Month: October 2011

By MoneyMorning.com.au

In today’s letter we’ll ask whether the latest banking bailout is a sign of strength. Or whether it’s a sign of ongoing problems in the global banking and credit markets…

Problems that will have a direct impact on Australian investors.

Plus we’ll give you three stocks you should add to your watchlist. But not so you can buy them. These are three stocks for your short-selling watchlist.

Before we get to that, where better to look for evidence of trouble than China.

In the past few days we’ve followed the China bank bailout story. The Financial Times wrote earlier this week:

“‘They [China’s sovereign wealth fund] are trying to signal to the market that they feel confident,’ said Sanjay Jain, a Chinese bank analyst with Credit Suisse. ‘And of course valuations are depressed, so it’s not a bad idea to buy at these levels for a long-term strategic investor.’”

The deal is that Central Huijin (owned by the Chinese government) is buying shares in four Chinese banks: Agricultural Bank of China [HKG: 1288], Bank of China [HKG: 3988], China Construction Bank [HKG: 0939] and Industrial and Commercial Bank of China [HKG: 1398].

Over the last six months, shares in those bank stocks have fallen 52%, 51%, 41% and 47%. But since the announcement, the shares have rallied. So by revealing its hand, the Chinese government won’t get the depressed value a “long-term strategic investor” would hope for.

So, this is good news right? China is financially supporting its banks… just as the U.S., U.K., and Europe supported their banks.

Not so fast. Legendary investor, Jim Chanos has a different view…

Like your editor, Chanos has been bearish on China for some time. He told Bloomberg News:

“The fact that people are even talking about the government stepping in to shore up the banks, when two months ago people thought there was nothing wrong with the Chinese banks, should tell you just how seriously this situation is deteriorating.”

And you can be sure that when China hits the ropes, suppliers to China will cop it too. Remember, it’s not just Chinese stocks Chanos is short-selling. As Bloomberg also notes:

“[Chanos is] also betting against Brazil’s Vale SA (VALE), the world’s largest iron-ore producer, on expectations demand from China will slow.”

Chanos told the GAIN/GMA conference in New York that Vale is building “a fleet that is larger than the U.S. Navy” to ship iron ore to China!

If that doesn’t shout “commodity bubble” we don’t know what does. But that’s what happens in a price bubble. Businesses spend big on capital equipment. Why? They do it for one of two reasons…

One reason is they think the boom will continue for a long time. That to profit from the boom they need to increase production and that means adding to or replacing capital equipment.

The other reason is they think the boom won’t last forever, but unless they increase production, their competitors will… and that means they’ll miss out on the boom.

Maybe that explains the headline from the Australian yesterday, “BHP’s $1.2bn to start Olympic Dam”.

The story notes:

“BHP Billiton has approved $US1.2 billion ($1.19bn) in pre-commitment capital for the first phase of its Olympic Dam project, which has moved another step closer to board approval after the South Australian government signed off on the plans.”

It continues:

“The expansion project, which has the potential to boost copper production from about 180,000 tonnes a year to 750,000 tonnes a year for decades, would involve building an airport, a gas-fired power station, a 105km rail line and a coastal desalination plant.”

Woot-woot…

There goes our crash warning alarm.

China is bailing out domestic banks because of bad loans. Loans the banks would have made to unsustainable businesses and projects. At the same time BHP Billiton [ASX: BHP] forges ahead with plans to quadruple copper production… so it can ship more commodities to unsustainable businesses and projects.

Something doesn’t add up.

The way we see it, stock prices have only priced in some of the slowing growth from China. BHP Billiton is down 24.6% from its 12-month peak… Rio Tinto [ASX: RIO] is down 22.3% over the same time… and Fortescue Metals [ASX: FMG] is down 33%.

The important thing to remember is the market never gets things exactly right. That’s why share prices move up and down so much… as investors take into account new information.

Our bet is investors have underestimated the impact on earnings for Australia’s blue-chip resources stocks when the Chinese economy hits the wall. When China stops, prices of the big miners will be hit hard.

Bottom line: if you think BHP looks cheap today at $37.55, odds are that within the next 12 months it will be a whole lot cheaper… if as we expect, Chinese economic growth stops dead.

Chanos is short-selling Brazil’s Vale. You could try the same. Be we’d suggest something easier. And that is to look for good opportunities to short-sell the big three Aussie miners: BHP, Rio Tinto and Fortescue.

Cheers.
Kris.

