Month: December 2011

Agriculture Making a Comeback in the U.S. Economy

by Jason Jenkins, Investment U Research
Monday, December 5, 2011

This summer I wrote about how Jim Rogers loves buying undervalued assets. What he saw in gold and silver over a decade ago, he currently sees in the agricultural sector. Agriculture prices are – on a historical basis – extremely depressed and this is where he saw his next opportunity.

Well, it seems that foresight is coming to fruition. The U.S. Department of Agriculture (USDA) said this week that the net value added of agriculture to the U.S. economy – when you add in inflation – will be the highest this year since at least the early 1970s. And the boom is likely to continue.

The official numbers show that in 2011, U.S. farmers will take home for the first time more than $100 billion in a single year. Agriculture Secretary Tom Vilsack stated, “Agriculture continues to be a bright spot” in the U.S. economy. Indeed, farming, together with natural resources production, particularly oil, is one of the few bright spots.

As the Financial Times reported this week, there has been a surge in farm income as a result of a rarely seen uptick in agricultural commodities. The past three decades have experienced infrequent increases in food prices. And these spikes were not across the board. More commonly, there was an isolated spike in a specific commodity. What we see now is an increase in price across the agricultural commodity board at the same time.

And what’s caused this boom?

Well here are three major catalysts:

• There has been a strong demand for agricultural commodities in emerging markets – most notably China and India.

• There has been really strong demand for the U.S. bio-fuel industry.

• There have been supply and trade disruptions for other key commodity producers, such as Russia and Australia.

Fertilizer Stocks

Fertilizer stocks have been getting rocked over the past month due to fears that falling crop prices will reduce farmers’ ability to invest in potash and other nutrients.

There has been a sharp increase in costs, with fertilizers up 28 percent year-on-year and fuel up 27 percent year-on-year. Overall, production expenses will rise 12 percent to a record $320 billion. Some say this year’s jump is reminiscent of the worrying increase in expenses witnessed we saw three and four years ago.

And here are the reasons for a rosy outlook:

• A rising global population that just reached seven billion people.

• Higher protein consumption in the world’s developing economies translates into a bigger demand for feed.

• High potential for industry consolidation.

These three points are crucial because it creates a longer-term bid – and a strong institutional investor base – for these stocks.

The Strongest Play

Companies from the seed and pesticides producers to agricultural commodities traders have reaped the benefits of this boom. However, take a look at Deere & Co. (NYSE: DE).

Last week Deere & Co. – the leading manufacturer of tractors and combine harvesters – reported off-the-chart earnings that beat market expectations and came in 46 percent above last year’s numbers. Deere & Co. also raised its outlook for next year as it expects strong commodity prices and another good year for the farming industry.

Good investing,

Jason Jenkins

Article by Investment U

Dec. 5 (Bloomberg) — Clive McDonnell, Singapore-based head of emerging-market equity strategy for Standard Chartered Plc, talks about the outlook for emerging markets in Asia and their exposure to Europe’s debt crisis. McDonnell also discusses the U.S. jobless rate. He speaks with John Dawson on Bloomberg Television’s “On the Move Asia.” (Source: Bloomberg)

Why This Market Truism Just Isn’t True

by Alexander Green, Investment U Chief Investment Strategist
Monday, December 5, 2011: Issue #1657

In my first book, The Gone Fishin’ Portfolio, I made a confession that startled some readers…

I retired from the investment services industry while I was still in my early 40s, but many of my clients had not become financially independent. This was not because I advised them poorly. I dealt with my clients honestly and gave them the best advice and service I could.

Yet, in many ways, they operated at a disadvantage. Some had a poor understanding of investment fundamentals. Others found it impossible to commit to a long-term investment plan. Many were simply too emotional about the markets, running to cash at the first hint of danger.

Contrarian instincts are rare, too, I learned. Few people are emotionally stirred by low stock prices. But every time there was a correction, a crash, or financial panic, my Scottish blood would surge, my pulse would rise, I’d rub my hands together, and start buying.

