Month: January 2012

In trading on Tuesday, music & electronics stores shares were relative laggards, down on the day by about 1.9%. Helping drag down the group were shares of Hhgregg (HGG), down about 11.5% and shares of Radioshack (RSH) off about 0.7% on the day.

Tiffany (TIF) announced that same store sales for the two months ended on December 31st incrased by 4%, and worldwide sales increased by 7%, to $952 million. The increase, however, is not enough to justify previously released earnings guidance, and blamed restrained spending for the shortfall in sales.

French Election Could Lead to the Next “Eurocrisis”

by Jason Jenkins, Investment U Research
Tuesday, January 10, 2012

As the European crisis has come to unfold, we have seen Eurozone governments receive votes of no-confidence because of their inability to solve financial crisis and new governments installed. It happened to both Greece and Italy. But to be honest, these members aren’t that pivotal. They’re the “bailoutees.”

The bullies on the block – otherwise known as France and Germany – possessed all the leverage to make sure some sort of austerity package was passed to keep the currency bloc going for the time being.

However, 2012 brings some new challenges to the Eurozone as its unofficial two-headed driving force may be chopped in half. France, the Eurozone’s second-largest economy, will hold presidential elections on April 22 and May 6, followed by general elections in June.

Sarkozy’s Rocky Five Years

French President Nicolas Sarkozy, along with German Chancellor Angela Merkel, has been cozy in leading the way to the 17-member currency bloc’s response to their sovereign debt crisis. For the most part, the Conservative leaders have been in lock-step preaching austerity over monetary easing and the creation of euro bonds.

This 2012 election conversation would all be a moot point if Sarkozy was safe… but he’s not. The conservative leader is heading towards April’s election with rampant unemployment, the debt crisis and the prospect of a sovereign debt downgrade all hanging over his head. Also, many French citizens resent the fact that his campaign pledges of five years ago to bolster employment haven’t delivered.

His popularity ratings have inched up as he has shown leadership over the Eurozone crisis, but still stand at a dismal 34% in recent polls, and some two-thirds of French are unhappy with his performance.

Recent surveys show his competition could beat him by as much as 10 percentage points in a deciding second round in May.

The Competition

Sarkozy is facing a challenge from Socialist party candidate Francois Hollande, and let’s just say they don’t see eye to eye on the management of France or the Eurozone.

In terms of governance, there’s a gulf between the Conservatives and the otherwise moderate Socialist party – that’s just fundamental ideology. However, Mr. Hollande’s thoughts on the direction of the Eurozone could have global implications.

Hollande is “highly unpredictable,” Alistair Newton, Senior Political Analyst at Nomura, told CNBC. Newton went on to say Hollande has promised to “renegotiate the [European Union] agreement to put what it lacks today” and said he would push to include European Central Bank intervention and a new euro bond – both measures opposed by Germany. He has also stated that he would not vote for the balanced budget part of the agreement, which has to be implemented at the national level.

Disagreement between Germany and France on the direction of the Eurozone would be catastrophic.

“This could cause a serious setback for the political process in Europe, and after years with Merkozy’s intensifying leadership it could become rather uncomfortable for the financial markets to watch a Hollande publicly showing that he is very much in disagreement with German Chancellor Angela Merkel on several accounts,” analysts at Danske Bank wrote in a note.

As always, look down the road when analyzing Europe. The headlines currently offer glimmers of hope but there are still more far-reaching issues to be addressed. A German/French schism may prove to be the next “Eurocrisis” to overcome.

Good investing,

Jason

French Election This Spring Could Lead to the Next “Eurocrisis”

Article by Investment U

This Election Could Lead to the Next “Eurocrisis”

by Jason Jenkins, Investment U Research
Tuesday, January 10, 2012

As the European crisis has come to unfold, we have seen Eurozone governments receive votes of no-confidence because of their inability to solve financial crisis and new governments installed. It happened to both Greece and Italy. But to be honest, these members aren’t that pivotal. They’re the “bailoutees.”

The bullies on the block – otherwise known as France and Germany – possessed all the leverage to make sure some sort of austerity package was passed to keep the currency bloc going for the time being.

However, 2012 brings some new challenges to the Eurozone as its unofficial two-headed driving force may be chopped in half. France, the Eurozone’s second-largest economy, will hold presidential elections on April 22 and May 6, followed by general elections in June.

Sarkozy’s Rocky Five Years

French President Nicolas Sarkozy, along with German Chancellor Angela Merkel, has been cozy in leading the way to the 17-member currency bloc’s response to their sovereign debt crisis. For the most part, the Conservative leaders have been in lock-step preaching austerity over monetary easing and the creation of euro bonds.

