Czech National Bank Maintains Rate at 0.75%

The Ceska Narodni Banka held the two-week repurchase rate at 0.75% as expected, and kept the discount rate unchanged at 0.25% and Lombard rate at 1.75%.  The Bank said: “As regards the reasons for the decision, monetary-policy relevant inflation is slightly below the inflation target over the entire forecast horizon. Even headline inflation, which, as you know, is subject to an escape clause, and which, I assume you also know, will rise because of a VAT increase in 2012, will stay within the interval, i.e. it will remain below 3% and will, in our view, fall below the target in our opinion in early 2013. Consistent with the forecast is a slight decline in market interest rates and flat rates until late 2012/early 2013.”

The Czech central bank also kept the repurchase 
rate unchanged at its September meeting this year; its last change was a 25 basis point cut in May 2010.  The Czech Republic reported annual inflation of 1.8% in September, compared to 1.7% in August and July, 1.8% in June, 2% in May, 1.6% in April, and 1.7% in March this year, and within the Bank’s official inflation target of 2%.  


The Czech economy expanded 0.1% in Q2 (0.9% in Q1) this year, placing annual GDP growth at 2.2% (2.8% in Q1).  The Czech Republic’s currency, the Koruna (CZK) has gained about 3% against the US dollar this year, and the USDCZK exchange rate last traded around 18.14

Hong Kong Monetary Authority Keeps Rate at 0.50%

The Hong Kong Monetary Authority kept its base interest rate unchanged at 0.50% following the decision of the US Federal Reserve to leave the fed funds rate unchanged at 0-0.25%.  The HKMA also previously held its base interest rate unchanged at 0.50%, after the FOMC met in September this year and announced rates would stay low until mid 2013.  The Hong Kong Monetary Authority generally tends to follow the monetary policy decisions of the US Federal Reserve’s Federal Open Market Committee as the Hong Kong Dollar is fixed against the United States Dollar.  


Hong Kong reported consumer price inflation of 5.8% in September, compared to 5.7% in August, 7.9% in July, 5.6% in June, 5.2% in May and 4.6% in April this year.  Hong Kong’s economy expanded 0.5% in Q2 this year, (2.8% in Q1), placing year on year GDP growth at 5.1% (7.5% in Q1).  The Hong Kong dollar is fixed against the U.S. currency at an exchange rate of between HK$7.75 and HK$7.85 per dollar; the USDHKD exchange rate last traded at 7.77

McGraw-Hill, CME Group to Combine S&P 500 & DJIA

Two of the world’s best-known stock markets indices the S&P 500 and the Dow Jones Industrial Average will soon be under the same roof. McGraw-Hill (MHP) and CME Group (CME) made an official announcement today that the two plan to combine their S&P and Dow Jones indices units.

Japan: The Backdoor to Emerging Markets

Japan: The Backdoor to Emerging Markets

by Steve McDonald, Investment U Contributing Editor
Friday, November 4, 2011

Who would turn down a chance to buy into emerging markets at a 75-percent discount? Not to mention in companies that have more cash than debt, are at or below book value and are at 22-year lows.

Even at today’s depressed stock prices in Europe and the United States… Japan is still a better buy.

Wilbur Ross, who possesses the rarest commodity in the markets – market wisdom – is a billionaire who specializes in distressed situations. He sees Japan as a “buy now” scenario.

In a recent CNBC interview, he stated there’s no fluff in the prices and it’s a cheap way to play emerging markets…

Can’t Bust ‘Em

The Japanese specialize in resiliency. They’re the folks who handled everything thrown at them and still came up shining.

Alexander Green, the best investor I know, thinks everything about Japan is screaming market bottom:

  • Sentiment is as “black” as it can be.
  • Prices are so low they’re nearly half the U.S. and Europe levels.
  • The Japanese equivalent of the S&P 500 is off 75 percent from its high!

There’s virtually no premium in Japanese companies that are involved in the fastest-growing markets in the world. Most are at book value or less.

The Wall Street Journal reports that 45 percent of all Japanese companies have more cash than debt and are the most liquid in the world.

