Month: October 2011

By ForexYard

The euro was indeed seen gaining a foothold against the USD following the European Central Bank’s (ECB) latest announcement regarding interest rates, known as the Minimum Bid Rate. Stuttering mildly ahead of the decision, there was an atmosphere of EUR stability in the market prior to the statement by ECB President Jean-Claude Trichet.

Economic News

USD – USD Stable ahead of Friday’s NFP Data

The EUR/USD was seen moving somewhat bullish late yesterday as investors anticipate a return to risk aversion, but also optimism towards today’s Non-Farm Payroll report. An uptick in US private sector employment Wednesday added to risk-taking sentiment by many investors, but fears of European debt contagion are overshadowing the rise. Should today’s Non-Farm Payroll (NFP) data continue this trend of optimism, we may see the greenback making gains against its rivals as traders return to their traditional store of value en masse.

With the European Central Bank (ECB) holding interest rates steady, and private sector employment rising in the US, the value of the USD appears to be holding steady as riskier currencies like the EUR also leveled off in yesterday’s afternoon and evening sessions.

Most significant on today’s calendar will be the US publication of its Non-Farm Payrolls (NFP) data. Should today’s news foreshadow a modest growth in the largest economy’s employment sector, an assessment that seemed nigh impossible just days ago, there is a possibility that more investment will get pushed towards the storage ability of the greenback as investors flee the period of uncertainty wracking Europe.

EUR – EUR on the Ascent after Interest Rate Announcement

The euro (EUR) was seen trading with largely mixed results yesterday as traders moved into and away from riskier assets across the region. Against the US dollar (USD) the euro was seen trading bearish in late trading as shifts away from the greenback, due to uncertainty about global employment levels, caused several market participants to opt for other stores of value.

The euro was indeed seen dropping against the USD following the European Central Bank’s (ECB) latest announcement regarding interest rates, known as the Minimum Bid Rate. Stuttering mildly ahead of the decision, there was an atmosphere of EUR ambivalence in the market prior to the statement by ECB President Jean-Claude Trichet.

With nearly every analyst anticipating yesterday’s move, and the accompanied dovish statement by Trichet, the market followed suit with expectations and witnessed a quick leveling off in EUR values. Several reports have begun to assume a possible rate reduction as early as mid-2012 by the ECB, though future economic growth will factor heavily in such a decision. For now, traders appear to be looking to a weakening of the EUR through the remainder of the week.

JPY – Talk of BOJ Intervention Shakes JPY

The Japanese yen (JPY) was seen moving moderately bearish throughout the day following other movements in the forex market. The yen surged beyond previous intervention levels on heightened risk aversion in the global economy due to debt fears in Europe and the United States, but has so far this week held its ground. The BOJ tends to resist an overly strengthened yen for the gouging effect it has on Japanese exports.

Weakening commodity prices, however, are helping offset the losses from an overly powerful yen, as is the general sentiment that the JPY acts as a solid store of value in times of uncertainty. The JPY, therefore, is positioned to continue gaining despite attempts by the BOJ to prevent such an occurrence. It will be worth watching to see if the BOJ intervenes in the days ahead.

Oil – Oil Sees Uptick after Inventory Report Reveals Sharp Decrease

Crude Oil prices found support Thursday, moving towards $90 a barrel in late trading as sentiment appeared to shift in favor of a price increase following news that supply in the United States declined by 4.7 million barrels this week. With supply falling and manufacturing and industry in decline, the balance between supply and demand appear to be reaching agreement as the value of oil seems to be leveling out in recent trading, despite the recent swings in currency values.

As investors seek shelter from recent market uncertainty, the value of crude oil, which was seen holding steady all week, may see additional gains before today’s close. A sudden jump in dollar values due to a sudden return to risk aversion, as was expected following the recent interest rate announcements, could drive many investors into lower investments on physical assets; driving oil prices back downward by the middle of next week.

Technical News

EUR/USD

The daily chart is showing mixed signals with its RSI fluctuating at the neutral territory. However, the hourly chart’s RSI is already floating in the overbought territory indicating that a bearish correction might take place in the nearest future. When the downwards breach occurs, going short with tight stops appears to be preferable strategy.

GBP/USD

The pair has been range-trading for a while now, with no specific direction. The Daily chart’s Slow Stochastic providing us with mixed signals. All oscillators on the 4 hour chart do not provide a clear direction as well. Waiting for a clearer sign on the hourlies might be a good strategy today.

