Month: November 2011

The legacy of Penn State’s Joe Paterno is now in peril as the coach with the most victories in Division 1 football was fired Wednesday night following child sex-abuse charges against a former assistant coach.

International pop star Shakira was honored as the 2011 Latin Recording Academy Person of the Year in Las Vegas. On the red carpet she talked about what the award meant to her and reminisced about her successful year. (Nov. 10)

USDCHF’s rise extended to as high as 0.9148, the subsequent pullback is treated as consolidation of uptrend. Support remains at the uptrend line on 4-hour chart, as long as the trend line support holds, uptrend could be expected to resume, and another rise towards 0.9314 previous high is still possible. On the other side, a clear break below the trend line will indicate that a cycle top has been formed at 0.9148, and the rise from 0.8569 has completed.

By Zac Storella, CountingPips.com

Today, I am pleased to share a forex interview with currency analyst Christopher Vecchio from DailyFx.com on the latest currency market major events and trends. Christopher studies fundamental analysis of the foreign exchange markets by examining the interrelationship between geopolitical events, macroeconomic trends, and finance while also incorporating technical analysis into his research in order paint the most complete picture of what is occurring across various asset classes in the short-term and medium-term.

As the euro crisis deepens and as new developments continue to unfold, what markets and/or indicators are you watching to best anticipate what may be happening next and where things are going?

The Italian bond market has been a good indicator. As the 10-year yield has ticked higher, the EUR/USD has weakened; when there are signs of relief and bond yields trade lower, the EUR/USD has found support. Italy really is the key for Europe: the European Financial Stability Facility is not large enough to save Italy. Given the current course of action, if Italy loses the ability to fund itself at favorable rates, the Euro-zone will enter a terminal tailspin.

Considering all the things happening in Europe and the uncertainty of it all, do you feel that the EUR/USD is overvalued at the moment as it hovers around the 1.38 threshold? How about the EUR/JPY?

I think that the Euro should be lower against the safe haven currencies (including the Swiss Franc, but the Swiss National Bank says otherwise), and the recent rate cut by the European central bank supports this notion. The decreased yield on Euro-denominated assets takes away some of its appeal in terms of interest rate differentials, and the Euro-zone sovereign debt problems – which have in turn raised the question about the future stability of the common market – only compounds the impediments the Euro has to appreciate in value against the other majors.

In terms of the direction of the EUR/USD and EUR/JPY, both pairs are looking lower for the medium-term. Any rallies we’ve seen have been reversed, with good reason: the current measures in place are ineffective and the continued implementation of them has not solved the crisis – it has only gotten worse. The only way the Euro sees a sharp bounce against the Yen in the near-term is if the Bank of Japan or Ministry of Finance intervenes to weaken the Yen again (though these interventions have been unwound in
days if not hours against the majors save the U.S. Dollar).

In terms of the U.S. Dollar, the short-term liquidity issues in Europe have boosted demand for the Greenback, and given the state of the U.S. economy relative to that of the Euro-zone, the U.S. Dollar is poised to strengthen further. The only impediment to a weaker EUR/USD over the near-term would be the Federal Reserve announcing another round of quantitative easing. During the last round of debt monetization, from November 2010 through the end of June 2011, the U.S. Dollar was the worst performing major currency, falling 18.00 percent against the Swiss Franc and 4.38 percent against the Euro. However, given the Federal Reserve’s outlook, another round of easing appears off the table, for now.

The US economy added 80,000 jobs last month with positive revisions for both the September and August numbers (both months now over at least 100,000 jobs created and a 12-month average gain of 125,000 jobs). Do you think the economy is finding its footing and is on a path to some meaningful employment increases or do you feel the economy has more obstacles to overcome?

The recent revisions to labor market data have been positive, but that doesn’t mean the jobs market is actually improving. Beyond the jobs market, there are larger underlying issues that could easily result in the economy deteriorating once more. First and foremost, the Euro-zone crisis threatens to drag under American financial institutions, which would of course pull the global economy back under ala 2008.