PS. Slipstream Trader Murray Dawes has traded in and out of BHP, Rio and Fortescue several times in recent months. We can’t tell you what positions he has on at the moment – that’s for subscribers only. But if you’d like to hear Murray’s take on the broader market and what it could mean for all Aussie stocks, take a moment to view his latest free market update 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…

What Debt Crisis?
2011-10-07 – Greg Canavan

Enjoy the Rally, It Won’t Last for Long
2011-10-06 – Greg Canavan

Why the Fed’s Actions Make Perfect Sense
2011-10-05 – Murray Dawes

Too Big to Bail
2011-10-04 – Murray Dawes

What Can We Expect Next From Commodities?
2011-10-03 – Dr. Alex Cowie

For editorial enquiries and feedback, email [email protected]

Three Stocks to Sell Before China Slumps

Written by Andrew Snyder, Editorial Director, Smart Investing Daily

If you want to protect yourself from the demise of the U.S. dollar, you need assets denominated in something other than the greenback.

It is the ultimate growth industry… beer. The nectar of the gods may be one of man’s oldest delights, but a very specific sector is growing by double digits each year.

Microbrews are hot.

Get this… overall beer sales were down by 1.0% last year. But microbrew sales were up by 11%. The sector was worth $7.6 billion — split among 1,753 breweries.

This year looks even better. During the first six months of 2011, the Brewers Association tells us sales are up by 15%. Better yet, there’s an extra 165 breweries in the market, with more on the way…

For the average investor, all this growth doesn’t mean much. Unless you want to enter the realm of venture capital, it’s tough to tap the microbrew trend.

But it does give us strong clues to where the money is heading.

This chart shows us how Boston Beer Co. (SAM:NYSE) — the closest thing to a publicly traded microbrew — compares to the overall market. Over the past 24 months, it’s no competition… beer rules.

The company behind Samuel Adams doubled its investors’ money while the overall market was stagnant.

View larger chart

This is an idea that our Steven Orlowski has caught onto. But he takes it a step further. I just finished reviewing his latest issue of Safe Haven Investor (it will be posted online on Monday). In this issue, he takes the idea even further…

He says for the big opportunity, the big growth, looked to foreign brewers.

His logic makes sense. It is all about what he calls “true diversification.”

… and no, he doesn’t recommend using beer as a currency. He recommends buying shares of a foreign brewer.

It makes perfect sense, especially if you are looking for diversification. Not only are you buying shares of a company that boasts stable product demand no matter the economy (good times or bad… we drink), but the company is located in a country growing while we’re retracting.

“The U.S. economy is expected to lose its place as the king of the hill,” Steven tells us, “replaced by China’s burgeoning economy, and there is really no telling exactly how things will play out.

“But diversification in a portfolio is not just large-cap, mid-cap and small-cap domestic stocks with a sprinkling of foreign stocks. Diversification means lots of foreign exposure and the best kind of foreign exposure is buying stocks in their native environment.”

We need a word of caution here. Steven does not recommend an ADR — there’s no currency diversification.

If you want to protect yourself from the demise of the U.S. dollar, you need assets denominated in something other than the greenback.

He tells his readers, if they have access, to physically buy the stock on a foreign exchange (I’d tell you which one, but his paid subscribers would get testy).

But how do you do it? How do you buy stocks outside American markets? After all, this is not something your standard-fare broker or advisor is going to reveal.

Really, it’s not that hard. In fact, in his issue Steven tells us of a one-stop website that offers access to dozens of foreign markets.

Here’s a few more off the top of my head:

• Fidelity
• E-Trade
• Interactive Brokers
• Schwab

Few investors take advantage of the opportunity within foreign exchanges. After all, just five years ago, it was nearly impossible for Americans to get their hands on foreign equities. It was a privilege relegated to the rich or the well connected.

But not today. Now, it’s as simple to buy shares of a brewer in India or Germany as it is in New York.

And the timing could not be better. “True” diversification is more important now than ever before. As the U.S. dollar embarks on a long journey into the history books, the smart money is looking for safety elsewhere.

…anywhere but here.

As Steven shows his subscribers, a great niche to focus on is vice stocks. In this case, it’s beer… the ultimate growth industry.

JW Jones – www.OptionsTradingSignals.com

By James Woolley

For many people the idea of making money from forex trading without having to trade yourself is just a dream. However it could now become a reality because there are ways in which you can manage your own fund, and have other traders trade the markets for you.

The trick is to make use of some of the automated trading signals that are available to you. This is a relatively new sector of the forex industry, but it is growing all the time.

There are websites that you can go to that have thousands of different signal providers and you can get total access to all of these forex traders at no cost whatsoever. The only catch is that you have to open an account with one of the forex brokers that the website has an introducing broker relationship with, so they and their signal providers can earn small commissions from each trade. However this isn’t exactly a major inconvenience.