This 2012 election conversation would all be a moot point if Sarkozy was safe… but he’s not. The conservative leader is heading towards April’s election with rampant unemployment, the debt crisis and the prospect of a sovereign debt downgrade all hanging over his head. Also, many French citizens resent the fact that his campaign pledges of five years ago to bolster employment haven’t delivered.

His popularity ratings have inched up as he has shown leadership over the Eurozone crisis, but still stand at a dismal 34% in recent polls, and some two-thirds of French are unhappy with his performance.

Recent surveys show his competition could beat him by as much as 10 percentage points in a deciding second round in May.

The Competition

Sarkozy is facing a challenge from Socialist party candidate Francois Hollande, and let’s just say they don’t see eye to eye on the management of France or the Eurozone.

In terms of governance, there’s a gulf between the Conservatives and the otherwise moderate Socialist party – that’s just fundamental ideology. However, Mr. Hollande’s thoughts on the direction of the Eurozone could have global implications.

Hollande is “highly unpredictable,” Alistair Newton, Senior Political Analyst at Nomura, told CNBC. Newton went on to say Hollande has promised to “renegotiate the [European Union] agreement to put what it lacks today” and said he would push to include European Central Bank intervention and a new euro bond – both measures opposed by Germany. He has also stated that he would not vote for the balanced budget part of the agreement, which has to be implemented at the national level.

Disagreement between Germany and France on the direction of the Eurozone would be catastrophic.

“This could cause a serious setback for the political process in Europe, and after years with Merkozy’s intensifying leadership it could become rather uncomfortable for the financial markets to watch a Hollande publicly showing that he is very much in disagreement with German Chancellor Angela Merkel on several accounts,” analysts at Danske Bank wrote in a note.

As always, look down the road when analyzing Europe. The headlines currently offer glimmers of hope but there are still more far-reaching issues to be addressed. A German/French schism may prove to be the next “Eurocrisis” to overcome.

Good investing,

Jason

Article by Investment U

Jan. 10 (Bloomberg) — Paul Rawkins, a senior director at Fitch Ratings, talks about Hungary’s credit rating and fiscal outlook. He speaks with Maryam Nemazee on Bloomberg Television’s “The Pulse.” (Source: Bloomberg)

The Five Factors Moving Oil Prices This Year

by David Fessler, Investment U Senior Analyst
Tuesday, January 10, 2011: Issue #1681

Crude prices are fundamentally based on supply and demand. Raise the supply or lower demand, and prices retreat. The opposite also holds true.

Oil tankers can take up to one and a half miles to come to a stop, and up to 10 miles to make a u-turn. That’s a long time at the speed of an oil tanker.

The global economy is no different. Economists had hoped the slowdown in the global economy would cause oil prices to retreat. Instead, they’ve gone up.

While demand has slackened here, it’s gone up elsewhere. Long term, demand will continue to increase. In fact, it was just reported yesterday that Goldman Sachs sees China surpassing the United States as the largest oil importer in the next 12 to 18 months.

And as the world’s largest economy (ours) continues to climb out of the canyon we fell into a few years ago, we’ll begin to consume more oil. That will increase demand, putting an upwards bias on prices.

Clearly oil prices are in a constant state of flux. But there are major trends and events that could cause the price to move rather dramatically, mostly in the upward direction.

Let’s take a look at what I believe are the top five:

#1 The Iran/U.S. Powder Keg: Bad News

Right now, there’s a lot of saber rattling by both Iran and the United States over the U.S. decision to impose further sanctions on Iran. The latest involve Iran’s access to customers to sell its oil.

The United States has persuaded major clearing banks to stop doing business with the country. Iran has threatened to shut down the Strait of Hormuz, a move that would cut off a major source of world supply if they were able to accomplish it (they can’t).

However, they could temporarily shut it down, which would cause a sizable spike in oil to at least $150 a barrel, if not more. It all hinges on the length of the shutdown, whether a conflict erupts, etc.

Iran recently announced it would be holding a second set of military maneuvers in the Gulf of Hormuz. This situation could explode at any moment. We’re talking about Ahmadinejad here, and a country whose desperation level is growing by the day.

#2 Libya’s Rapidly Improving Supply Situation: Good News

The prolonged conflict in Libya eventually led to the overthrow of its autocratic leader, Muammar Gaddafi. Unfortunately, during the conflict, 1.6 million barrels per day of world crude sully was off the market.

Every refinery, pipeline and port facility was in shutdown mode during the civil war. The good news is that few of the facilities sustained damage. For those that did, it was relatively minor.