USD/JPY

The 4-hour chart is showing mixed signals with its RSI fluctuating at the neutral territory. However, there is a fresh bullish cross forming on the 8-hour chart’s Slow Stochastic indicating a bullish correction might take place in the nearest future. Going long might be a wise choice.

USD/CHF

The pair has recorded much bullish behavior in the past several days. However, the technical data indicates that this trend may reverse anytime soon. For example, the daily chart’s Stochastic Slow signals that a bearish reversal is imminent. . Going short with tight stops might be a wise choice.

The Wild Card

AUD/USD

This pair’s sustained upward movement has finally pushed its price into the over-bought territory on the 4-hour chart’s RSI. Not only that, but there actually appears to be a bearish cross on the 8-hour chart Slow Stochastic pointing to an imminent downward correction. Forex traders have the opportunity to wait for the downward breach on the hourlies and go short in order to ride out the impending wave.

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.

The Central Reserve Bank of Peru kept its monetary policy reference rate unchanged at 4.25%.  The Bank said: “This decision takes into account the slowdown observed in some components of expenditure and production, as well as the intensification of international financial risks. Should these trends continue, the Central Bank will change its monetary policy stance. “

By MoneyMorning.com.au

– While the lull in the gold bull market continues (and the equity bear lures just about everyone into his cave for the next mauling) consider this little factoid. We came across it last night while reading the latest issue of Diggers and Drillers, by Dr Alex Cowie.

– The Doc makes the case for gold to hit US$2,000 by Christmas – and it sounds compelling.

‘The total value of every single listed gold stock worldwide is less than the value of a single oil company – Exxon Mobil, a company with a market cap of $350 billion dollars. That’s nothing!

‘Ever wonder why the mainstream sees the gold sector as “fringe”?

‘It’s because IT IS fringe!

‘And because of this, it will just take a small change in attitude from a few big fund managers for gold stocks to start performing aggressively. If one big name breaks rank and makes a small reallocation of funds in this direction, the others will follow. Gold stocks will be off and away. The value proposition is impossible to argue with and it just keeps getting better.’

– But no one cares about gold at the moment. It’s a bubble, right? And the bubble burst last month. Besides, stocks are moving and its time to jump on board.

– We reckon that’s the consensus view at the moment, anyway. And the market’s Pavlovian response to extended liquidity from the European Central Bank and another £75 billion in money printing from the Bank of England, both announced overnight, is certainly giving credence to this view.

– The market is conditioned to respond to ‘injections of liquidity’ or additional ‘quantitative easing’. But since the credit crisis, the boost from these measures is increasingly short-lived. That’s because insolvency issues are mistaken for a lack of liquidity.

– These central bank announcements generally hit the market when sentiment is at a low point. The effect is purely to boost sentiment. This can lead to a 10 per cent rally in a blink of an eye. Within weeks, ‘sentiment indicators’ turn around and the consensus view turns bullish again.

– And why? Because of a change in price. In a normal world, price is a reliable signal to base financial decisions on. In a world of unsound money, price signals are increasingly misleading.

– Printing money doesn’t create wealth. It just spreads a country’s existing wealth over an increasing base of ‘money’, which is just a representation of wealth. It’s like a company addicted to issuing shares. All it does is dilute shareholder wealth while giving management more time to pull a rabbit out of a hat.

– Providing endless amounts of liquidity is a stop-gap measure too. It props up the weak and insolvent and distorts the risk/reward structure that capitalism thrives on.

– Citizens in the US have had a gutful of the destructive policies of their central bank. For the past week or so, a protest movement called ‘Occupy Wall Street’ has been, err, occupying Wall Street.

– Most of the protesters look like your standard socialist idiots who think Wall Street represents the bastion of capitalism and needs to be brought down. Right idea, wrong reason. This young bloke appears to have been home schooled, as he nails some of the reasons for the US’s economic plight.

– What about our own central bank, the Reserve Bank of Australia (RBA)? ‘Some people say’ it’s one of the best central banks in the world. We’d say its performance is Steven Bradbury like…with apologies to Steven Bradbury.

– Like all central banks, the RBA is trying the steer the economy by looking in the rear-view mirror. Earlier this week the board elected to keep rates on hold but indicated there might be room for future easing.

– This is an about face from earlier statements. For most of the year, the RBA’s mantra was interest rates would probably rise again. It cited strong global growth, wage and inflationary pressures and a strong terms of trade.

– But when you’re looking over your shoulder you don’t see what’s in front of you. The RBA made the same mistake in 2008 when it was raising rates in the face of an oncoming credit crunch.

