Month: December 2011

Dec. 16 (Bloomberg) — Stewart Paterson, the Singapore-based co-founder of Riley Paterson Investment Management Pte, talks about Europe’s debt crisis and its impact on Asian financial markets. Paterson speaks with Rishaad Salamat on Bloomberg Television’s “On the Move Asia.” (Source: Bloomberg)

Is Embraer (NYSE: ERJ) An Emerging Defense Industry Leader?

by Mike Kapsch, Investment U Research
Friday, December 16, 2011

It’s already the fourth-largest aircraft manufacturer in the world…

Brazil’s Embraer S.A. (NYSE: ERJ) has produced over 5,000 aircraft that operate in 92 countries on five continents. Annual revenue from commercial and private jet sales alone total nearly $4 billion.

But the company isn’t satisfied. It’s expanding its defense and security operations, as well. And it may have struck gold in its home country…

According to SunTrust Robinson Humphrey Senior Analyst Peter Skibitski, three pending defense deals with Brazil’s government could add “several billions of dollars” to Embraer’s coffers “over the next four or five years.”

Considering Embraer’s current annual revenue is $5.28 billion, an additional $1 billion a year is an enormous opportunity. The only question is, is Embraer ready for the challenge?

Three Reasons Embraer’s Shares Could Fly

Although it has spent the majority of its time producing aircraft for commercial and private use over the last 40 years, Embraer has also spent plenty of time building a solid framework for its defense and security business.

Only problem is… defense and security make up just 10 percent of Embraer’s total revenue. But that’s set to change…

• Embraer is preparing to build Brazil’s first geostationary satellite: The construction of this satellite alone is a $400-million opportunity. And Brazil can use it to help improve its communication, remote imaging and weather prediction services.
• Embraer is in the final stages of capturing a border security program in Brazil: Drugs and arms smuggling across borders with Bolivia and Paraguay has plagued Brazil for decades. But using drones made by Embraer should help prevent a good amount of drugs and guns from entering Brazil. For Embraer, this is a $4-billion opportunity.
• Embraer singed a deal with Brazil’s Air Force to build a new aerial refueling tanker: The contract has Embraer set to provide 23 refueling tankers, its KC-390, for $1.3 billion. Service is expected to begin in 2015.

There’s still more, too… Embraer boasts a $16-billion order backlog. It recently put in a $950-million bid for a contract with the U.S. Department of Defense. And its Super Tacano fighter jet just received FAA approval in the United States.

Take into account shares are trading at 33 percent of its 52-week high and it seems Embraer has nowhere to go but up. But a concern still remains…

Embraer is being probed for a potential corruption charge by the U.S. Justice Department. The company hasn’t been charged with anything. And its CEO said the investigation won’t hinder business.

But if the Justice Department does find something, Embraer could be barred from doing business with the U.S. government in the future as a worst-case scenario. Right now, it looks premature to think that the situation will reach this point, though.

Final Departure

In all, Embraer looks set for a great run… These three defense deals with Brazil’s government could essentially double the firm’s revenue over the next few years. Therefore investors will certainly want to keep an eye on the stock and its legal situation in 2012.

Good Investing,

Michael Kapsch

Article by Investment U

Written by Sara Nunnally, Editor, Inside Investing Daily, insideinvestingdaily.com

Gold prices have slid. For smart traders, it has created an opportunity. The currency war is far from over.

It took gold prices nine months to go from $1,400 an ounce to $1,900 an ounce, but it’s only taken prices a month to fall $200.

Look at the action over this past year…

Gold prices have fallen slightly below their long-term uptrend. But this might not be a bad thing. In fact, it could be a great opportunity. Look at this chart:

This chart shows the price of gold over the past 10+ years. See that blip back in ’08? That’s the financial crisis. And after that, the price of gold went ballistic, climbing 153% in two and a half years! I don’t think even the hard and true gold bugs believed gold could move at this pace.

In 2008, we had a massive financial crisis that sent investors running to cash and ultra-safe bonds. This sent the U.S. dollar through the roof. Demand for greenbacks made their value increase, despite all the printing that the Federal Reserve was doing.

Now, in 2011, the euro is crashing hard. The European debt crisis is having the same effect on the U.S. dollar — giving it a much higher value.

As a result, dollar-denominated assets, particularly gold, are dropping in price. Never mind that the U.S. dollar is only up because folks have such little faith in the euro.

So what does this mean for the future price of gold?

Things are going to stay crazy — with a lot of price swings — until one of two things happens: The price of gold drops far enough to stimulate physical demand, or the currency war ends.

Here’s what’s happening. The Federal Reserve has agreed to provide cheap dollar loans to inject liquidity into the European market. What’s been happening is that folks are dropping the euro and picking up the dollar.

