Month: December 2011

Dec. 6 (Bloomberg) — Azad Zangana, European economist at Schroder Investment Management, discusses efforts to resolve the sovereign crisis amid Standard & Poor’s downgrade warning for 15 euro-area governments. He talks from London with Francine Lacqua on Bloomberg Television’s “The Pulse.” (Source: Bloomberg)

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

If you’re looking for that single investment that is going to create the majority of your wealth… here it is.

Jobs data on Friday added a nice pop to U.S. markets. According to the BLS, the unemployment rate dropped to 8.6% as the economy added 120,000 jobs in November.

But don’t uncork the champagne just yet…

We know this number is manipulated to put the best face on the picture. Not included in this number is the fact that 315,000 people stopped looking for a job last month. Also, retailers added the most jobs of any sector at 50,000.

Can you think of any reason why they would lead the charge?

Seasonal shopping, anyone?

Now, a job’s a job, especially to someone who’s been out of work for a while with a family to take care of…

But investors need to watch for a possible drop-off in January, after the holidays.

Add to that consumers are expected to spend less this holiday season, and you’ve got a nice little setup to short some retailer come January. Bankrate.com’s Financial Security Index poll found that 42% of those surveyed said they were planning on spending less this year.

Only 10% said they were planning on spending more.

This index survey also asked folks how secure they felt in their jobs. Only 13% said they felt more secure than last year — the second-lowest level of the year.

All this is not very soothing to investors…

But there’s a lot of opportunity in all this uncertainty and volatility.

It has to do with being able to control risk and attack profitable investments head-on. Some of the best traders in the world make 90% of their profits from 10% of their trades.

This is the 90/10 Phenomenon.

What that means is two things: That these guys are making big bets when it counts, and they’re limiting risk by spreading out their investments.

Instead of betting the house on a hunch, the best traders have their fingers in a lot of small pots. This doesn’t necessarily mean “diversification.” These guys do their research to find the best possible investments wherever they are.

They’re waiting for their research to pan out.

When circumstances start to turn their way in one particular trade, they ratchet up their investment… incrementally increasing their exposure while not tipping the scale with undue risk.

That’s how the best traders get big paydays… like George Soros’ billion-dollar win against the British pound in 1992.

When volatility increases in the market, these traders start cleaning up.

This could be one of the best times (outside of the dismal lows back in 2008-2009) to start building your fortune. More millionaires were created during the Great Depression than any other time in our history.

Let’s take a look at two “small pots” with big potential…

Global Infrastructure

I talked about this briefly at our Money Crisis Survival Summit in September. India is expected to surpass China in population by 2025. And by 2050, 75% of the world’s population will live in urban areas.

That means huge building projects — water, sewer, electricity, airports, road and bridges… not to mention energy corridors to pump oil and natural gas to refineries and power station. Demand for industrial commodities is going to soar.

We’re talking about copper, steel, concrete and all manner of other building materials.

We could see pipelines and power stations go up at an alarmingly fast rate.

I really like this industry — and the building and project management companies might fare better than the commodities themselves.

Companies with projects in growing markets (and growing populations) like India, China and Latin America will do well.

And if they’ve been hit by the slowdown in Europe and the U.S. valuations might be very attractive right now.

Currencies

This investment category shouldn’t scare you. It should get you drooling… We’re seeing the possible death of a major currency in real time! The euro is like a cornered rabbit right now. There’s no good way to flee, and it could end up on somebody’s dinner plate.

For traditional investors, currencies can seem pretty exotic, but access to this market — one of the biggest in the world with trillions of dollars’ worth traded every day — is getting just as easy as investing in stocks.

There are a number of exchange-traded funds that will give you exposure to a variety of currencies.

The one thing you must remember, though, is that every currency play is two-sided. That means the currency is only valued in comparison to something else. For the exchange-traded funds, that “something else” is the U.S. dollar.

You will have to take this factor into account when investing in currencies. For as bad as the euro’s prospects are, the CurrencyShares Euro Trust (FXE:NYSE) ended last week higher…

Because of the cheap U.S. dollar.

That said, currencies will be a huge area for investors to clean up. It was with currencies that George Soros made his billion-dollar trade. He bet big that the British pound sterling was going to tank, and he was right.