My clients, on the other hand, often did just the opposite, sometimes because they were too nervous but often because they bought into the old chestnut that a good investor doesn’t buy into a market downturn.

“The trend is your friend,” they’d say. Or “Don’t try to catch a falling knife.” This is surely the conventional wisdom in some quarters, but it’s not particularly wise. Here’s why …

For the last several months, traders have obsessed over problems in the Eurozone and the strength (or perceived weakness) of the U.S. economy. Taking a decidedly downbeat view, the market had a pretty horrendous November. But sentiment can turn on a dime and stocks can put on a furious – and completely unexpected – rally.

If you don’t already own stocks, it’s tough to catch the train after it has left the station.

Yet many gurus, including growth-stock advocate William O’Neill and his widely read publication Investor’s Business Daily, often insist that you shouldn’t but a stock unless the market itself is in a confirmed uptrend.

That may make sense in theory, but it often fails in practice. For instance, on page one each day, that paper reports whether the market is in a confirmed uptrend or downtrend. (And sometimes hedges, using language such as “Uptrend Under Pressure.”)

As we all know, this has been a volatile year for the market with the major indices bouncing up and down repeatedly. But you could hardly have chosen a worse strategy than to wait until the market was in a confirmed uptrend before buying. All that meant was that you bought into every short-term spike and then hit your trailing stops over and over again. (It must feel like banging your head against the wall.)

The Oxford Club has hit a number of its stops this year, too, sometimes protecting profits, other times protecting principal. But by buying great companies when the market was under pressure, we ended up with a lot of attractive entry points and plenty of both realized and unrealized profits.

True, if stocks go into a secular bear market, you can end with losses no matter how well you timed your entry points. However, you can never know whether a market drop is merely a correction or something more ominous until you are looking in the rear-view mirror.

You have to stick your neck out occasionally, pick your spots and buy stocks. If you don’t, what are you going to do? Buy bonds yielding 2.5 percent? Hold a money market paying less than one-tenth of one percent? It’s tough to beat inflation or meet your financial goals that way.

Let me make one thing clear, however. It’s most definitely a mistake to buy a troubled company that’s in a downtrend, no matter which way the broad market is heading. (That only works for those with exceptionally long time horizons – and often not even then.) But buying great companies when the broad market is a downtrend gives you a chance to obtain good prices on fine long-term investments and take advantage of tradable short-term rallies, too.

The next two months are traditionally one of the strongest periods for the stock market. No one can say, of course, whether that tradition will hold. But it’s a reasonable strategy to buy great companies when the market is down.

If your goal is to sell high, you have to start by buying low. And market corrections – like the one we’ve seen lately – give you an excellent opportunity to do just that.

Good investing,

Alexander Green

Article by Investment U

London Gold Market Report
from Ben Traynor
BullionVault
Monday 5 December, 09:00 EDT

THE DOLLAR gold price fell to $1731 per ounce by Monday lunchtime – 0.8% below where it ended last week – while stocks and commodities edged higher and US Treasury bond prices fell ahead of a meeting between the leaders of France and Germany in Paris.

“There is likely to be a fair amount of volatility on the political front this week,” warns Nic Brown, head of commodities research at Natixis.

“Should sentiment improve further in the market,” adds Commerzbank analyst Eugen Weinberg, “it wouldn’t be surprising if [the gold price]falls again, but it may also come under pressure if the rest of commodity sector comes under pressure.”

The silver price meantime dipped to $32.53 per ounce – still broadly in line with Friday’s close – while yields on Italian and Spanish bonds continued to ease.

Italy’s “huge public debt…is not Europe’s fault,” Italian prime minister Mario Monti told a press conference on Sunday.

“It is the fault of Italians.”

Monti – who is also reported to be giving up his salary – was unveiling €30 billion of emergency austerity measures, including plans to remove inflation index-linking for many pensions.