– This raises a few important points. Obviously, setting the price of money or credit is an impossible task for a small group of people. But that’s the system we have and we’ll have to deal with all the problems that throws up.

– More importantly, though, it just goes to show you shouldn’t take any notice of what the RBA says. While the bank was talking tough on interest rates earlier this year, market interest rates were falling. The RBA is only now coming around to the market’s view.

– Most of the economists who regurgitate the RBA’s view for a living were caught out too. The one exception was Bill Evans of Westpac, who employed independent thinking to predict a rate cut well before the mainstream. Perhaps he reads the Daily Reckoning?

– So is the RBA’s belated recognition of a weak Aussie economy a contrarian indicator? After all, the market began rallying the day after its announcement and hasn’t looked back.

– It might seem that way, but we think the RBA still has some catching up to do. Despite this week’s bounce, commodity prices are still in a noticeable downtrend (see chart below). This is a reflection of a slowing global economy, in particular China. The October lows may prove to be the bottom, but we’d be surprised to see global growth escalate rapidly in the face of a sovereign debt crisis and no coordinated stimulus as we saw in 2009.

Click here to enlarge

– These weaker commodity prices will eventually feed through to the bulk commodities, impacting the terms of trade and national income. When that happens, the RBA will lower official rates. It might not happen next month, but by December things will probably look much different.

– Not that you would think so by looking at the market now. It simply seems to be saying, ‘What debt crisis?’

Publisher’s note: Greg Canavan is the foremost authority for retail investors on value investing in Australia. He’s the former head of Australasian Research for a major asset-management group and a regular guest on CNBC, Sky Business’s ‘The Perrett Report’ and Lateline Business. Greg shares his insight, ideas and investment recommendations with readers of his Sound Money. Sound Investments newsletter… to find out more information on Greg’s letter, go here.

What Debt Crisis?

By MoneyMorning.com.au

‘If [you are] the right kind of investor [you] will take added satisfaction from the thought that [your] operations are exactly opposite from those of the crowd.’

                                                                    Ben Graham, The Intelligent Investor

It’s amazing how your view of the world tends to be moulded by what the stock market does. This is obviously because a portion of your wealth links your emotions to the market. The media splashing front-page headlines about how much value was wiped from the market the previous day certainly does not help your blood pressure.

On Monday, you could have been forgiven for thinking the global economy was unravelling. News.com.au reported – ‘Here we go again: $37bn wiped off Aussie shares’.

But here we are, four days later. The market has rebounded 143 points. And this morning, the Sydney Morning Herald reports…

‘Investors enjoy best day in years… THE sharemarket added $42 billion in its best session in nearly three years yesterday as investors seized on hopes of a resolution to the European sovereign debt crisis.’

This is what the Aussie market looked like over the last five days…

Click here to enlarge

And here’s what it looks like over the last year…

Click here to enlarge

It’s easy to get caught up in the headlines and trade emotionally. But to survive this bear market, you need to take a step back and look at the big picture. Only then can you see what is really going on in the world. And only then can you take action to protect your wealth.

I’ve said this before but I’ll say it again. In a bear market, cash is king.

The industry has conditioned most investors to think cash is useless and you’re doing yourself no favours by holding it. Apparently your wealth is not ‘working for you’.

This is true to some extent. Cash is not exactly a high-returning asset. But neither are equities in an environment of falling earnings and expensive prices. We are in a deflationary environment for asset prices at the moment and the purchasing power of cash rises in such an environment.

Cash is valuable not for what it will earn you now, but for what it enable you to buy later.

Your strategy here should be to continue scaling into the market and buying during sharp falls or market panics. If you can, I’d recommend you identify quality stocks trading well below a conservative estimate of value so you can be ready to buy those companies at an opportune time. If you’re not sure how to do that, but would like to, click here…

In this environment, you also need to be prepared to see the companies you own trade below their intrinsic value for a prolonged period of time. Mr Market is a nervous operator. In bear markets, prices are low and can get lower.

In these circumstances, you have to practice sound investing principles. Focus on the business and value, not price. Look at negative sentiment as an indicator of value.

Move into the market with greater conviction when there is panic and take profits when there is complacency. This is the aim of the value investor: To take advantage of the market’s emotions. It’s a strategy that might work for you. It’s not easy. But with experience and a solid understanding of a company and its value, you could build a strong value-based portfolio and grow your wealth steadily over time. No matter whether the crowd is trading calmly or panicking.