These two “small pots” are very interesting areas with a lot of potential for wealth-builders to start dabbling in. But just remember, the best traders aren’t arbitrary. They do their homework, start small, have a strong working plan and invest accordingly.

And they’re ready to move once the gears get going.

Editor’s Note: The idea that the world’s best traders make 90% of their profits in just 10% of their trades is part of what Sara calls the Trader’s Key. It is an idea she discussed in great length in last week’s emergency teleconference. If you haven’t listened to it yet… it’s FREE.

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

American Airlines Bankruptcy Doesn’t Mean the Sky is Falling

by Jeannette Di Louie, Investment U Research
Tuesday, December 6, 2011

AMR Corporation (NYSE: AMR), American Airlines’ parent company, just filed for bankruptcy.

But don’t panic at the news; this isn’t one more sign of a bad economy getting worse or, at best, staying stagnant. This is just the sun rising in the east and setting in the west.

Really, airline bankruptcies are that common. Hence the reason why MarketWatch saw fit to mention that “AMR’s bankruptcy filing Tuesday marks the 100th time a U.S. carrier has moved to reorganize its finances since 1990,” 40 of which have been since 9/11.

Sure, that lengthy list holds a lot of small company names that the average American has never heard of. But it also includes bigger businesses such as Delta Air Lines, U.S. Airways and United Airlines, some of them several times over.

Essentially, this is what airlines do. They go bankrupt.

The only real surprise is that AMR managed to somehow stay solvent so long when everybody else was tanking after 9/11.

What’s Wrong With the Airline Industry

With so many failings, it’s a waste of time to argue whether something is wrong with the U.S. airline industry. That much is obvious.

What isn’t so obvious is exactly what. After all, as economists Clifford Winston and Professor Steven A. Morrison noted back in 2005, U.S. airlines flew nearly three billion passengers between 2001 and 2004… Yet they “lost an average of $13 on each one generating more than $32 billion in losses.”

And of course, things haven’t gotten any better since then. Only a short while after potential passengers got over their 9/11-inspired fears of flying, the economy turned south and so did the number of vacations and business trips people took.

But as the last three decades show, the economy is only a partial player in this problem.

Winston and Morrison, for their part, presumed that the very nature of the business dooms it to a sub-par existence. Ordering airplanes, they argued, is a costly process that takes too much time between making the purchase and receiving it… long enough for trends to change and the purchase to become unnecessary.

They’re right in pointing out that nobody can predict the future. (After all, how many times in the last two years have you read the words “worse than expected” in an economic report?) However, any CEO worth his or her salt should not only consider that dilemma before making any large purchases, but should also have a backup plan in case things don’t work out as expected.

Less Pie to Go around and Other Theories

Matthew Philips, who writes for Freakonomics, much more recently took his own turn at explaining the conundrum of U.S. airline company failures. And his theory is even less flattering to the industry.

Quoting Berkeley economist Severin Borenstein more than anything else, Philips theorizes that it was all Ronald Reagan’s fault for deregulating the industry over 30 years ago. By doing so, he says, it allowed low-cost carriers to snatch their piece of pie in the sky, leaving less room for monopolies and therefore for profits.

If that’s true and the larger airlines really can’t stand up to some added competition then, once again, they’re very poor businessmen who deserve to go bankrupt. In fact, the only one that puts them in a flattering light is the idea that the high cost of jet fuel and the burden of additional taxes eat into the earnings they would otherwise be enjoying.

Regardless of the reason, from an investor’s standpoint, don’t worry too much about AMR’s unfortunate declaration. Feel free to panic at any of the other negative news coming out of Europe, the U.S. and elsewhere, but this news isn’t worth your worry.

Though you might want to think twice before you buy into an airline.

Good investing,

Jeannette Di Louie

Article by Investment U

Dec. 6 (Bloomberg) — Connecticut Governor Dannel Malloy, a Democrat, talks about the hedge-fund industry and high-frequency trading. Malloy spoke with Erik Schatzker on Dec. 1 at the Bloomberg Link Hedge Funds Summit in New York. (Source: Bloomberg)

Protesting high school students hurled rocks and bottles during clashes with police Tuesday during a rally to mark the third anniversary of the fatal police shooting of a teenager in central Athens. (Dec. 6)

An Alternative Way to Capture Emerging Market Growth

by David Fessler, Investment U Senior Analyst
Tuesday, December 6, 2011: Issue #1658

Many countries outside the United States operate state-controlled companies. Most are giant behemoths, employing millions of people between them.