Italy’s welfare minister Elsa Fornero dissolved into tears when she tried to announce the measures, unable to utter the word ‘sacrifice’.

In Paris meantime, French president Nicolas Sarkozy met German chancellor Angela Merkel today to discuss how the 17-member Eurozone might move towards the creation of a fiscal union. Merkel has repeatedly argued that greater fiscal discipline among Eurozone national governments – with a tougher set of budget rules – is the only way to provide a lasting solution to the crisis.

“For several months now, it’s Merkel who decides and Sarkozy who follows,” Francois Hollande, French Socialist Party presidential candidate, said last week. Fellow Socialist Arnaud Montebourg has described Merkel’s policy as “Bismarck-like” – a reference to Germany’s chancellor at the time of the Franco-Prussian war of 1870-71 – while Pierre Moscovici, an aide to Hollande, said today that a budgetary union would “erode our national sovereignty”.

Front National leader Marine Le Pen – who has called for France to quit the Euro – also said this weekend that France’s sovereignty is under threat.

Should agreement on further fiscal integration be reached at this Friday’s European Union summit, then “the door should swing open for the [European Central Bank] to become more aggressive” reckons Erik Nielsen, global chief economist at Italian bank UniCredit.

Eurozone national central banks meantime could provide hundreds of billions of Euros to the International Monetary Fund, money that would then be put into a special fund from which to aid distressed European sovereigns, according to a report in German newspaper Die Welt. The US Federal Reserve may also contribute, the newspaper added.

The Netherlands has the most debt-burdened households in the Eurozone, according to a report in the Wall Street Journal. Many Dutch, it reports, took out mortgages worth 125% of their home’s value in the years before the global financial crisis – leaving Netherlands households with a debt-to-income ratio of 249.5%. Second on the list is Portugal, the report says, with a ratio of 128.6%.

“From a financial stability perspective, we think the mortgage loan-to-value ratios are too high,” says Gerbert Hebbink, senior economist at the Dutch National Bank.

“This debt makes the economy much more vulnerable to shocks in the housing market, interest rates and employment.”

The number of bullish minus bearish contracts held by noncommercial gold futures and options traders on New York’s Comex exchange – the so-called speculative net long – fell for a second week running in the week ended 29 November, dropping 2.5%, according to data published Friday by the Commodity Futures Trading Commission. Over the same period, the Dollar gold price rose 0.5%.

Total open interest meantime – the total number of unsettled contracts from the period – fell 4.7%, its third weekly fall.

“That the gold price has risen against falling open interest on Comex does imply a weaker market, with caution central for now and somewhat transfixed on both positive and negative news flows,” said a note from precious metals consultants VM Group this morning.

Over in India – the world’s largest source of private gold bullion demand – the Rupee gold price approached all-time highs Monday morning as the Rupee fell against the Dollar.

Despite India being in the middle of the wedding season, “there is virtually no demand for gold” says Prithviraj Kothari, president of the Bombay Bullion Association.

“Demand is very slack,” agrees Vasu Acharya director at Parker Bullion in Ahmedabad.
“If you compare it with last year, it is just 20% of the sales.”

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

In light trade this morning the EUR is higher after Italy presented new austerity measures to help calm bond investors who have been pressuring Italy over the past two months. According to the most recent IMM data FX traders continue to favor bearish bets against the EUR.

Italy unveiled an austerity program designed to save EUR 30 bn over the next 3-years. This has helped 10-year Italian bond yields to fall as low as 5.83% from their highs above 7%. This week is an important week in the European debt crisis. Today there will be meetings between Sarkozy and Merkel in Paris. US US Treasury Secretary Geithner will be making the rounds to push European leaders to come to an agreement. The hectic week of meetings will culminate with the EU economic summit in Brussels where EU leaders are expected to form an agreement for closer fiscal ties.