Isolating the United States, the most recent gross domestic product reading suggests that growth may have peaked in the third quarter. The key figures to note are the spending figures, as consumption represents approximately 70 percent of the headline growth figure. Consumer spending increased by 2.4 percent in the third quarter, a welcomed development, but the trend is unsustainable: the savings rate dropped to 4.1 percent – its lowest in over two years – while income adjusted for inflation fell by 1.7 percent. If consumers are losing purchasing power and income is eroding, there will be a point in time – likely in the coming quarters – when spending plummets.

When this occurs, there will likely be another downturn in employment. The Federal Reserve’s policies haven’t been able to prop up the labor market and injecting further U.S. Dollars into the financial system will weigh heavier on inflation adjusted income, further reducing the consumer spending figure. Fiscal policy is needed to help support job growth, but given the current path Congress has chosen, President Barack Obama’s jobs plan is unlikely to provide the support the labor market desperately needs.

The Bank of Japan intervened in the forex market to weaken the yen and we saw the USD/JPY spike to over 79.52. The USD/JPY has now slid back down under 78 and towards a support level at 77.50. Do you think we could see this pair on its way back to the 80 level without BOJ intervention?

It’s unlikely that we see the USD/JPY rise back to the 80.00 exchange rate figure naturally. Questions over U.S. fiscal and monetary policy have fueled the U.S. Dollar’s decline against the Japanese Yen, even though Japan faces its own mountain of debt and policy issues.

Historically, at least for the past three interventions (March 18, August 4 and October 31), the Yen has gained back all of its losses within a few weeks maximum. For the most recent two interventions, the move to weaken the Yen was unwound within a matter of hours to days against the major currencies, save the U.S. Dollar. That being said, given the deteriorating state of global sentiment, I fully expect the Bank of Japan and/or the Ministry of Finance to step into the markets in the next few weeks, a decision that would easily drive the USD/JPY back above 80.00.

The Reserve Bank of Australia cut its interest rate last week for the first time in two years to 4.25% with the possibility of more rate reductions to come. With yield being an attractive aspect of the Aussie, are you looking for Aussie weakness over the short to medium time horizon?

I expect the Australian Dollar to continue to show signs of weakness in the periods ahead, and the rate cut is only part of the reason why. The shrinking interest rate differential between the Aussie and the other major currencies caps its upside potential in the coming periods, as there is now less incentive to buy Aussie-denominated assets. As such, it would be a shock to me to see the AUD/USD trade near its all-time highs set in July above the 1.1000 figure.

Furthermore, the European debt crisis has boosted demand for liquidity, which translates into demand for the U.S. Dollar. As the European crisis drags on and uncertainty builds, there will be higher demand for the U.S. Dollar, similar to the flight to safety during late 2008 and early 2009; this goes in hand with capital flight from speculative assets, which the Australian Dollar could be considered a part of. All in all, the fundamental forecast for the Australian Dollar is far from ideal.

The Swiss franc/Euro exchange rate has been successfully kept above the the 1.20 mark by the Swiss National Bank since their policy implementation of a minimum exchange rate level. Do you agree with a recent SNB official saying the Swiss currency is still highly overvalued at current levels? And do you feel it is likely the SNB will move the minimum exchange rate level to the 1.30 level that has been mentioned lately?

The Swiss National Bank was ‘forced’ to implement a currency floor on the EUR/CHF back on September 6, after the Swiss Franc rallied to near-parity against the Euro in early August. The SNB cited a severely damaged export sector due to Franc strength as the reason to intervene in the markets, and officials continue to cite the Franc’s strength as a reason the economy is slowing.

There has been chatter that another hike could be in store, and while in the near-term that looks unlikely, as the 1.2000 floor hasn’t really come under that much pressure. If the Euro-zone debt crisis accelerates faster-than-expected, however, without question the SNB will raise the floor to a minimum of 1.2500 EUR/CHF to prevent speculative investments in the Franc.