These companies – among the world’s largest corporations – are primarily in the banking and energy sectors. Some, like the giant oil and gas company, Saudi Aramco, aren’t open to investors at all. But many are.

Some fund managers shun these companies. With the governments that control them wielding various degrees of power over their daily operations, shareholder interests aren’t always viewed as a top priority.

But some managers view them as proxies for the growth of the emerging market countries in which they operate. Many are huge “cash cows,” throwing off billions in profits each year. Some emerging market funds have some of these companies as core holdings in their portfolios.

Let’s take a look at five you might want to consider adding to yours. Not too surprisingly, at least to me, four of them are energy companies.

Monster Oil

The largest is PetroChina Company Limited (NYSE: PTR). It’s the publicly listed arm of China’s state-owned oil monolith. It’s the biggest of the Chinese oil companies, and it employs over 500,000 workers.

It’s the classic state puppet, with 86 percent of it owned by China National Petroleum Corporation (CNPC). CNPC controls its management, elects its board of directors, and decides on the amount and timing of any dividend payments.

But PetroChina is widely viewed as the proxy for China’s oil and natural gas sector. It holds sixth place in the Forbes listing of the world’s largest listed companies.

PetroChina is expanding rapidly, and is actively seeking acquisitions and investments in oil around the globe. There’s plenty of upside here, especially as car sales continue to explode in China.

Monster Bank

Our second state-owned monster is a bank. But not just any bank: it’s the Industrial and Commercial Bank of China (HKG: 1398). Traded on the Hong Kong and Shanghai exchanges, ICBC is more commonly known is the largest of the four big Chinese banks.

Holding down the seventh spot on Forbes‘ list, ICBC employs 387,000 people. It has a staggering 440 million holders of credit and debit cards.

Investment managers are split when it comes to investing in Chinese Banks. Jim Chanos, the billionaire short-seller, told Bloomberg News a few weeks ago that: “The Chinese banking system is built on quicksand, and that’s the one thing a lot of people don’t realize. The banking system in China is extremely fragile.”

Chanos is shorting the Agricultural Bank of China. Others aren’t as bearish as Chanos, and ICBC, China Construction Bank Corporation (HKG: 0939) and other large Chinese Banks are held in a number of mutual funds.

Brazilian Giant

From the subhead, you’ve probably guessed the third company is Petroleo Brasileiro SA (NYSE: PBR), more commonly known as Petrobras. This giant South American oil and gas exploration and production company is the world’s deep-water expert.

It has to be, since that’s where most of its oil and natural gas deposits are located. Last year, Petrobras launched the biggest stock issuance in the history of the world, raising $70 billion in the process.

It plans to use the capital to fund its $250-billion offshore oil and natural gas exploration and development program. The company employs about 77,000 and by value represents about 10 percent of the Brazilian Stock exchange (the Bovespa). It clocks in at number nine on the Forbes list.

The true extent of its offshore reserves are really an unknown, but are estimated somewhere between 50 and 500 billion barrels. While the Brazilian government owns 48 percent of the Brazilian giant’s common stock, it retains 64 percent of the company’s voting stock.

Petrobras’ profits have suffered in recent years, primarily due to currency volatility. Despite the “managerial autonomy” the government insists that Petrobras has, it’s sued to generate jobs and to control energy prices within Brazil.

Nonetheless, Petrobras could eventually rival Saudi Arabia in overall oil output in as little as 10 to 15 years. It bears watching.

The King of Natural Gas

This company has often been described as a “state unto itself.” It’s Russia’s Gazprom OAO (PINK: OGZPY), the largest company in the country.

This state-run monopoly owns the largest gas transportation system in the world, supplying natural gas to Russia. European countries have become increasingly reliant on it, too.

Employing over 400,000 workers, Gazprom accounts for over 80 percent of Russia’s natural gas production, and about 10 percent of its economic growth.

