Month: October 2011

Are you prepared for when the “disconnect” between the market and economy reconnects?

By Elliott Wave International

Suppose you see a lovely house — one with great curb appeal. It has new paint and manicured shrubbery out front.

But also suppose that you look more closely. You press your thumb on the window sill and the wood frame crumbles in. Come to find out, the wood is rotten in too many places to count. The deck joists and supports are fractured. Even the terrain underneath the deck looks unstable. And the closer you look the worse the problems are.

It’s obvious that very few people would buy that house. Yet you can be pretty sure that the home’s owner will have “good things” to say about the place.

Likewise, today’s stock market has plenty of cheerleaders — even as the rot spreads throughout the economy. Real estate and homebuilding sector alike continue to decline in the wake of the mortgage meltdown. Municipalities continue to have growing budget problems. We’re not talking about a “small town” bankruptcy, either. An Oct. 12 Reuters headline reads:

“Harrisburg, Pa., Files for Bankruptcy Protection.” The story goes on to say that “The Pennsylvania state capital faces a $300 million debt crises…”

This Oct. 12 headline is from Bloomberg: “California Kids Face Days Without School as Revenue Gap Imperils Education.” It continues: “Public schools in California…are bracing for a $1.7 billion cut that may wipe out high-school sports and student busing, and trim the academic calendar by seven days next year.”

The economic problems run much deeper and wider than these stories can reflect — yet they are indeed today’s stories. The capital of one of our biggest states is filing for bankruptcy? That should serve as an alarm. Then again, the market is rallying just weeks after the downgrade of U.S. Treasury debt.

So when will optimistic financial investors wake-up to reality?

“At some point in the trend toward negative social mood, fear, and then panic, will bring to light the risks that people today are ignoring. Global credit deterioration is objectively real; but disaster will strike only when it becomes subjectively realized.”
Elliott Wave Theorist, September 2011

Collective psychology could “catch up” to the objective economic reality sooner than later.

Will you be prepared when the economic reality hits? Robert Prechter has just released a FREE report — with urgent analysis from his August and September 2011 Elliott Wave Theorist letters, including an excerpt from a special video presentation that he created for his subscribers in August. Stocks — Buying Opportunity or Another “Free Fall” Ahead? will help you put these uncertain markets into perspective so that you’ll be better positioned to both protect your investments when needed and prosper when opportunities arise. Access your free report now >>

Following last week’s credit rating downgrade by Fitch Ratings, Standard & Poor’s announced earlier today that it too, was reducing Spain’s rating to AA-. The rating downgrade confirms that while the spotlight more often than not has been trained on Greece, other Eurozone countries continue to struggle with their own solvency issues.

While acknowledging that Spain’s outlook did improve somewhat during the year, S&P based its downgrade largely on Spain’s woefully inadequate record with respect to reducing the deficit. The government did finally commit to reducing the annual budget shortfall to 6 percent of the country’s Gross Domestic Product (GDP) by the end of 2012.

Early on, the government was able to claim some success and managed to bring the deficit down to about 9 percent of GDP after a year. Unfortunately, it appears that momentum has since stalled and there is now little chance that the deficit goal of 6 percent of GDP is possible by the original target date.

This means Spain is still forced to rely on deficit financing to meet its operational expenses; this fact underscores the precarious situation Spain now finds itself. Like Greece, Spain has been forced to increase the yields on government bonds to entice investors, and as the risk of default increases, so must yields.

Following the credit downgrade, the yield on Spanish 10-year bonds rose to 5.24 percent. While this is much lower than the incredulous 23.9 percent yield recorded earlier this week for Greece’s 10-year notes, it remains considerably higher than the benchmark German 10-year yield of 2.25 percent.

Still, if there is one silver cloud in all this bad news, it is that the yield is still below 7 percent. This is the threshold at which most analysts believe bond yields become unsustainable making some form of emergency bailout – or even a default – all but inevitable.

In addition to concerns with Spain’s lack of progress in dealing with the deficit, Standard & Poors also drew attention to what could very well by Spain’s Achilles’ Heel – the economy’s dismal employment outlook. At 21 percent, Spain has the highest unemployment rate in the entire European Union.