View larger chart

Look at the action between the CurrencyShares Euro Trust (FXE:NYSE) and the PowerShares DB U.S. Dollar Index Bullish (UUP:NYSE) over the past six months. The U.S. dollar is creaming the euro.

On Tuesday, I told my Macro Trader readers to take 33% profits on half of our position playing FXE put options. But the potential for profits was much greater. At the end of the day, they could have walked away with 43%, and we’re still holding the second half with 47% gains as of Thursday morning.

This sets up a unique idea for gold investors.

Gold prices are no doubt in a bit of a slump. I see this as a buying opportunity, but in all honesty, we don’t know when the market is going to turn back to gold.

That means investors can take advantage of the currency war happening right now. As long as the euro continues to be shaky, the U.S. dollar is going to maintain its value. Things like gold will struggle to move higher, and will likely fall in price.

But by investing in currencies, you can balance those price movements.

I think the FXE has some more downside before all is said and done, and could provide you with a nice gain over the next three or four months if you use put options to bet the ETF will fall. That’s why we’re still holding the second half of our FXE put position in Macro Trader.

In all, I think gold prices are starting to look attractive again. We’ve seen price support at $1,300 back in January, $1,500 back in May, and $1,600 in September.

This last is the level we just broke. If $1,600 doesn’t hold, I’d be a strong buyer at $1,500.

Editor’s Note: We are one headline away from a massive spike in gold prices. We are ignorant to believe an age-old war between the Sunnis and the Shias will fade away simply because we lowered our flag and went home.

The sad truth is, we are in worse shape now than we were eight years ago. And if what we think is about to happen becomes reality, it is great news gold investors. If you want the in-your-face details, you need to read my urgent report on the situation.

Dec. 16 (Bloomberg) — Paul Donovan, deputy head of global economics at UBS AG, talks about the costs of a potential breakup of the euro zone. He speaks with Linzie Janis on Bloomberg Television’s “First Look.”

London Gold Market Report
from Ben Traynor
BullionVault
Friday 16 December, 08:45 EST

SPOT MARKET gold prices briefly touched $1600 an ounce Friday lunchtime in London – 2.3% up on this week’s lows – while stocks and commodities were broadly flat compared to Thursday’s closing prices.

“Physical market demand continues to improve,” says Walter de Wet, commodities strategist at Standard Bank.

“The demand is not stellar, but much stronger than a week ago.”

“We saw huge physical demand [on Friday] from Thailand and Indonesia,” adds one dealer in Singapore.

“But there isn’t much demand from India, mainly because the Rupee is very weak.”

Silver prices rose to $29.96 per ounce – still 7.0% down on last week’s close – while on the currency markets the Euro rallied against the Dollar despite fears that Eurozone government downgrades may be imminent.

Heading into the weekend, Dollar gold prices were down 6.9% for the week. Based on gold prices at the afternoon London Fix, the last time gold fell further in one week was the first week of December 2008.

Bigger Friday-to-Friday falls were seen in October of that year. Today’s London Fix would have to come in below $1488.75 per ounce to surpass the 12.9% weekly drop in gold prices seen in the week ended 17 October 2008.

Nevertheless, net outflows saw the volume of gold bullion held to back shares in the SPDR Gold Trust (ticker: GLD) – the world’s largest gold ETF – fall yesterday by nearly 15 tonnes to just under 1280 tonnes, the biggest one day outflow by volume since August this year.

“Bears are in the driver seat,” says Miguel Perez-Santalla, New York-based vice president of sales at Heraeus Precious Metals Management.

“But the problems in Europe have not been solved and buying will come back and we will see higher prices because of a lack of confidence in the financial system.”

“Could Eurozone sovereign ratings be cut as early as this evening?” asks this morning’s note from Standard Bank currency analysts Steve Barrow and Jeremy Stevens.

Ratings agency Standard & Poor’s last week announced it had placed every country in the Eurozone on CreditWatch negative, stating that Eurozone governments have demonstrated they “are not prepared to act collectively in a way that convinces markets”.

“This sounds to us very reminiscent of the warning S&P gave to the US government ahead of the August 2 debt ceiling deadline,” note Barrow and Stevens.

“The US had its AAA rating taken down to AA+ a few days later. Notably the rating cut occurred late on Friday August 6, after the markets had closed.”

The potential downgrade of France – which is currently rated AAA – “does not seem justified based on economic fundamentals,” Bank of France governor Christian Noyer said Thursday.

“Or if it is, they should start by downgrading the UK, which has a bigger deficit, as much debt, more inflation, weaker growth and where bank lending is collapsing.”

“It is true,” agreed French finance minister Francois Baroin today, “that the economic situation in Britain is very worrying today and one prefers to be French than British at the moment on the economic level.”