Given its gas monopoly status, and its 50.002 percent control by the Russian government, Gazprom has been the focus of political concern of the countries it sells to. The central government, through its “representatives” controls investments, financial plans, and cash flows.

They also control the valves that supply gas to Europe. Back on January 1, 2006 in one of the numerous natural gas price disputes with the Ukraine, Europe was shut off from Russian gas for three days.

Gazprom is 15 on the Forbes list, and is a mainstay of funds that focus on the BRIC nations, emerging market countries (particularly European ones), and Russia. Gazprom will figure prominently in the world’s supply of natural gas, and will soon be one of the largest exporters of liquefied natural gas (LNG).

China and Energy… Again

The fifth company on our list is another Chinese energy giant. Sinopec Shanghai Petrochemical Co. (NYSE: SHI) is also engaged in the petroleum and chemical industries.

The company owns and operates over 30,000 gas stations in China. That’s more than BP plc (NYSE: BP) has worldwide. It’s 55 percent owned by the state-owned Sinopec Group.

Employing over 400,000 people, Sinopec owns China’s best oil and petrochemical assets. It – like PetroChina – is seen as a great play on China’s seemingly endlessly growing demand for energy.

The company is also branching out across the globe. Its most recent play was taking a 30-percent stake in the Brazilian arm of Galp, a Portuguese oil company.

So there you have five of the largest state-owned companies in the world. If you have an appetite for risk, and believe oil is going up (it is and will continue to do so), then four of them are companies you could consider taking a small stake in.

I’m with Jim Chanos though, in steering clear on ICBC. Time will tell, but China’s banking system could be the next domino to fall.

Good investing,

David Fessler

Article by Investment U

Dec. 6 (Bloomberg) — Jaco Rouw, senior investment manager for global currencies at ING Investment Management, discusses the European Central Bank’s bond purchases and the consequences for the euro. He talks with Francine Lacqua on Bloomberg Television’s “The Pulse.” (Source: Bloomberg)

London Gold Market Report
from Ben Traynor
BullionVault
Tuesday 6 December, 08:45 EDT

WHOLESALE MARKET gold bullion prices dropped to $1707 an ounce Tuesday lunchtime in London – 2.2% down from where they ended last week – while stock markets lost their recent momentum after a ratings agency announcement warned that 15 Eurozone governments could have their credit ratings cut.

Earlier in the day gold prices fell as low as $1710 per ounce – a 2% drop from Friday’s close.
“Physical [gold bullion] demand is much weaker than it was six weeks ago,” says Standard Bank commodities strategist Walter de Wet.

“Much of the demand weakness is from India where the Rupee has depreciated…[pushing] gold denominated in Rupees to all-time highs.”

Silver bullion fell to $31.83 – 2.4% down for the week so far – while on the bond markets US Treasuries and German bunds fell while UK gilt prices edged higher.

Ratings agency Standard & Poor’s announced Monday that it has placed 15 Eurozone nations on CreditWatch negative – often a precursor to a downgrade – days before Friday’s key European Union summit.

Austria, Belgium, Finland, Germany, Luxembourg and the Netherlands all face a possible one-notch downgrade. Nine other countries, including France, could see their ratings cut by two notches. Of the two remaining Eurozone nations, Cyprus was already on downgrade watch and Greece is rated junk.

S&P has also placed the European Financial Stability Facility – the Eurozone’s rescue fund, currently ratedAAA – on negative watch. The EFSF relies for its lending capacity on Eurozone government guarantees.

“Eurozone governments [have shown they] are not prepared to act collectively in a way that convinces markets,” says Paul Donovan, deputy head of global economics at UBS in London, adding that S&P’s move “may perhaps heighten the desirability of coming out with a compelling solution.”

Following the announcement, the Basel Committee on Banking Supervision – which is currently drawing up a new regulatory framework known as Basel III – may broaden the range of assets banks can use to meet liquidity standards, news agency Bloomberg reports.

Under the proposed new rules, banks will, from 2015, be required to hold enough “high quality liquid assets” – traditionally taken to mean government bonds and cash – to survive 30 days of stress, a requirement known as the liquidity coverage ratio.

