Month: December 2011

Dec. 21 (Bloomberg) — Kevin Wale, president of General Motors Co.’s China unit, talks about the outlook for the nation’s auto market. Wale also discusses the impact of floods in Thailand on production. He speaks with Rishaad Salamat on Bloomberg Television’s “On the Move Asia.” (Source: Bloomberg)

Dec. 21 (Bloomberg) — Nick Verdi, a Singapore-based currency strategist at Barclays Capital, talks about the South Korean won. Verdi also discusses the yen, euro, dollar, Swiss franc, and the Indonesian rupiah. He speaks with John Dawson on Bloomberg Television’s “First Up.” (Source: Bloomberg)

The Bank of Ghana held its key lending rate unchanged at 12.50%.  Bank of Ghana Governor, Kwesi Amissah-Arthur, said: “The thrust of monetary policy in 2011 is to further strengthen macroeconomic stability, delivering an end-year inflation of 9.0 per cent (with an annual average rate of 8.7 percent) and accumulation of gross external reserves of not less than 3-months of import cover. Latest revised GDP figures from the Ghana Statistical Service estimate real GDP growth at 13.6 per cent for 2011, marginally down from the earlier expected growth of 14.4 per cent. Non-oil real GDP growth is however estimated to be stronger at 8.0 per cent compared from 7.5 per cent earlier projected.”

The Bank of Ghana previously also held the rate unchanged after reducing its lending rate by 50 basis points to 12.50% at its July meeting, after also cutting 50 basis points at its May meeting this year.  Ghana reported annual inflation of 8.55% in November, up slightly from 8.4% in September, August, and July, compared to 8.6% in June, 8.9% in May, 9.0% in April, and 9.1% in March.  The Bank noted that inflation remained relatively stable, and anticipates moderate inflation pressures in Q4.

Ghana’s economy grew 5.2% year on year in the June quarter (5.4% in Q1, and 10% in Q4 2010), as Africa’s newest oil exporter saw export earnings boosted by oil sales, as well as a high gold price and cocoa volumes.  Ghana’s currency, the cedi (GHS) has weakened by about 10% against the US dollar so far this year, with the USDGHS exchange rate last trading around 1.64.

www.CentralBankNews.info

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: “The risks to the forecast for inflation and interest rates are slightly on the upside compared to the baseline scenario of the existing forecast.  The risks to the forecast for GDP and the exchange rate are tilted towards the alternative scenario as foreign developments have moved towards the materialisation of this alternative.”

 The Czech central bank also kept the repurchase rate unchanged at its November 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%.  

Energy and Commodities: 2011 & 2012

by David Fessler, Investment U Senior Analyst
Wednesday, December 21, 2011: Issue #1669

As my colleagues have done earlier this week, I’m now putting myself in the hot seat with regards to my prognostications from a year ago.

Around this time last year, I opined that commodities like gold, silver, fertilizers, coal and oil were in increasingly short supply. Prices for these and other commodities were approaching 10-year highs, and would keep on rising.

How did that statement pan out? Let’s take a look.

Precious Metals

According to data from Kitco, gold started the year around $1,400 per ounce, and is currently trading at just over $1,600 per ounce.

Silver, on the other hand, started the year at $30.70 per ounce, and now trades a tad lower in the $29.50-per-ounce range. It was what silver did during the year that made all the headlines.

Back in April, it hit a high of $48.70 per ounce. The scale and speed of the decline after the April high suggested institutional dumping of the metal. Prior to the sell-off, silver was widely viewed as another safe haven (like gold) against money printing.

Fertilizers

Fertilizer prices, according to data retrieved from ycharts.com, were up 41.54 percent over the last year. Ironically, fertilizer stocks didn’t fare so well. Potash Corporation (NYSE: POT) shares are 22.5 percent lower since January. Mosaic Company (NYSE: MOS) didn’t fare much better, declining 35 percent since the New Year.

I expect fertilizer demand to continue rising throughout 2012, making these stocks (which trade with P/E ratios of 12 and eight respectively) absolute bargains.

Fossil Fuels

Coal, which started the year at $80 per metric ton, sits around $82.85 per metric ton as I write this, or a gain of about 3.5 percent. Concerns over global recession have weighed on the price of coal.

How did shares of coal companies do over the same time period? In a word, they got hammered. Shares of Arch Coal, Inc. (NYSE: ACI) dropped 58 percent for the year. Walter Energy, Inc. (NYSE: WLT), a big metallurgical coal producer, lost 52.5 percent of its share value since January. In the face of lethargic demand here, U.S. producers are increasingly turning to exports to try to bolster their bottom lines.

Lastly, let’s talk about oil. According to ycharts.com, back in January, West Texas Intermediate (WTI) was trading for $87.81 a barrel. Now it’s $97.25 a barrel – up 11 percent. Brent was $89.54 back in January, and is now at $106.91 – an increase of 19.3 percent.

Since most of our gasoline and diesel is refined from Brent, it’s no small wonder gasoline prices have stayed high. You can expect oil prices to slowly move higher through 2012, with gasoline prices following along. And unfortunately, $4.00 a gallon gasoline is coming back in 2012.