It’s worth noting that unlike the British Pound peg in the early 1990s, in which the Bank of England was forced to prop up the value of the Sterling, the SNB is trying to devalue its currency. This means that all they need to do is print more currency. The SNB has the ability to print a theoretically unlimited number of Francs, so holding the floor at 1.2000, 1.3000 or even higher should be no problem going forward.

Thank you Christopher for taking the time for participating in this week’s forex interview. To read Christopher’s latest currency analysis and trading strategies you can visit DailyFx.com.

Heavy equipment maker Caterpillar (CAT) has reportedly reached an agreement to buy China’s ERA Mining Machinery. The Wall Street Journal reports that Caterpillar will pay $887 million for the Hong Kong-listed company.

Since it was first created in 1999, the Eurozone has never been so close to breaking apart as it is today. The pressure that comes with trying to serve the divergent needs of 17 different economies, sharing little more than geography and a common currency, appears to have finally pushed the region to the very limits of its ability to endure.

Famed economist Milton Friedman was no fan of the Eurozone. In 2000, just one year after the official launch of the Eurozone, Friedman was asked for his outlook on the region after addressing a conference hosted by the Bank of Canada. Twelve years later, it is clear that Friedman’s early assessment was spot-on accurate:

I think the euro is in its honeymoon phase. I hope it succeeds, but I have very low expectations for it. I think that differences are going to accumulate among the various countries and that non-synchronous shocks are going to affect them. Right now, Ireland is a very different state; it needs a very different monetary policy from that of Spain or Italy. On purely theoretical grounds, it’s hard to believe that it’s going to be a stable system for a long time.

As part of his appraisal, Friedman suggested the Eurozone would last no more than 10 years. He may be a little off in his timing, but may yet be proven accurate over all.

Officials Now Acknowledge Eurozone Breakup Possible

Over the past few years the debt crisis in Europe has only worsened. Yet, during this time, the one subject that remained taboo was any talk that a member nation could be forced to leave the euro or even leave on its own volition. Even as recently as the days leading up to the summit meeting on October 26^th, German Chancellor Angela Merkel and French President Nicolas Sarkozy were adamant that Greece would remain within the euro.

After a couple of false starts during the summit meeting, an agreement was – eventually – arranged to provide Greece with emergency funding in exchange for a stronger commitment from the Greek government to balance the budget. The markets were heartened by this and stock prices rebounded.

But then Greek Prime Minister – er – former Prime Minister Papandreou revealed that he would hold a referendum before officially agreeing to the terms of the deal. Exasperation with this unnecessary action and the resulting panic in the markets drove some officials to finally mutter that maybe everyone would be better off if Greece were no longer part of the Eurozone.

What Was Once Unmentionable is Now Tolerated

Breaking further with the former message of Eurozone solidarity, British Prime Minister David Cameron took on a sinister tone when he described Italy as a “clear and present danger” for the euro:

Italy is the third-largest country in the euro. Its current state is a clear and present dander to the Eurozone and the moment of truth is fast approaching.

Sinister or not, the British PM is simply being pragmatic. The Italian debt is now pegged at roughly $2.6 trillion, or five times that owed by Greece. This is simply beyond the scope of the EU to backstop with direct financial support as has been attempted with Greece.

When it comes to dealing with its debt, Italy is on its own – coincidently, “on its own” may be exactly how some Eurozone members feel Italy should be right now.

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

Green Mountain Coffee Roasters (GMCR) shares are plunging today after the company reported disappointing fiscal fourth quarter earnings late yesterday. The maker of Keurig single-serving coffee makers said profits totaled $75.4 million, or $0.47 per share, compared to $27 million, or $0.20 per share, in last year’s fourth quarter.

