Even worse is that many of the executives whose blunders caused the collapse are still in charge and collecting seven- and eight-figure salaries.

Most people are intelligent enough to understand that a struggling business can’t bring on more employees. But how do you explain Hewlett Packard’s (NYSE: HPQ) ousted CEO Leo Apotheker taking home $13 million in severance, during a period where the company laid off employees? Keep in mind that revenue, earnings and cash flow are the highest they’ve been in years.

Bank of New York Mellon (NYSE: BK), which also has reported higher revenue, earnings and cash flow, plans to lay off three percent of its workers, but still found $17.2 million to hand to outgoing CEO Robert Kelly.

Even the wildly ineffective Yahoo! (Nasdaq: YHOO) former CEO Carol Bartz got a check for $10 million when she was shown the door, while other laid-off co-workers, who were presumably better at their jobs than she was, received significantly less.

The sense of entitlement isn’t just among the incompetent, but also in the criminal. KV Pharmaceuticals’ (NYSE: KV.A) former CEO Marc Hermelin is trying to collect $37 million in retirement benefits despite serving jail time for mislabeling drugs, having KV’s business shut down by the Feds for shipping oversized morphine pills and an investigation concluded Hermelin didn’t act in the company’s best interests.

I don’t believe the Occupy Wall Street movement is about begrudging successful people their wealth. It’s about not permitting just a very few to hold all the power over the government, corporate America and ultimately our lives.

If that is not yet the concise message, that’s what it should evolve to.

So what does this all mean for your investments?

If you own some of the big banks, the protests might ironically increase profits. If the politicians truly get fearful of the populace, they may start to force banks to stop being so stingy and get some of that money out on the street. More loans should lead to more earnings and may actually spark the economy…

Healthcare and Dividend-Paying Stocks: Two Sectors Immune to Change

But two areas should be relatively immune from any change that the protestors are able to bring about – healthcare and dividend paying stocks.

Yes, healthcare is big business and could eventually become a target for protesters as well, particularly companies that charge high prices for critical medicines. But no one is going to create new therapeutics, diagnostic tools, or provide services unless there’s a profit incentive.

Wanting to cure cancer is a great motivator, but it’s an expensive proposition. Trying to find investors to put up money to fund innovative companies will be tough if their opportunities for profit are curtailed.

Look at mid-size but profitable healthcare companies like Myriad Genetics (Nasdaq: MYGN) or Watson Pharmaceuticals (NYSE: WPI).

Also, consider companies that have raised their dividends annually for at least a couple of decades. That proves they have the staying power to withstand all sorts of economic, political and global changes.

Consolidated Edison (NYSE: ED) has been raising its dividend every year since 1974. Clorox (NYSE: CLX), a member of The Oxford Club’s Perpetual Income Portfolio, has increased its dividend each year since 1977. Over the past 10 years, the dividend has grown by an average of 10 percent per year.

These companies have products people use every day and will continue to use every day whether they’re taking it to the streets or going to work.

We may look back upon this period as a time when America changed for the better – when two political movements emanating from opposite ends of the political spectrum made both our country and its citizens more financially sound.

What will likely remain the same though, is the performance of the stocks of quality companies that provide needed services and products.

Times may be changing, but the performance of investments that have withstood the test of time, likely won’t.

Good investing,

Marc Lichtenfeld

Article by Investment U