Had you purchased the right oil stocks, however, you would have taken a little bite out of your gasoline bill. This is especially true for the domestic pipeline master limited partnerships (MLPs).

Kinder Morgan Energy Partners LP (NYSE: KMP) was up 15 percent for the year, not including its 5.73-percent dividend yield. El Paso Corporation (NYSE: EP) was up a whopping 85 percent. The main reason it jumped was that it agreed to be acquired by Kinder Morgan, creating one of the largest pipeline networks in the United States.

A Brief Forecast for 2012

With emerging market economies booming all over the world, it’s no secret that silver, fertilizers, coal and oil are in increasingly short supply, and will remain so throughout 2012. I expect prices to continue to go up, not down. It’s just simple supply and demand at work.

As you can see from my short summary, we got our main premise right: Commodities were headed north, and will continue to do so this year.

Now, given the bear market mentality the market seems stuck in, you can buy the companies that are producing them at screaming bargains.

We’ll revisit this next year and see how we did. In the meantime, have a great holiday season, and get ready for another wild ride next year in energy and commodities.

Good investing,

David Fessler

Article by Investment U

Dec. 21 (Bloomberg) — The European Central Bank will lend euro-area banks 489 billion euros ($645 billion) for three years, more than economists forecast, in an effort to keep credit flowing to the economy during the sovereign-debt crisis. Linda Yueh and Maryam Nemazee report on Bloomberg Television’s “The Pulse.”

The United States and Asia Use Europe to Get to Emerging Markets: Part I

by Jason Jenkins, Investment U Research
Monday, December 21, 2011

European companies are selling at a discount…

Well, at least that’s the sentiment in the United States and Asia.

Bloomberg data shows that takeovers in Europe by foreign companies rose nearly 60 percent to $252 billion in 2011.

There’s a feeling that American and Asian companies seeking acquisitions in Europe may pick up the acquisition pace in 2012 after a second half slowdown this year. Companies including General Electric Co. (NYSE: GE), China’s HNA Group Co. and Japan’s Fast Retailing Co. (9983) have shown a strong interest in the region.

But Why?

It’s two-fold. On one hand, you have a beat up euro. On the other, share prices in the region have been decimated by the Eurozone’s sovereign debt crisis.

According to Gregg Lemkau, head of mergers and acquisitions for Europe, the Middle East, Africa and Asia-Pacific at Goldman Sachs Group Inc., “There are well-positioned acquirers globally looking for bargains.” That’s even with all the economic turmoil that has been a recent burden on acquisitions. Lemkau went on to say, “One of the drivers in Europe has been historically low valuations and a relatively soft currency.”

Low Equity Valuations

The MSCI Europe Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of the developed markets in Europe.

The MSCI Europe Index consists of the following 16 developed market country indices: Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland and the United Kingdom.

The Index is currently trading at 10.4 times reported earnings. That means that equities in the region are cheaper than they’ve been 98 percent of the time since 1995.

European Currency Issues

Since the sovereign debt crisis reared its ugly head about two years ago, the euro has fallen by about 13 percent against the dollar. A cheaper European currency makes a more favorable environment for U.S. buyers.

On the other side of the world, the Japanese yen has gained about 10 percent over the last half of this year against a benchmark basket of currencies including the euro.

A Region Teetering on Collapse

No one wants access to Europe…

However, they do want technology and the access to emerging markets that many European companies possess.

Look at what acquisitions gave these companies:

• Johnson & Johnson’s (NYSE: JNJ) planned purchase of Synthes (NYSE: SYST) will give it devices used to treat bone fractures and trauma. This deal would allow J&J, the world’s second-largest seller of health products, to be the leader in the $5.5-billion market for devices used to treat trauma victims.
• Hewlett-Packard Co.’s (NYSE: HPQ) $10.3-billion takeover of the U.K.’s Autonomy Corp. gave it access to a data-sifting enterprise search technology helpful to cloud computing.
• Microsoft Corp. (Nasdaq: MSFT), in buying Luxembourg-based Skype Technologies SA for $8.5 billion, absorbed the world’s biggest provider of internet telephone service.

Bloomberg data goes on to show that European companies have also tended to be more aggressive than their U.S. counterparts in expanding in markets like Africa and the Middle East.

Since 2000, they have spent about $90 billion on deals in those regions since 2000, compared to about $50 billion by U.S. companies.

The second installment of this article will address plays against possible bumps in the roads and other players who may be buying in Europe next year. Stay tuned.

Good Investing,

Jason Jenkins

Article by Investment U

By The Sizemore Letter

Charles Sizemore gave his thoughts on the recovery in the housing market to the Wall Street Journal’s Quentin Fottrell:

The unexpected surge in new housing construction may have helped boost stocks Tuesday, but some analysts say neither investors nor homebuyers should be too encouraged by the news.

U.S. home building climbed to the highest level in 19 months during November and construction permits grew, according to data released this morning by the Commerce Department. Home construction in November rose 9.3% to a seasonally adjusted annual rate of 685,000 from October. Investors reacted favorably to the news as the Dow Jones Industrial Average closed up 337 points – or 2.8% — erasing Monday’s losses; the index is now up over 4% since the start of the year.