Spain’s unemployment troubles can be traced back to a nation-wide property bubble that blew up in spectacular fashion when the global credit crunch struck in late 2007. Prior to that, home values were rising at record rates and just as happened in so many other countries, new homeowners took on massive mortgages erroneously believing property values could only move higher.

At the same time, existing homeowners started to see their rapidly accruing equity as a savings account from which they could borrow and spend as they pleased. When property values suddenly crashed, many people found themselves holding mortgages for much higher amounts than the value of the property. Many others, due to Spanish foreclosure law which attaches debts to individuals and not the actual assets, found themselves forced to continue paying mortgages for properties they no longer owned.

The result is a population carrying the highest ratio of personal debt, living in a country with the highest unemployment rate on the continent, and administered by a government unable to spend without relying on going further into debt. Not exactly a vote of confidence for the future.

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

Oct. 14 (Bloomberg) — Kenneth Schapiro, president of Condor Capital Management, talks about Google Inc.’s financial results and business outlook. Google, owner of the world’s most popular search engine, reported sales and profit that beat estimates as businesses spent more on advertising to online consumers. Schapiro speaks with Susan Li on Bloomberg Television’s “First Up.” (Source: Bloomberg)

Oct. 14 (Bloomberg) — Bank of Korea Governor Kim Choong-Soo talks about the outlook for South Korea’s economy and inflation. Kim, speaking yesterday with Bloomberg’s Deirdre Bolton, also discusses global economies, Federal Reserve monetary policy and the U.S.’s trade agreement with South Korea. (Source: Bloomberg)

By Ulli G. Niemann

When it comes to mutual funds, there is a lot more to success than just finding a good one. Sad investment stories like the following are all too common. I hope my sharing it with you will help you avoid making the same devastating financial mistake one of my former clients made.

This story begins during the height of the investment madness in 2000, just prior to the bear market. I had been managing an IRA account for “Bob” for around six years, with a better than average record of success. So I was surprised when Bob sheepishly called in July, 2000 to let me know he was transferring his IRA account, which had done particularly well during our latest Buy cycle going into the year 2000.

However, his tax preparer, a long time personal friend of Bob’s wife’s, was now also offering investment services, having recently received his Registered Representative’s license.

Fast forward to the end of September. It had become increasingly clear to me that the Bull market had run its course. So, in accordance with the Sell signal from our trend tracking methodology, we sold all of our mutual fund positions on October 13, 2000 and went 100% into money market. (See my article “How we eluded the Bear in 2000” at http://www.successful-investment.com/articles12.htm). From our safe haven we watched the market crash and burn, causing most other investors to sustain double digit losses eventually reaching as high as 50 – 60% of their assets.

In 2002 Bob unexpectedly stopped by my office. As it turned out, things had not gone well at all with his IRA investments. As most advisors would have done, his tax preparer/advisor had quickly moved all of Bob’s assets into a variety of “load funds.”

Of course, being newly licensed he was clueless (as were many licensed advisors) as to market behavior or analysis of any kind. The end result was that Bob’s portfolio lost in excess of 50% over the next 2 years. (Not to gloat, but my clients’ losses in the same period were non-existent.)

Unfortunately, the degree of loss Bob sustained was experienced by many investors who did not follow a disciplined and methodical approach.

What I find particularly distasteful is that Bob’s tax preparer misused his position of trust. He made financial decisions that he was not qualified to make, though his license implied that he did know enough to make them. So now we know what a piece of paper is worth.

This is no different than letting a newly graduated medical student with a fresh MD behind his name perform heart surgery. Or, hiring a new MBA grad to Chief Financial Officer of a Fortune 500 company. Yet the financial services industry allows someone to get a license (after a fairly short course) and to immediately start making incredibly important and far reaching financial decisions for anyone he or she can sell their service to.

This is a worrisome trend in this industry. A CPA friend confirmed that he has been approached many times by firms wanting him to offer investment services.

Why? It’s easy money! Accountants and tax professionals have a great business base. They are in a unique position of trust, because of the information their clients disclose to them. Whether they are employed by a company or they maintain an individual practice, there is probably no other person (other than your spouse) who knows as many intimate details of your financial life as your accountant/tax preparer.

To abuse this trust for personal gain-no matter how noble the motive may appear-is a total conflict of interest and a huge betrayal.

The bear market of 2000 has shown that investing must be a disciplined endeavor. Even most professionals have failed to recognize this. What busy accountant, in the middle of tax season, can put the necessary time and attention to a volatile investment market that may require action at a moment’s notice?