Nov. 9 (Bloomberg) — Joe Brown, features editor at Gizmodo.com, talks about Google Inc.’s decision to stop supporting the Gmail application for rival BlackBerry smartphones made by Research In Motion Ltd. Brown speaks with Jon Erlichman on Bloomberg Television’s “Bloomberg West.” Emily Chang also speaks. (Source: Bloomberg)

The Giant Utica Shale: Marcellus on Steroids…

by David Fessler, Investment U Senior Analyst
Thursday, November 10, 2011

By now, most investors are familiar with the Marcellus Shale. Located roughly a mile beneath the surface of West Virginia, Pennsylvania, Ohio and New York, the Marcellus is transforming the natural gas industry…

By some estimates, the Marcellus could provide as much as 25 percent of America’s natural gas when fully developed. But the development of the Marcellus Shale was just the opening act for natural gas production in the Northeastern United States.

Act two is the exploration and development of the Utica Shale. The Utica Shale underlies the Marcellus at depths ranging from 2,000 to 14,000 feet below the surface.

Take a look at the map below. It was compiled by Geology.com, with data from the EIA and USGS. The Marcellus boundary is outlined in yellow, and the Utica source rock is shown in green. It lies beneath eight states, Lake Erie, Lake Ontario and part of Ontario, Canada.

Many geologists believe that if the Utica Shale formation is developed to its full potential, it could become the largest natural gas field in the world.

At this point though, oil and natural gas exploration and production companies have just begun to focus on the development of the play. Initial drilling results from the first few wells have proved to be very encouraging. Let’s take a look at two companies out in front of the scramble to drill the Utica.

Two Early Movers in the Utica

There are gas wells, and then there are gas wells. The first one that Rex Energy Corporation (Nasdaq: REXX) drilled in the Utica Shale was something else.

Rex Energy has 85,300 gross (58,700 net) acres in the Utica Shale. Its first well, the Cheesman #1H, had a lateral length of 3,551 feet and was fracked in 12 stages.

The initial flow rate from the well over a 24-hour test period was 9.2 million cubic feet per day (MMcf/d) of dry gas. The well was subsequently shut-in, and Rex plans to place it in service next January.

Besides the fact that this is an incredible flow rate from a shale gas well, the gas itself was completely dry. This is a significant, since wet gas (containing natural gas liquids, water and other chemicals) requires significantly more processing before it’s ready to sell.

Rex is viewing the test results as very positive and has an active drilling program planned for the Utica for 2012. Rex will disclose the number of wells it plans to drill in the Utica and well costs in December, when it announces its capital spending plans for next year.

Chesapeake Energy Corporation (NYSE: CHK), one of the largest natural gas drillers in the country, is focused on the oil-rich part of the Utica, in eastern Ohio. Chesapeake quietly amassed over 1,250,000 acres in the Utica in the oil-rich area.

Then it announced drill results that were very encouraging. Chesapeake estimates the value of recoverable oil from the oil-rich part of the Utica it has under lease is $15 to $20 billion. The company leases cover about 40 percent of the oil-rich part of the Utica formation.

It recently announced a joint venture with an “undisclosed international major energy company” to monetize the value of this incredible find. Chesapeake is committed to drill a minimum of 50 wells per year between now and 2016. The company plans to add additional rigs in support of the joint venture, and believes it will have no problems meeting the drilling commitments.

The net proceeds upon the successful completion of the joint venture would be about $3.4 billion. Over the last three years, five joint ventures executed by the company have netted roughly $34 billion. Who ever said real estate was in a slump?

As the Utica is drilled and further delineated, either of the above two companies is an excellent way to play the upside of this exciting new shale play.

Good investing,

David Fessler

Article by Investment U

Cisco Systems (CSCO) reported a slight decline in fiscal first quarter earnings after the close of trading yesterday. The network equipment maker said profits dipped to $1.8 billion, or $0.33 per share, from $1.9 billion, or $0.34 per share, in last year’s first quarter.