It also reported that, this year, 72 percent of all Japanese exports are going to emerging markets and 36 percent of earnings are from Japanese companies operating in emerging markets.

Remember: Japan is the third-largest economy in the world and, from a valuation standpoint, it looks a lot like the U.S. markets in March of 2009.

How to Play it

The simplest way, but not the most efficient, is the iShares MSCI Japan Index Fund (NYSE: EWJ).

iShares MSCI Japan Index (NYSE: EWJ) 200-Day

As you can see, it’s well below its 200-day moving average and is at or near its 52-week low. Pre-crash levels had this at $15 to $16 per share.

Take a look at the five-year chart. This was much higher even during the tough days since its own crash in the 1990s.

iShares MSCI Japan Index (NYSE: EWJ) 5 year

Getting back to pre-crash levels will take some time, but at current valuations, a run to $11 or $12 is very doable.

The only problem, this type of ETF usually has underperforming stocks along with the high fliers. In a situation like this, where even the best companies are selling at or below book value, it may be worth your effort to cherry pick the portfolio for the three or five best companies, or ones that more accurately fit your risk profile.

How to Cherry Pick EWJ

Go to iShares.com and search EWJ. This will give you a complete list of the entire EWJ portfolio. The top listings and the percentage of the portfolio are right below.

Toyota Motor Corp.4.47%
Mitsubishi UFJ Financial2.72%
Canon Inc.2.39%
Honda Motor Co.2.27%
Sumitomo Mitsui Financial1.78%
Takeda Pharmaceutical1.74%
Mizuho Financial Group, Inc1.56%
Mitsubishi Corp.1.32%
NTT Docomo, Inc.1.30%
FANUC Corp.1.22%

Most are recognizable names, and if you’ll do a little digging, you can find those with the best earnings projections, greatest exposure to emerging markets and the ones that are in the lower end of their trading range.

Take a look at the whole portfolio to get into the lesser known companies with the best prospects. Most have ADRs, so you can buy them on the U.S. exchanges, but for some you may have to go to foreign exchanges to purchase. This, by the way, is getting easier to do as more U.S. brokerages allow their customers to buy directly on foreign exchanges.

Whether it’s the ETF or the individual stocks, make sure you don’t miss this one.

It isn’t often you have the chance to buy the third-largest economy in the world at a 75-percent discount, and get companies at book value that are churning out huge numbers in the fastest-growing economies in the world – the emerging markets.

It may be a backdoor to these markets, but it doesn’t matter how you get in, as long as you’re in.

Good investing,

Steve McDonald

Article by Investment U

Gold Hovers, “Dominance of Dollar” Could End as IMF Considers Increasing Liquidity, Italy “Decides to Invite in IMF”

London Gold Market Report
from Ben Traynor
BullionVault
Friday 4 November, 09:15 EDT

DOLLAR PRICES for gold bullion continued moving in a range bound fashion around $1758 an ounce – 8.3% up from where they began October – after the release of US nonfarm payroll data, which showed the US economy added 80,000 jobs last month.

The unemployment rate meantime fell to 9.0% in October – down from 9.1%, where it spent the previous three months.

Silver bullion meantime hovered around $34.40 per ounce – 14.8% above where it started last month – while stocks, commodities and government bond prices were also flat.

Heading into the weekend, gold bullion prices were looking at a slight gain of around 1% for the week – though the trough-to-peak difference was 5%.

“A chaotic session [on Thursday] brought gains for all four precious metals, albeit with some vicious swings along the way,” said one gold bullion dealer in London this morning.

“Yesterday’s price action seemed in thrall to the constantly changing headlines emanating from Europe.”

“I think gold is really supported by the [crisis in the] Eurozone,” adds Ronald Leung, director of Lee Cheong Gold Dealers in Hong Kong.

G20 leaders meeting in Cannes are considering using the International Monetary Fund’s Special Drawing Rights as a way of boosting global monetary liquidity, newswire Reuters reports.

SDRs are accounting units created by the IMF and allocated by it to member countries, and take the form of a weighted currency basket comprising Dollars, Euros, Sterling and Yen. They were introduced in 1969 to support the Bretton Woods fixed exchange rate system, which was effectively ended two years later when US President Nixon cut the Dollar’s link to gold bullion.