As for Bob, he’s still with his accountant, and in the same investments that brought his portfolio down. He’s hoping for a miracle recovery. As of this writing, the stock market is engaged in something of an upswing and Bob, I’m sure, is getting his hopes up that he will recover some of his losses. However, I shudder to think that this rally may come to an end and the bear market resumes. Where will Bob be then?

At 58 years old Bob is still playing Russian roulette with his retirement. He’s apparently unable to make a decision to move to someone who has the ability to make sense of market trends and the discipline to follow the signals they communicate. This is a decision that will have a profound affect on his financial future-and will determine whether his story has a happy or sad ending.

© Ulli G. Niemann

In Copenhagen, the water in the inner harbor is so clean, you can take a dip in it. A third of the city’s 1.1 million people regularly cycle to work and by 2035 politicians hope all of its energy will come from renewables. But can the Copenhagen model be transferred to other cities?

At the 2011 Take Lead Conference we went for a walk with Architect Jeffrey Heller to talk about it.  Heller is President and Founder of Heller Manus Architects and a fellow of the American Institute of Architects. He is a leader in the sustainable movement and behind some of the first leading sustainable architecture and large scale urban planning projects in the US and China.

He is currently working on a number of projects in China that involve redesigning older cities like Beijing and helping the Chinese design entriely new cities from scratch.

Legal information

Video courtesy of en.jyskebank.tv

By Cedric Welsch

Finding accurate forex rates is vital to successful currency trading. While this information is widely available online, not all of it is accurate, or offered in real time. Some sources are also better than others because of the additional features they offer. Consider the following when looking for the best forex information online.

Testing for real time rates between sites can easily be done by opening several, and seeing which rates update the quickest. Even a difference of a few seconds can make the difference between making a profitable trade, or losing your shot. Finding a site that offers information faster than others – will put you ahead of others and allow you a little more time to think your trading moves through before making them.

Sites that offer forex rates, as well as free trading tools are best. Currency calculators, current trading news, and historical data are all nice to have located in one place. This information should be free. However, some sites offer premium features that require a small cost to access. Often times this information can be found on the same site where you submit your trades.

An easy way to locate the best site is to ask your broker or friends. Forex related message boards are another excellent source of information. Individuals on message boards discuss much more than the current rates, but trading strategies, current events, and much more. Whether you choose to actively participate, or simply spend your time reading, there is lots to gain from frequenting message boards that are related to currency trading.

Once you have settled on a favorite site, you should also seek additional sites that you trust. All websites are subject to at least a small amount of down time, and you will want to have a backup site that you can quickly turn to for information when this happens. There is also the slight possibility that your favorite site could crash, and this is another reason to select additional sites that you trust.

Knowing the current forex rates is no doubt considered by most to be the single most important factor when participating in currency trading. It really is all about the numbers, and these numbers can make or break you. Whether you decide to pay for this information, or get it free, is up to you. The most important thing is that it be offered in real time, and be completely accurate.

About the Author

What would a very effective forex trading tactic bring to your fx trading business instantly? Every type offorex trading strategy that is introduced must be scrutinized really well.

Oct. 14 (Bloomberg) — Chang Jian, an economist at Barclays Capital in Hong Kong, talks about China’s economy and the nation’s currency policy. China’s inflation exceeded 6 percent for a fourth month as officials across Asia struggle to cool prices even as growth slows. Chang speaks with Rishaad Salamat on Bloomberg Television’s “On the Move Asia.” (Source: Bloomberg)

China Buying its Way to Shale Technology

by Justin Dove, Investment U Research
Friday, October 14, 2011

Sinopec’s (NYSE: SHI) move to purchase Calgary-based Daylight Energy (OTC: DAYYF.PK) and its 300,000 acres of oil and gas-rich land for $2.2 billion certainly wasn’t the first Canadian acquisition by a Chinese oil and gas company – and it won’t be the last.

According to Bloomberg, Beijing-based Sinopec and CNOOC Ltd. (NYSE: CEO) are “among Chinese companies that have bought almost $30 billion of Canadian assets in the past five years.” This is not only to meet rising energy demands in the world’s fastest-growing major economy, but also to gain access to shale drilling methods.