What this all means for currency traders is that the FX markets will be more driven by the headlines and press conferences that follow these meetings. FX markets appear to be fairly illiquid this morning with the EUR up slightly both versus the USD and in the crosses. The Financial Times has reported a number of liquidity providers have seen lower volumes since the end of Q3.

The most recent COT report of the IMM data shows EUR speculative shorts continue to grow, rising to a net short position of -104K contracts, the largest short position since the summer of 2010. The risk is for European leaders to come to an agreement on Friday which would induce a large amount of EUR short covering.

The EUR/USD has support at last Friday’s low of 1.3360 with a rising trend line on the hourly chart from the November 25th low which comes in at 1.3315. Resistance is found at last Friday’s high of 1.3550 and the November 18th high of 1.3610. The EUR/JPY is moving higher towards the resistance of 105.65 where the pair’s 55-day moving average comes into play. Support is seen back at the November low of 102.50.

Read more forex trading news on our forex blog.

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.

Dec. 5 (Bloomberg) — Mykolas Majauskas, an economic adviser to Lithuania’s prime minister, speaks about the country’s plans to achieve financial stability before joining the euro. He speaks with Linzie Janis and Mark Barton on Bloomberg Television’s “Countdown.”

Dec. 5 (Bloomberg) — Jane King summarizes the top stories this morning on the Bloomberg Business Report. (Source: Bloomberg)

Senior Strategist Ib Fredslund Madsen talk about a ‘summit fever’ that can support the financial markets leading up to this weeks main event: The EU summit in Brussels Thursday and Friday.

Hopes are that the eurozone leaders Friday night can present a solid solution to the dept crisis.

Ib Fredslund Madsen outlines best and worse case scenarioes before the EU summit.

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By ForexYard

Central bankers and politicians were the drivers of the FX markets last week and this will likely continue this week. There are 9 central bank meetings on the economic calendar with the most important being the ECB who could cut rates by at least 25 bp.

Economic News

USD – Central Bank Meetings Galore

Central banks have stepped in to fill the void left by politicians on both sides of the Atlantic. Congress was unable to come to an agreement to lower the US deficit. European politicians have so far failed to contain the 2-year old European debt crisis. Thus central bankers have taken it upon themselves to support financial markets. The move by the leading central bankers to increase liquidity through discounted currency swaps helped to support financial markets where the politicians have failed.

This week there are nine central bank meetings. The Fed will meet next week on December 13th. The market tone this past week was much more positive than throughout most of the month of November and may continue into the new week. This would likely lead to additional USD declines.

With the exception of Friday’s trade balance and consumer sentiment survey the US lacks major data releases this week. This will leave markets to be pushed and pulled by news reports and market rumors which make for a difficult trading environment. That being said, there is no substitute for strict risk management.

EUR – ECB Highlights Week Full of Central Bank Meetings

Central bankers and politicians were the drivers of the FX markets last week and this will likely continue this week. There are nine central bank meetings on the economic calendar with the most important being the ECB who could cut rates by at least 25 bp. Given the recent comments by Draghi there appears to be a shift in the ECB policy as the bank recognizes the risk of deflation creeping into the euro zone economy. This comes from the expectations of a slowdown in growth as signaled by the downward trend of European PMI surveys. In response the ECB may lower interest rates by 25 bp for the second consecutive month. There is also a talk of a possible 50 bp rate cut but this may be an exaggeration. Additional liquidity measures could be be opened by the ECB to improve access to funding for European banks. The world’s central banks took this step last Wednesday with the discounted swap lines.

Draghi has also suggested the ECB may be more open to assisting European nations who have come under funding pressures. In a speech last week Draghi said that a commitment by EU politicians to adhere to, “Stricter budget discipline and binding their economies more closely is definitely the most important element to start restoring credibility. Other elements might follow, but the sequencing matters.” Should the ECB begin to feel that EU governments are taking concrete steps the ECB could unleash its “bazooka” to help stem the debt crisis.