“The G20 will be specific in their determination to increase resources,” an unspecified G20 official told Reuters, “but it is unclear how specific they will be.”

“Global liquidity…is the dominant causal driver for gold,” argued Walter de Wet, commodities strategist at international gold bullion Standard Bank, back in August – reiterating Standard’s long-held position on what is driving the gold price.

The IMF has also proposed creating a new six-month lending facility, which could form part of the mechanism by additional SDRs are used to boost global liquidity, the Financial Times reports.

“This has been in the works as a way to provide some assurance to emerging markets that their interests won’t get completely sidetracked if the Fund focuses on Europe in its lending operations,” says former IMF official Eswar Prasad, now at Washington think tank the Brookings Institution.

“It is a savvy move by the G20 and IMF to justify an SDR allocation and other mechanisms to add to the IMF’s resource pool by signaling that the new resources won’t be devoted entirely to saving Europe.”

Brazil’s finance minister Guido Mantega last month opposed the notion of Brazil buying European bonds, adding that any assistance should come through the IMF.

G20 leaders should “reform the SDR currency basket,” China’s president told the summit on Thursday, “and build an international reserve currency system with stable value, rule-based issuance and manageable supply.”

“The world is now loath to see the dominance of the Dollar,” adds Li Jianjun, analyst at the state-owned Bank of China.

“[This] opens doors for change.”

The Chinese government today published the text of President Hu’s G20 speech.

“There is nothing [in the speech] to suggest China will stump up any cash to help Europe,” says the FT’s Chris Giles.

Greek prime minister George Papandreou meantime faces a confidence vote later on Friday. His governing Pasok party holds 152 of the 300 seats in Greece’s parliament – though several Pasok members have said they will not support Papandreou, meaning he will need opposition support to win.

Papandreou last night dropped his call for a Greek referendum on last week’s Euro Summit deal, which was previously expected to take place next month.

Italy meantime “has decided on its own initiative to ask the IMF to monitor the implementation of its [austerity] commitments,” European Commission president Jose Manuel Barroso said Friday.

“The likelihood of Eurozone worries disappearing with a ‘snap of a fingers’ is very little,” says a note from Swiss gold bullion refiner MKS.

“[This] will probably benefit gold in the coming sessions as the metal slowly regains is safe-haven and store of value characteristics.”

Ben Traynor
BullionVault

Gold value calculator   |   Buy gold online at live prices

Editor of Gold News, the analysis and investment research site from world-leading gold ownership service BullionVault, Ben Traynor was formerly editor of the Fleet Street Letter, the UK’s longest-running investment letter. A Cambridge economics graduate, he is a professional writer and editor with a specialist interest in monetary economics.

(c) BullionVault 2011

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

Why Oil Prices Will Continue to Rise, and How You Can Play It

Why Oil Prices Will Continue to Rise, and How You Can Play It

by David Fessler, Investment U Senior Analyst
Friday, November 4, 2011

Oil’s back up above $90 a barrel again. Seems like late September it was in the upper $70s.

Surprised? Don’t be: It’s those old fundamentals again.

According to an article in Bloomberg, oil gained more this past October than any other month in the last two years “on speculation that a recovering economy will boost energy demand and reduce supplies.”

Backing that up, the Commerce Department revealed that the U.S. economy grew faster in the third quarter (2.5 percent) than at any other time in over a year. And just yesterday the Fed decided to leave interest rates alone, as it said the economy continues to strengthen.

That’s bullish for oil and, to a lesser extent, natural gas. A recovering U.S. economy will gradually use more energy. The short-term volatility in oil prices may continue, but they’re ultimately headed one way: up. You don’t need much in the way of incremental demand to tighten the supply, and to continue to drive prices higher.

Oil inventories in the United States reached a 20-month low of 333 million barrels during the week of October 14, according to the Department of Energy.

But America isn’t the only country starting to use more oil. According to the International Energy Agency (IEA) figures, oil inventories are down 12.7 percent for September for the Organization of Economic Cooperation and Development (OECD) nations as a group.