“There aren’t enough assets in the world that are genuinely liquid and of high enough quality to allow all the banks to meet this ratio,” says Barbara Ridpath, chief executive at the International Centre for Financial Regulation.

“That’s only likely to get worse because of the changing credit quality of some of the sovereigns.”
“One of the central pillars of the Basel III framework,” adds Matthew Czepliewicz, banking analyst at London brokers Collins Stewart Hawkpoint, “is the notion of a risk-free asset class…that central pillar is disintegrating.”

Here in London, the Bank of England announced Tuesday that it has introduced a new contingency liquidity facility – the Extended Collateral Term Repo Facility – to improve banks’ access to short-term funding.

“There is currently no shortage of short-term Sterling liquidity in the market,” said a BoE statement.

“But should that position change, the new Facility gives the Bank additional flexibility to offer Sterling liquidity in an auction format against the widest range of collateral.”

French and German leaders said Monday they have agreed on new fiscal rules for Eurozone governments. French president Nicolas Sarkozy agreed with German chancellor Angela Merkel’s demand for a revision of the entire EU governing treaty, the Financial Times reports.

In return, Merkel agreed that private sector government bond investors would not be asked to take losses in any future bailouts. French banks have significant exposure to other Eurozone nations – with French banks holding more Italian debt than German, British, Dutch, Spanish and Belgian banks combined – according to Bank for International Settlements data published by newswire Reuters.

“This package shows that we are absolutely determined to keep the Euro as a stable currency and as an important contributor to European stability,” said Merkel.

“What we want,” Sarkozy added, “is to tell the world that in Europe the rule is that we pay back our debts, reduce our deficits, restore growth.”

“Financial markets might be impressed with this rhetoric for now,” says this morning’s note from Standard Bank research analysts Steve Barrow and Jeremy Stevens, “but, in our view, they won’t be impressed for long.”

“I have no particular insight into the problems plaguing the Eurozone,” writes Jeremy Grantham, co-founder and chief investment strategist of Boston-based asset managers GMO in his latest quarterly letter.

“But I can recognize a terrifying situation when I see one. The appropriate response is surely to be more cautious than usual.”

Eurozone investors meantime could improve the diversification of their assets by adding gold bullion to their portfolio, according to findings from a new study published today by the World Gold Council.

In London, foreign exchange traders expect the final weeks of the year to be unusually volatile – with many citing a sharp drop in volumes and reduced demand from major clients, the FT reports.

“The sheer amount of newsflow has made it difficult for people to take positions confidently,” says Adam Margolis, head of FX sales to banks for Europe at Citi.

“There’s a real case of headline fatigue.”

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.

Source: ForexYard

The news stream over the past 24 hours has been EUR negative with the exception of German industrial orders from October. Yet the EUR has begun to crawl back above the 1.34 level before the strong German data.

As I was writing the latest entry for the FOREXYARD forex blog German industrial orders were released and the data simply blew away the consensus forecasts. The October numbers rose 5.2% m/m on expectations of an increase of only 0.9%. The September numbers were revised lower to -4.6% m/m from -4.3% but this did not deter EUR bids. The data underlines comments from German Economics Minister Philip Roesler whom Dow Jones quoted as saying, “Germany is the stability anchor in Europe…Germany is not concerned by short-term decisions of one ratings agency.”

This morning’s statement that the Bundesbank and the US will not support IMF contributions to the EFSF added to the negative sentiment from yesterday’s move by S&P to put 15 euro zone nations on negative credit watch. The announcement by S&P came on the heels of press conference with Merkel and Sarkozy to implement additional oversight and penalties on those nations who violate EU budget parameters. These issues will be debated at the two day EU economic summit in Brussels which is set to begin on Thursday.

Despite the news of the past 24 hours being mostly EUR negative the EUR/USD has climbed as high as 1.3425. One reason for this may be market positioning. The most recent CFCT IMM data shows EUR non-commercials have their largest short position built in the futures market since June of last year. The one sided positioning could create a short squeeze if European leaders begin to instill a bit of investor confidence towards the end of the week. EUR/USD resistance is found at yesterday’s high of 1.3490 and at Friday’s high of 1.3550. Support looks to be at the November 30th low of 1.3260.

Read more forex trading news on our forex blog.

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