As a result, Libya’s ramping up its oil machine faster than anyone ever anticipated. According to analysts at Commerzbank, Libya should be back to its full pre-war production levels by this June – six months faster than anyone anticipated.

#3 Threat of the Collapse of the Euro: Good News, Bad News

As we mentioned previously, slowing global growth will keep downward pressure on oil prices. The only increase in demand will come from emerging and frontier markets.

But further deterioration in the Euromess would severely weaken the global economy, including those of emerging markets. That could send oil prices plummeting.

However if the Europeans manage to muddle through their financial mess and come out down but not out, oil prices won’t be affected to any great extent by events there. This situation isn’t quite as volatile as Iran, but it bears watching nonetheless.

#4 The Strength (or Lack of it) in the U.S. Dollar: Good News, Bad News

Much to the great dismay of some oil-producing countries, oil is priced and traded in U.S. dollars. Everything else being equal, the price of oil varies in relation to the fluctuation in the value of the dollar.

The two are inversely correlated. When the dollar is up, oil is down. The reverse is also true. The dollar will likely remain strong this year, given all the issues in Europe, and to a lesser extent, Japan.

The fact that crude prices are up in the face of a strong greenback simply highlights the complex interactions of the many factors that affect the price of oil.

#5 Saudi Arabia: No Longer the Supplier of “Last Resort:” Bad News

Throughout modern oil history, there has never been an oil field like the Ghawar field in Saudi Arabia. It’s the largest conventional oil field in the world, measuring 3,230 square miles.

To put that in perspective, that’s nearly three times the size of the state of Rhode Island. It’s entirely owned by Saudi Aramco, the sheikdom’s nationalized oil company.

Estimates of the amount of oil left in Ghawar vary widely, and the actual number is a closely guarded secret known only to Saudi Arabia.

Regardless of the amount left in Ghawar, Saudi Arabia remains the largest exporter of oil in the world. As such, it has a big say in determining the price of oil, simply by changing how much it increases or decreases production.

However, that may soon change. In the wake of the numerous Arab uprisings, Saudi Arabia is spending record amounts of money this year (up 7% over last year) in order to keep its citizenry happy.

That’s not going to be much of a problem, since higher oil prices also mean higher revenue for the country.

But according to Fitch Ratings, the Kingdom’s break-even oil price is $75 per barrel. Anything less than that, and the country would start to run a fiscal deficit. Fitch feels that if the modest spending growth of 7% continues, the country could be in deficit mode as early as 2015.

What does that all mean? Saudi Arabia has a vested interest in seeing oil prices remain high, and it will adjust its output to see that they remain there.

Bottom line is that Saudi Arabia can no longer be counted on to provide more oil whenever Obama or someone else rings them up and asks them to do so. More and more, they will be looking out for themselves.

And what they do end up supplying won’t be cheap.

Unfortunately, the bad news outweighs the good news when it comes to oil this year. You can expect prices to remain high, and they could head much higher if some of the scenarios come to pass. As I recently covered though, investors can help themselves hedge against higher oil prices by buying stake in some of the oil companies that will prosper with higher margins.

Good investing,

Dave

Article by Investment U

London Gold Market Report
from Adrian Ash
BullionVault
Tues 10 Jan., 08:35 EST

THE WHOLESALE LONDON spot gold price touched a 3-week high against the US Dollar in London on Tuesday morning, trading just shy of $1640 an ounce as world stock markets and industrial commodities also rose.

Silver bullion prices jumped above $30 per ounce, rising more than 4.5% from last week’s close, as German government Bunds eased back but other Eurozone bond prices ticked higher, edging interest rates lower.

Ahead of Thursday’s meeting of the European Central Bank – widely expected to cut interest rates across the 330 million-citizen currency zone below 1.00% – the Euro currency edged up to its highest level since Friday lunchtime at $1.28, some 1¢ above Sunday night’s 16-month low vs. the Dollar.

“Precious metals are benefiting from a broad-based buying across asset classes,” says Marc Ground at Standard Bank.

“The 2008-11 uptrend line at $1532.62 underpins the spot gold weekly chart,” says Axel Rudolph, technical analyst at Commerzbank.

Looking at spot gold in Euros, an “Impulsive move higher is being witnessed,” Rudolph adds, saying that for Eurozone investors “it will take an unexpected reversal…for the current bullish momentum to be thwarted.”

The gold price in Euros today touched a 1-month high above €41,000 per kilo.

Latest data from the International Monetary Market on Friday put the size of speculative bets that the Euro will weaken further “at an all time high” according to HSBC’s Global Markets team today.

“We have seen good physical demand emerge below $1610 for two days in a row,” said a Hong Kong gold bullion dealer in a note on Tuesday.