“If the international community doesn’t work together,” International Monetary Fund chief Christine Lagarde warned last night, “[it risks] retraction, rising protectionism, isolation…this is exactly the description of what happened in the Thirties and what followed is not something we are looking forward to.”

Lagarde added that the Eurozone crisis “is not a crisis that will be resolved by one group of countries taking action”.

“It is going to be hopefully resolved by all countries, all regions, all categories of countries actually taking action.”

European Central Bank president Mario Draghi meantime has repeated that the ECB’s program of buying government bonds – which is said to be capped at €20 billion per week – is “neither eternal nor infinite.”

In a speech given in Berlin yesterday, Draghi also said a “firewall” to prevent contagion across different sovereign debt markets “will be in place and can be activated when needed subject to proper conditionality”.

Eurozone leaders have agreed to “assess the adequacy of the firewall by next March,” he added.

Ratings agency Fitch meantime has cut the credit ratings of seven major banks. Bank of America, Citigroup and Goldman Sachs have been downgraded by one notch from A+ to A. Barclays, BNP Paribas, Credit Suisse and Deutsche Bank have all been cut by two notches from AA– to A.

“With access to liquidity being constrained, market participants have increasing problems to refinance,” says a note from Credit Suisse researchers.

“As a result they have to sell their assets – including precious metals – to raise the much needed cash. This is the main reason why gold prices fall on days of increasing funding stress.”

Over in the US, the House of Representatives is due to vote today on a spending bill agreed last night that, if approved, will avert a shutdown of government agencies.

Negotiations continue meantime on a separate deal to extend unemployment benefits and a payroll tax cut.

“Congress should not and cannot go on vacation before they have made sure that working families aren’t seeing their taxes go up by $1,000 and those who are out there looking for work don’t see their unemployment insurance expire,” US president Barack Obama said Thursday.

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.

Dec. 16 (Bloomberg) — Sean Darby, global head of equity strategy at Jefferies Group Inc., talks about the outlook for China’s economy, global stocks and his investment strategy. Darby speaks with John Dawson on Bloomberg Television’s “Asia Edge.” (Source: Bloomberg)

Dec. 16 (Bloomberg) — Ashok Bhundia, a fixed-income strategist at Bank of America Merrill Lynch in Hong Kong, talks about Reserve Bank of India monetary policy, and investment strategy for global currencies. India’s inflation slowed to the lowest level in a year, boosting the central bank’s scope to support growth by pausing its record interest-rate increases. Bhundia speaks with Rishaad Salamat on Bloomberg Television’s “On the Move Asia.” (Source: Bloomberg)

Video courtesy of ForexCT – A leading Australian forex broker, liscensed by the Australian Securities & Investments Commission, offers the MetaTrader4 and PROfit Platform to retail traders. Other services include Segregated Accounts, Trading workshops, Tutorials, and Commodities trading.

Source: ForexYard

Following the decision by the SNB to keep the EUR/CHF floor unchanged at 1.20, the CHF strengthened the most since September. As the European debt crisis comes to a head, perhaps this could be the time investors test the will of the SNB to hold the floor of the EUR/CHF.

Economic News

CHF – Will Investors Test the EUR/CHF Floor?

Following the decision by the SNB to keep the EUR/CHF floor unchanged at 1.20, the CHF strengthened the most since September. As we suspected, the SNB decided to take the more conservative approach and not make a move to raise the floor of the EUR/CHF to 1.25 or 1.30. The SNB will continue to enforce the 1.20 level and left interest rates unchanged near 0%. The Swiss central bank also noted slight growth in the global economy but an escalation of the European debt crisis threatens the economic outlook. Swiss inflation forecasts were downgraded and the bank projects deflation creeping into the Swiss economy. In 2012 the SNB expects the price level to fall by 0.3%.

There can be no doubt of the link between CHF strength and the European debt crisis. Expectations are building for a French downgrade from S&P following the disappointing EU summit. With Italian bonds once again testing the 7% yield threshold (it was only 1-month ago we were saying the threshold was 6%) it appears the European debt crisis is coming to a head. As the EUR continues to weaken and investors look for safe haven currencies this may be the time the market begins to test the resolve of the SNB to hold the EUR/CHF floor at 1.20. The first test may come at the pair’s 200-day moving average at 1.2200.

EUR – Increasing Expectations for a French Downgrade

The French appear set on managing expectations for an apparent downgrade of France’s AAA credit rating by S&P. Yesterday ECB member and Bank of France Governor Christian Noyer was quoted as saying a French downgrade, “Does not appear to me to be justified when considering economic fundamentals.” France is the second largest contributor to the EFSF and there could be knock-on effects of a French downgrade.