“China has coal bed methane and shale gas resources domestically, so there has been some anticipation in the market that they would want to get some technology partnership in North America so that they could gain an ability to exploit their domestic resources,” Barclays’ Capital’s Michael Zenker told the Vancouver Sun.

China’s Interest Shifts to Shale Gas

Most of the early acquisitions centered on access to Canada’s vast oil sands reserves, which low estimates tab at 178 billion barrels of oil. Sinopec and CNOOC have also invested heavily in Enbridge Energy’s (NYSE: EEP) proposed Northern Gateway pipeline that will connect the Alberta oil sands with the West Coast and ultimately Asia.

However, the most recent acquisitions, such as Daylight Energy, have displayed a shift of interest in shale gas exposure.

According to EIA estimates, China holds 1,275 trillion cubic feet (tcf) of recoverable shale gas. That compares to 862 tcf of recoverable gas in the United States, where shale plays have been all the rage with investors.

Bloomberg reports that China “aims to triple the use of gas to about 10 percent of energy consumption by 2020 to cut its reliance on more polluting coal and oil.”

Lofty Goals for China Shale Production

In 2007, China became a net importer of natural gas for the first time in almost two decades.

Then in early 2010, the Ministry of Land Resources announced a goal of producing 530 to 1,000 Bcf/y of shale gas. That proposed production is likely to account for eight to 12 percent of the country’s total natural gas by 2020.

Thus far, China has been mostly unwilling to allow foreign companies access to its shale reserves. Currently Royal Dutch Shell is the only company in the region. In June, China National Petroleum agreed to a joint venture with Shell to seek guidance after it took nearly 11 months to set up its first shale well.

Additionally, Bloomberg reported that Chevron Corp. (NYSE: CVX), BP Plc. (NYSE: BP) and Statoil ASA (NYSE: STO) are among international oil and gas companies that have been negotiating to form joint ventures to tap shale- gas assets in China.

But to reach the lofty expectations China has set forth, it will have to speed up its technological advances in shale drilling. The best way to accomplish that will be through acquisitions of companies with the technology and know-how to access its vast shale deposits.

While the country has been hesitant to go after U.S. companies for political reasons, it seems to view Canadian companies as fair game.

China Energy’s Possible  Canadian Takeover Targets

Among rumored takeover targets for Chinese energy companies are the following:

• Birchcliff Energy (OTC: BIREF.PK) – Birchcliff has a market cap of $1.64 billion, but its current P/E of nearly 400 is astronomical. It apparently put itself on the block for sale last week.

• Celtic Exploration. (OTC: CEXJF.PK) – Celtic is a Calgary-based company holding land all over Alberta. It has a market cap of $2.3 billion. Among Celtic’s properties is 94,240 net acres in the Montney shale play and 84,269 net acres in the Duvernay shale play.

• Talisman Energy (NYSE: TLM) – Talisman would come at a higher price to Chinese companies, with a market cap of $12.58 billion. It also doesn’t look like much of a bargain, selling at a 108.58 P/E ratio. The Calgary-based company does have operations spanning the globe, however, including multiple operations in Southeast Asia with close proximity to China.

• Encana Corp. (NYSE: ECA) – Encana is the largest of the rumored companies with a $14.63 billion market cap, but it’s relatively cheap compared to its peers with a P/E of 20.27. It’s one of North America’s largest natural gas producers and the largest independent natural gas producer in Canada. In June, a proposed joint venture between Encana and PetroChina Ltd. (NYSE: PTR) worth $5.4 billion fell through. The company may currently be attractive as a takeover target considering its relative bargain price.

China definitely has its sights set on increasing its natural gas consumption to cut down high pollution. It also seems determined to increase its own domestic production.

Because of its hesitation to allow foreign companies access to its reserves, it’s likely that China will continue its buying spree in Canada.

Considering Sinopec paid a 120-percent premium for Daylight Energy, it may be in investors’ best interests to stay tuned to rumors regarding takeovers in the region.

Good investing,

Justin Dove

Article by Investment U

Oct. 14 (Bloomberg) — Russell Jones, global head of fixed-income strategy at Westpac Banking Corp., talks about global bond markets. Jones also discusses Europe’s sovereign debt crisis. He speaks with Susan Li and Rishaad Salamat on Bloomberg Television’s “Asia Edge.” (Source: Bloomberg)