AUD – RBA Expected to Cut Interest Rates

Consensus expectations are for the Reserve Bank of Australia to lower interest rates on Tuesday by 25 bp for the second consecutive month. This comes on the heels of a data which showed a -10.7% contraction in building approvals and below consensus retail sales numbers. The Australian economy is slowing and this will likely be confirmed on Wednesday with the release of Q3 GDP. Data coming out of China is also worrying as the HSBC Purchasing Manager’s Index fell to a 32-month low of 47.7 in the month of November from 51 in October.

Looking at the AUD the commodity currency continues to move higher off of its October lows with the improved market sentiment but the gains may have pushed too far with the AUD/USD rising over 6.5% last week. The pair has resistance at 1.0330 from the November 14th high. There is additional resistance at the November 3rd high of 1.0450 followed by 1.0610 from the downward sloping trend line off of the July and October highs. Forex traders may notice that the daily stochastics are beginning to roll over. Support is found at 1.0050 at the 20-day moving average.

Corn – Unreliable Government Crop Reports

An article in Monday’s Wall Street Journal shows how unreliable the recent government harvest reports have become. According to the WSJ the US Department of Agriculture monthly forecasts have been less than accurate over the past two years, the most inaccurate in the past 15-years. The government’s stockpile report has also come under criticism. The stockpile report shows the amounts of corn which is placed in storage facilities and silos. When the government reports are released they can create large price swings in the commodities markets as the release of the data is considered high impact news. Both hedgers and speculators have begun to question the accuracy of the government’s reports as their recent releases have triggered markets’ circuit breakers on corn prices over the past 3 years according to the WSJ. Corn prices are currently trading near their recent lows at 584.58. The commodity has support at 581.60 and 571.60 with resistance at 631.00.

Technical News

EUR/USD

The weekly chart shows the pair is trading in a symmetrical triangle pattern with the resistance line falling from the May high and support line rising from the yearly low. The first support from this chart pattern comes in this week at 1.3200. A break here will likely open the door to not only the October low of 1.3145 but also1.3050 from the 61.8% Fibonacci retracement of the bullish move spanning 2010 to 2011. The January low of 1.2875 could contain the near-term price action. To the upside the November 18th high of 1.3610 is the initial resistance followed by the mid-November consolidation at 1.3860 where the 100-day moving average also lies. The top of the triangle pattern would likely contain any move higher near 1.4230-1.2350.

GBP/USD

Last week cable found resistance at 1.5780, a level that has proven to be resistive in the past. Additional resistance is found at the October high of 1.6165. Monthly and weekly stochastics continue to move lower and as such the November low of 1.5435 is the initial support followed by the October low of 1.5270. The last bastion of support for the GBP/USD is found off of the rising trend line from the 2009 and 2010 lows which comes in at 1.0590.

USD/JPY

The USD/JPY is encroaching on its long term trend line off of the 2007 high and comes in at 78.70. A break above this level is needed to confirm the recent price appreciation. Both weekly and monthly stochastics are moving higher so traders may look for additional resistance at 79.50 from the post intervention high. The 200-day moving average is also lurking just below this price. Should the pair fail at the long-term trend line the congestion between 77.50-77.60 may prove to be supportive while the all-time low near 75.60 stands out as the last support.

USD/CHF

As weekly stochasttics have already turned lower the monthly stochastics are beginning to roll over. This is occurring after the pair looks to have failed to break above the 0.9330 resistance level. As such the pair has support at last week’s low of 0.9065 followed by the November low of 0.8760 and the October low of 0.8565. A break above the 0.9330 resistance could spur gains towards this year’s high of 0.9780.

The Wild Card

AUD/USD

The AUD has run into resistance at 1.0330. There is a lot of resistance at this level as this price coincides with a previous resistance from the November 14th high as well as the 100-day moving average which comes in at 1.0300. Forex traders may notice that the daily stochastics are beginning to roll over. Support is found at 1.0050 at the 20-day moving average.

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.