Greg Canavan
Money Morning Australia

The Wisdom of Crowds

Coal Outlook Promising for Investors

by David Fessler, Investment U Senior Analyst
Thursday, October 6, 2011

Earlier, I talked about the 25-year outlook for liquid fuels based on the Energy Information Administration’s (EIA) International Energy Outlook 2011. It’s the EIA’s annual 25-year energy forecast, and it contains important information for investors who are considering an investment in the energy sector.

Now, I’ll cover the future of coal in the world energy picture.

Many countries lack energy policies (including the United States) that restrict or otherwise limit the use of coal. As a result, the use of coal is projected to rise from about 139 quadrillion Btu in 2008 to 209 quadrillion Btu in 2035. That’s an average annual increase of 1.5 percent.

Although coal power generations should decline in the United States, dramatic increases are set to occur in non-OECD Asian countries, primarily India and China. China will double its coal-fired power generation capacity between now and 2035.

Coal use in China’s industrial sector will be up by 67 percent over the same time period.

India’s power generation will rise 72 percent between 2008 and 2035, as its industrial sector use will increase by 94 percent!

Types of Coal Used for Power Generation

Coal is generally classified into two types – soft coal and hard coal. Soft or low-rank coal is either lignite or sub-bituminous. It represents about 47 percent of mined coal. Both are used for power generation, and some sub-bituminous is also used to manufacture cement.

Hard coal is either bituminous or anthracite. Today, anthracite represents only about one percent of all coal mined, with bituminous making up the rest.

Bituminous is further divided up into coking coal – also called metallurgic coal – and steam or thermal coal which is used in power generation and other industrial processes.

While power-generating coal production is likely to slightly increase, the largest gains should be in the industrial sector with metallurgical coal.

Two Coal Mining Companies To Watch

Two great coal miners that will benefit are:

• Walter Energy, Inc. (NYSE: WLT) – Walter is the largest metallurgical coal producer, and its purchase of Western Coal gives it a huge leg up in the export markets.

• Arch Coal, Inc. (NYSE: ACI) – Arch Coal is the second largest U.S. coal company, and it recently revised its earnings guidance to be in the $900-million to $1-billion range for 2011. This is the highest in the company’s history, but slightly below its guidance of this past July.

With the overall sell-off of commodities, shares of these companies can be had at bargain prices relative to historical levels. Investors looking at the long-term, big picture may be richly rewarded down the road.

Good investing,

David Fessler

Article by Investment U

BMW’s Bet on America

by Carl Delfeld, Investment U Senior Analyst
Thursday, October 6, 2011: Issue #1616

This week, I did some serious shopping for a BMW X3.

I know what you’re thinking.

“What a hypocrite Carl is. He’s constantly preaching about America’s strengths and economic comeback, and then he has the nerve to go out and buy an import!”

Hold on.

Every BMW X3 (as well as the X5 and X6 models for you fat cats) are designed in America and built in BMW’s Spartanburg, South Carolina plant.

It gets even better.

• The plant opened in 1994 and has grown ever since.

• From 2008 to 2010, $1 billion was invested to ramp up production by 50 percent.

• Seventy percent of the plant’s production is exported to markets all over the world.

• The University of South Carolina estimates that the plant is responsible for 23,000 well-paying jobs.

BMW’s vote of confidence in the American worker and market is welcome. Foreign investment like this is one of the keys to turning our economy around; however, we need more than that before adding its stock to our global portfolio…

What Global Economic Weakness?

The pundits can’t stop talking about our economic miseries and tapped out consumers. Apparently, BMW executives and customers do not watch CNN or MSNBC.

The world’s largest luxury carmaker racked up $2.6 billion in net profits during the first six months of this year. The company set a sales record in July and is on track to do the same for 2011, with a goal of 1.6 million auto sales.

Coming out of the 2008 financial crisis, BMW targeted five fast-growing emerging markets: Brazil, Russia, India, South Korea and Turkey. It now leads in every one of them. (Note: It’s a tie with Mercedes in Russia.)

You might be surprised to see Turkey on this list, but the country now has twice as many billionaires as Japan and is the sixteenth-largest economy in the world, with a population exceeding 80 million.

BMW’s Constant and Steady Innovation

This focus on new growth markets highlights a BMW trademark – looking ahead at what the Japanese refer to as “kaizen” – constant and steady innovation.

Its BMW iVentures $100-million investment fund supports new partners and technologies in an effort to stay ahead of competitors and the growth curve.