United Arab Emirates Energy Minister Mohammed al-Hamli commented on Monday that oil selling in the $80-to-$100-a-barrel range is “reasonable.” It remains to be seen what OPEC will do regarding its output levels when it meets to discuss its production policies on December 14 in Vienna.

Regardless of what OPEC decides, there’s little spare capacity on the supply side. It’s estimated to be about two million barrels per day, and Saudi Arabia has most of that.

The best way to play the continued rise in oil is to buy the independent oil producers on dips in the market. Given its recent volatility, dips are relatively easy to come by.

Companies like Royal Dutch Shell (NYSE: RDS.A), ExxonMobil (NYSE: XOM), Anadarko Petroleum (NYSE: APC), Eni S.p.A. (NYSE: E), and BP (NYSE: BP) are all good bets when the market gets hammered. Ignore the day-to-day fluctuations in price. The long-term trend for oil is one way: up.

Good investing,

David Fessler

Article by Investment U

Are Emerging Market Bonds Safer Than T-Bills?

Are Emerging Market Bonds Safer Than T-Bills?

by Jason Jenkins, Investment U Research
Friday, November 4, 2011

Emerging market debt could be safer than U.S. Treasuries, according to a new study by Bank of America (NYSE: BAC), Merrill Lynch (Nasdaq: PGEB) and the Eurasia Group.

Lisa Shalett, CIO at Merrill Lynch Global Wealth Management, recently co-authored the report The Great Global Shift: New World, New Rules with Ian Bremmer of the Eurasia Group.

“What everybody thinks is safe may be risky, and what everyone thinks is risky may be safe,” Shalett said. “We talk about U.S. Treasuries as an example of something that actually in the long run may be a lot riskier. Emerging market debt might be a lot safer than folks think.”

What many in the investment world may not be aware of is that emerging market countries are now in better fiscal shape than the United States.

Most emerging market ratios of debt-to-GDP are half that of the United States.

A New Definition of Safety

In addition, the study used the International Monetary Fund’s World Economic Outlooks Database to show that emerging nations increasingly contributed a greater percentage of global GDP over the last 10 years than developed nations.

And this data presents us with the reversal of fortunes. Where fiscal crises in South America and Asia riveted investors two decades ago, today the developed world is engulfed in a battle with their own high sovereign debts and deficits.

Since this global shift has happened so swiftly, we see that our larger institutions, which were set up to help these emerging markets, are now being surpassed by them because we’re holding onto the belief that the West will always know, and do, what’s best.

A perfect example is 2009 through 2010, where China gave more funding to emerging markets than the World Bank – even though China received billions of dollars in aid from the World Bank.

Shalett goes on to say in the study that to account for the global economic shift, investors should double or triple their non-U.S. asset allocations from eight to 10 percent levels. Emerging markets should account for three percent of your equity portfolio.

Avoid Cliché Investments

She stresses that this is about real diversification within every asset class within equities. For this strategy to be effective, you need to be in multiple geographical regions. When you follow the new fad and attempt to group countries by catchy acronyms, you probably won’t find yourself on the right path.

When we classify emerging markets into acronyms such as BRICs or the N-11, we are placing a certain uniformity among emerging markets that probably doesn’t exist. There’s consensus that the BRICs (Brazil, Russia, India and China) and the Next Eleven or the N-11 (Bangladesh, Egypt, Indonesia, Iran, Mexico, Nigeria, Pakistan, Philippines, South Korea, Turkey and Vietnam) have the high potential of becoming the world’s largest economies in the twenty-first century.

However, they’ll get there in different ways.

Russia is rich in commodities, but has a shrinking population. Turkey, on the other hand, has seen a rise in religious conservatism and its economy surged 10.2 percent in the first half of 2011.

And while China is the emerging market darling of the investor world, India and Indonesia should get a lot of attention for their demographics, commodity wealth, and political and economic systems.

According to the survey, all of these aspects should be taken into account when looking for emerging market diversity.

Good investing,

Jason Jenkins

Article by Investment U