Yesterday’s European data was positive with better than expected PMI surveys for both the manufacturing and services sectors. In particular, Germany’s manufacturing PMI climbed to 52.7 from 50.3 as the engine of the European economy chugs on. The positive data is a welcomed event but additional PMI surveys for the remainder of Europe remained below the 50 boom/bust level. Thus the surveys should not shift market expectations which are for the euro zone economy to slip into a recession next year.

The EUR/USD goes into the last day of trading for the week with support at Wednesday’s low of 1.2945 followed by the 2011 low at 12870. Resistance is found at the November 20th high of 1.3260.

JPY – USD/JPY Moving Towards 4-year Trend Line

Yesterday’s manufacturing survey from Japan was not inspiring though the Chinese PMI was more encouraging. The Japanese Tankan survey came in weaker than expected at -4 on expectations of -2. The Chinese flash HSBC PMI climbed to 49 in the month of December from 47.7 in November. The survey was below the 50 boom/bust level for the 2nd month in a row but the improvement is encouraging.

Despite the negative Japanese data the USD/JPY appears to be taking its cues primarily from the movements of the USD. Yesterdays’ strong US Empire State Manufacturing Index and lower than expected weekly unemployment claims provided a pause in the bearish market sentiment and allowed for the USD to come off of its highs across the board.

Should the near-term trend of USD strength continue the USD/JPY could test the June 2007 trend line which comes in at 78.50. A break here will expose the post-intervention high of 79.50. To the downside the December 8th low of 77.15 may be supportive.

Gold – Look to the USD Index

Commodity prices all took a plunge on Wednesday with crude oil down 5% and gold plummeting almost $100. A tepid rebound was seen on Thursday but the retracements pale in comparison to the price declines.

There have been multiple theories for the decline in commodity prices floating around on the forex blogs, some ranging from bearish technicals, central bank selling, or a liquidation squeeze. We believe that a strong USD has been weighing on commodity prices. This trend of lower commodity prices could continue given the USD index (DXY) is now trading at its highest level of the year.

Technical News

EUR/USD

The 20-day moving average is now at 1.3420 and has served as a significant resistance level with the EUR/USD last closing above this line on November 3rd. While weekly stochastics are beginning to look oversold the monthly stochastics still have room to move lower. With the downtrend firmly entrenched the supports from the November low of 1.3260 and the October low of 1.3145 are within striking distance. A move higher may find willing sellers at the December high of 1.3550 and the November 18th high of 1.3610.

GBP/USD

Sterling has been caught in a range trading environment between the levels of 1.5780 and 1.5660 where the 55-day moving average is found. With daily and monthly stochastics moving lower the November and October lows of 1.5420 and 1.5270 look to be within reach. Resistance for the GBP/USD can be found at the November 18th high of 1.5890 followed by the falling trend line from the August high which comes in at 1.5925.

USD/JPY

The doji candlestick from December 8th stands out as the day’s low coincides with both the 55-day and the 100-day moving average. This may be the start of a base being formed for a test of the June 2007 trend line which comes in at 78.50. A break here will expose the post-intervention high of 79.50. To the downside the November 18th low of 76.55 is the last support prior to the pair’s all-time low at 75.56.

USD/CHF

The pair continues to struggle to overcome the 0.9330 resistance level despite multiple attempts to move higher. A concerted move higher may find resistance at the 20-month moving average of 0.9380 followed by this year’s high of 0.9780. The downside may be capped at the support of 0.9065 which coincides with the pair’s 55-day moving average. Additional support is located at the November low of 0.8760.

The Wild Card

USD/CAD

The daily stochastics for the USD/CAD are looking oversold as the pair approaches 1.0470 from the resistance line off of the October and November highs. Forex traders should note that a move lower in the pair could find support back at 1.0090 where the rising trend line from the July and December lows come into play. The 100-day moving average is also at 1.0080, a level that has proved to be supportive in October.

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 Swiss National Bank held its target for the 3-month franc LIBOR unchanged at 0-0.25 percent, and reaffirmed its commitment to the EURCHF 1.20 floor set on the 6th of September.  The Bank said it “will continue to enforce the minimum exchange rate of CHF 1.20 per euro with the utmost determination. It is prepared to buy foreign currency in unlimited quantities… Even at the current rate, the Swiss franc is still high and should continue to weaken over time. The SNB stands ready to take further measures at any time if  the economic outlook and the risk of deflation so require.”

The SNB intensified its currency measures over the past two months.  Switzerland reported annual consumer price inflation of -0.5% in November, down from 0.2% in August, compared to 0.50% in July, meanwhile, the Bank is forecasting inflation of 0.4% during 2011, while 2012 inflation is expected at -0.3% and 0.5% in 2013.  The Swiss economy grew 1.3% on an annual basis in the September quarter (2.3% in Q2 and 2.5% in Q1).  The Swiss franc (CHF) last traded around 1.22 against the Euro, and 0.94 against the US dollar.