BMW’s Project i is already in full swing, with the launch of the electric i3 and the hybrid i8 scheduled for 2013. It will be make quite a media splash as these cars are made of aluminum and carbon fiber plastic giving them a range of 140 miles.

Why You Should Bet on BMW Now

It may surprise you that a high profile company like BMW is not listed on the NYSE or Nasdaq.

This is a great example of what I refer to as a “pink sheet, blue chip,” since it trades in the over-the-counter pink sheets as BMW Group (OTC: BAMXY.PK).

All the positive developments for BMW are developing as the German DAX 30 Index dropped 25 percent in the last three months and BMW Group plunged 37 percent since late July. Rather than being driven by BMW’s financial performance, this weakness is all about big picture concerns such as a weak euro, Greece, fears of global recession and so on…

However important you might think these concerns are, it’s all just guesswork. A weaker euro helps BMW to be more competitive in global markets. I think BMW will power through whatever the economy throws at it.

Take advantage of this disconnect between BMW’s performance and a depressed market. The trading volume in BMW Group is uneven, so use caution.

Good investing,

Carl Delfeld

Editor’s Note: As a writer for Investment U, Carl Delfeld has been covering the major trends in emerging markets and the best companies to watch during this difficult economic times. But very soon you’ll be able to access his premium research on a daily basis – including his favorite stock picks – for just pennies a day… To find out how, Go Here Now.

Article by Investment U

Source: ForexYard

Thursday afternoon the ECB enacted multiple measures to help alleviate the financial crisis currently hitting the EU. First, the ECB plans to once again buy covered bank bonds and would implement measures for refinancing slated to last a year.

This is not the first time the ECB has implemented such measures, the first time being in 2009. Those previous efforts had mixed results in staving off a complete meltdown following the U.S. financial crisis.

While investor confidence remained shaky following the announcement, many hope this will successfully restore liquidity among EU banks.

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.

Multinational Stocks: A Smart Play in Down Markets

by Jason Jenkins, Investment U Research
Thursday, October 6, 2011

What do you do in a bear market? Most people would tell you to run and get out.

Thousands of investors are flocking to the perceived safety of Treasury bonds.

But as Alexander Green writes, the Treasury bond market is a calamity waiting to happen. And if you invest in short-term Treasury notes, you may as well stuff all your cash in the mattress, because you’ll get the same return.

What those who had success in the market know is that you don’t make money following the herd. You find opportunities. As strange as it may seem, geopolitical dysfunction in the United States and Europe may just provide that opportune moment.

Opportunities Exist Despite U.S. and EU Recession Fears

Last week, Warren Buffett made us take a look at possible stock buyback prospects. Along those lines of undervalued equities, we should also look at multinational corporations.

We have to remember that the current ups and downs we see on Wall Street for equities aren’t being driven by the bottom-line numbers of many companies. The primary cause of volatility is a lack of confidence in policy makers and officials.

• One day the Eurozone says they’ll act accordingly to solve their debt problems. The market goes up.

• The next day they tell you they need two months to discuss what they may or may not do. The market goes down.

This is the environment for bargain shopping, where you can pick up a company that can increase earnings.

Why Multinational Stocks Make Sense

Kathy O’Connor, the President at KJ Capital Management LLC, suggests that multinational stocks, if not undervalued, still represent good value for the following reasons:

• Profit margins at multinational corporations are at record levels.

• Multinational corporations benefited from a combination of a lower cost of debt, technological innovations and the transition to a global labor force over the last 40 years.

• Global demand from emerging economies will allow these margins to remain intact for some time.

• Long-term global demand will continue to outpace local demand.

O’ Connor went on to say that the majority of multinational companies are highly adaptable to changing conditions. And, unlike the U.S. government and European Union, they possess a stable financial base, giving them the ability to act quickly in pouncing on any global investment opportunity.

So what companies will take advantage of this landscape? In O’Connor’s opinion, take a look at McDonald’s Corp. (NYSE: MCD), Honeywell International (NYSE: HON), Procter & Gamble Co. (NYSE: PG) and Johnson & Johnson (NYSE: JNJ).

Beyond O’Connor’s recommendations, here are a few more companies that definitely fit into the multinational play due to their strong management at the top and the products they produce.

Their products are simple and they possess large cash positions that they use to invest heavily in high growth areas like China and India: Yum! Brands (NYSE: YUM), Colgate-Palmolive (NYSE: CL), Coca-Cola(NYSE: KO) and Nu Skin Enterprises (NYSE: NUS).

Good investing,

Jason Jenkins

Article by Investment U