There are also ways to invest in this building boom without a mortgage, experts say. Some pros are advising their clients to invest in building stocks to take advantage of the rise in construction. “Investors could buy shares of homebuilders that specialize in starter homes in up-and-coming areas,” says Charles Sizemore, a financial adviser in Dallas, Texas. He recommends DR Horton ($DHI), “because it is large, diversified, and has a more sophisticated management than many smaller homebuilders,” and Ryland ($RYL), “because of its focus on affordable homes in growing markets.”

To read the full article, see “Homebuilding Strong, but Housing Shaky.”

When looking at the housing market and looking for investment opportunities, there are a couple things to consider:

1. Any improvement at all in housing is cause for at least modest celebration.  Housing, or more accurately the debt associated with housing, remains the largest obstacle to a sustainable U.S. recovery.
2. That said, one month of data does not make a trend; this could end up being nothing more than statistical noise once all is said and done.
3. The strength in rentals is not surprising.  Demographically, we have a lot more renters than buyers right now.  American births had a mini-boom that peaked in 1990.  Those babies born in 1990 are 21 today, graduating from college, and needing apartments.  Expect rental demand to remain strong for several years.
4. These same demographic forces mean big demand for starter homes in the years ahead, particularly in the cities attracting all of those recent college graduates.
5. The market for “trade-up” homes should remain weak for a long time to come, as demographically there are few buyers coming down the pipeline.

As investors, it’ not particularly easy to capitalize on these trends unless you’re willing to buy physical property.  Buying a portfolio of depressed starter homes with the intention of renting them for, say, five year and then selling for a profit would be a good strategy.  But this is not something you can do in your company’s 401k plan.

You could buy shares of homebuilders that specialize in starter homes in up-and-coming areas, but you should expect a bumpy ride.  Until something resembling a resolution comes out of the Euro sovereign debt crisis, the markets will be volatile and homebuilders will give most investors heartburn with their volatility.  So, if you decide to invest in homebuilders, make sure that you have some kind of risk control in place, whether it be a stop loss, a trailing stop, or some other strategy.

If you liked this article by Sizemore Insights, you’d probably enjoy The Sizemore Investment Letter, our premium members-only newsletter. Click here for more information.

By Elliott Wave International

Since 1999, Elliott Wave International senior analyst and trading instructor Jeffrey Kennedy has produced dozens of Trader’s Classroom lessons exclusively for his subscribers. While commodity markets are known as some of the toughest trading environments around, these actionable lessons from a skilled veteran can help you trade commodities, or any market for that matter, with more confidence.

Enjoy this excerpt from Elliott Wave International’s free Club EWI resource, the 32-page Commodity Trader’s Classroom.

Congestion
“Congestion” is my term for sideways price movement or range trading. And the Elliott wave pattern that best fits this description is a triangle. Those of you who have held a position during these periods know that it’s not fun. But the upside is that congestion often provides support or resistance for future price movements regardless of when it occurs. In May Coffee (Figure 6-1), notice how the brief period of congestion that occurred in early November 2003 acted as support for the December pullback. This happened again when the January selloff fell into listless trading for the rest of the month.

The weekly chart of Sugar (Figure 6-2) shows how these periods can also act as resistance.

And if you think about it, the tendency of congestion phases to act as support or resistance is right in line with the Elliott wave guideline on fourth wave retracements: support for a fourth wave pullback is the previous fourth wave extreme of one lesser degree.

Highs, Lows and Gaps
Other areas to watch for price reversals are previous highs and lows and also gaps. You can see on the chart of May Corn (Figure 6-3), for instance, that the September 2003 high was a significant hurdle for prices to overcome. For three months, each attempt to break through this level failed to produce a sizable decline. Also notice the small gap that occurred in early October. The December selloff closed this gap, and in doing so, introduced the subsequent rally. I have mentioned before how gaps often attract prices like magnets at first. Then they repel them — literally. Prices fill the gap and flee the scene, you could say.

The April chart of Lean Hogs (Figure 6-4) gives us two examples of the same setup: The February advance failed at the previous high made in November 2003, and then fell back to close the late January gap. Prices failed at a previous high again in March and then closed the gap that occurred in February.

The last chart for Orange Juice (Figure 6-5) offers one example of how previous lows can provide resistance. Each bounce within the last ten months in OJ has met resistance at or near a previous low.

Learn more trading techniques in Jeffrey’s 32-page collection of practical trading lessons — absolutely free!Here’s what else you’ll learn: How to Make Yourself a Better Trader How the Wave Principle Can Improve Your Trading When to Place a Trade How to Apply Fibonacci Math to Real-World Trading How to Integrate Technical Analysis into an Elliott Wave Forecast Download your copy of Commodity Trader’s Classroom now.

Dec. 21 (Bloomberg) — Simon Derrick, chief currency strategist at Bank of New York Mellon Corp, discusses the European Central Bank’s refinancing operations and the consequences for the euro. He talks with Linzie Janis on Bloomberg Television’s “First Look.” (Source: Bloomberg)