Once you have signed up to one of these websites that offer automated trading signals, you can then look through the trading records and the statistics for each signal provider, and pick those that are most likely to make you money. You can pick just one if you want to, or you can choose as many as you want. It doesn’t really matter because it is often a free service anyway.

As soon as you have chosen your providers, you can then enter your trading criteria, such as the stake per point for example, and let them trade the markets on your behalf. Every signal that they generate is replicated in your trading account. So if they are profitable, you will of course share in their success as well.

All of this means that you are essentially in control of your own forex fund. This managed forex account should hopefully appreciate in value if your chosen providers are successful, and you don’t have to do anything at all. There is no need for you to trade and you don’t even need to know the first thing about currency trading because you have people trading on your behalf.

A lot of people are enjoying the benefits of automated trading signals, and it is an area that is becoming more and more popular all the time. However you still have to exercise caution because even seemingly profitable traders can go through bad patches. Therefore you do still need to actively manage your portfolio of signal providers in order to ensure that you don’t start losing money. Any unprofitable traders can simply be removed and replaced by a more profitable trader instead.

So the point is that it is definitely possible to manage your own forex fund in this day and age. There is no need for you to trade at all. All you need is some capital to trade with, access to an automated trading signals website, and obviously access to the internet. If you have all that, then you can start reaping the benefits of having other more successful traders trading the markets for you.

About the Author

Click here to read a full review of ZuluTrade to learn about one of the best automated trading websites, and to check out some profitable long term forex strategies that you can use to trade the markets.

The National Bank of Kazakhstan held its key refinancing rate unchanged at 7.50% as inflationary pressures ease somewhat.  NBK Chairman, Grigori Marchenko, said that the central bank will not revise its 2011 inflation target of 6-8%, after the “lower-than-expected” inflation reading in September.  The Market does not expect any interest rate changes in the near term.  Kazakhstan’s central bank last increased the interest rate in March this year by 50 basis points to 7.50%.  

Oct. 12 (Bloomberg) — Thio Chin Loo, a Singapore-based senior currency analyst at BNP Paribas SA, talks about the outlook for currencies, Europe’s debt problems and the U.S. Senate’s passage of legislation punishing China for its undervalued yuan. Thio speaks with Rishaad Salamat on Bloomberg Television’s “On the Move Asia.” (Source: Bloomberg)

Source: ForexYard

A sudden surge in crude oil values yesterday brought about resurgence in a recently-weakened Russian ruble (RUS). The value of the RUS was brought down by strong dips in global stocks last week as traders sought the safety of more stable currencies. The US dollar (USD) was making strides against the RUS, but this week has seen the pair turning back in favor of the ruble.

Crude oil is the leading export earner for Russia, which makes its rise in price help lift the value of the ruble. The RUS, in turn, helps return investment interest to the Russian economy at a time when it needs to prove it can weather the financial storm of another global downturn.

With the price of oil holding steady above $86 a barrel, the RUS also climbed significantly against its primary basket of currencies. The RUS moved up over 0.2% against the USD and EUR towards 29.03 per dollar and 41.76 per euro. Talk of another round of quantitative easing by the US Federal Reserve has also caused many investors to bet on a sudden spike in oil values should the greenback become weakened. That predicted spike is also feeding into the ruble’s recent ascent.

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.

Source: ForexYard

This morning’s report on new industrial orders across the euro zone gave some investors a fright. The data, released by Eurostat, revealed a sudden contraction in demand for new industrial orders throughout the region. With consumer and business confidence in decline, the euro (EUR) appears set to take heavy losses this week.

Industrial demand figures in to a region’s productivity. With yesterday’s reports of positive growth in manufacturing PMI, the sudden downturn in industrial data seems to offset yesterday’s optimistic gains. The confidence reports from ZEW and Ifo this past month are also undermining the gains seen from the recent string of PMI reports. Look to a weakening euro this week.

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.

Source: ForexYard

Two reports delivered in daily succession have shown the business climate of Germany to be in deep decline this month. Yesterday’s reports showed a deep plunge in economic sentiment and today’s reports are expected to give credibility to those findings.

Today’s reports underscore the rising tension across the euro zone which appears to be sending traders elsewhere for the safety of their investments. As outlook declines, demand goes with it, as does the strength of the local currency. The euro (EUR) may get hit this week from the loss of standing among German businesses and investors.

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.

Oct. 12 (Bloomberg) — Erik Nielsen, global chief economist at UniCredit SpA, talks about the outlook for Italian and U.K. bonds and the sovereign debt crisis. He speaks with Owen Thomas and David Tweed on Bloomberg Television’s “Countdown.”