“There is some buying, but we haven’t seen a substantial pickup in physical demand before the Lunar New Year,” says Dick Poon, manager of refinery group Heraeus’ Hong Kong operations, quoted by Reuters.

The Chinese New Year will fall on January 23rd, marking a week of national holidays now associated with heavy household demand for physical gold coins, jewelry and other products.

“People are worried about the Eurozone, and concerned if China can maintain its growth,” says Poon.

German chancellor Angela Merkel will tonight follow Monday’s meeting with French president Sarkozy by meeting Christine Lagarde, head of the International Monetary Fund, to push ahead with the 50% writedown on Greek government debt agreed at a summit last October.

Italian bond prices rose Tuesday morning, trimming interest rates on Rome’s 10-year debt to 7.14%. That’s still more than five percentage points higher than Berlin pays, however.

New data from China meantime showed the pace of import growth falling sharply from 22.1% year-on-year in November to 11.8% last month – a two-year low.

“Domestic demand is slowing down very quickly,” says Zhang Zhiwei of Nomura in Hong Kong. “The first quarter is going to be very tough.”

November saw China cut its banking reserve requirement – the amount of savers’ deposits which must be kept back, rather than lent out – for the first time in three years.

“Growth has [now] replaced inflation as Beijing’s top policy concern,” says Qu Hongbin, co-head of Asian economics research at HSBC, forecasting 3 cuts to China’s banking reserve requirements by July.

“Gold shipments certainly haven’t gone from nought to sixty like they did last year,” said a senior logistics executive by telephone to BullionVault this morning.

“But there’s still a tremendous amount of material going there,” he went on, adding that Chinese gold imports leapt in September, and have remained at strong levels since.

“The worry is India. November’s flow was dead, the worst since 2008.”

The Reserve Bank of India today granted approval to four more banks for the import of gold bullion and other precious metals. That takes the total number of banks licensed to import gold and silver to India – the world’s heaviest consumer market – up to 35.

“It’s not because they foresee huge demand coming up,” Reuters quotes a bullion dealer, noting that 2011 gold imports to India – which has no domestic mine supply – are estimated to have fallen by 9% from 2010’s all-time record high.

“They are just trying to open up for more competition in the market and customers will have more choices.”

Adrian Ash
BullionVault

Gold price chart, no delay   |   Buy gold online at live prices

Adrian Ash is head of research at BullionVault, the secure, low-cost gold and silver market for private investors online, where you can buy gold today vaulted in Zurich on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2012

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.

Jan. 10 (Bloomberg) — Steven Saywell, head of foreign-exchange strategy for Europe at BNP Paribas SA, discusses Swiss National Bank interim President Thomas Jordan and the outlook for defending the franc. Jordan was selected to replace Philipp Hildebrand, who resigned yesterday after failing to quell a furor over currency trading by his wife. Saywell speaks with Linzie Janis on Bloomberg Television’s “Countdown.”

Jan. 10 (Bloomberg) — Geoffrey Kendrick, head of European currency strategy at Nomura International Plc in London, discusses the outlook for the Swiss franc following the resignation of central bank head Philipp Hildebrand. He speaks with Maryam Nemazee on Bloomberg Television’s “The Pulse.”

Plus: The check is STILL in the mail.

By Elliott Wave International

“Localities have chopped 535,000 positions since September 2008…”
USA Today (10/18)

Cuts in government services became conspicuous after the 2007-2009 financial crisis.

The first edition of Robert Prechter’s Conquer the Crash saw this coming, even though the book published nearly a decade ago:

“Don’t expect government services to remain at their current levels…The tax receipts that pay for roads, police and jails, fire departments, trash pickup, emergency (911) monitoring, water systems and so on will fall to such low levels that services will be restricted.” (p. 257)

Households throughout Massachusetts know exactly what Prechter is talking about.

In a boston.com article (12/7), the president of the Massachusetts Taxpayers Association said this about the state’s municipalities: “Revenues have been virtually flat, while their costs have grown, which has meant cuts in schools, public safety, and other basic services for most cities and towns.’’

The same article reports that “Worcester has cut about 450 municipal jobs, including approximately 60 police officers, 60 firefighters, and 100 public works employees…”

Detroit’s WWJ-TV reports (12/6) “Budget deficits and declining personnel are the major forces behind the Detroit Police Department’s decision to end free funeral escorts.”

November 9 saw the biggest municipal bankruptcy in U.S. history, when officials in Jefferson County, Alabama voted to file for Chapter 9. Reuters said the county’s debt exceeded $5 billion; Jefferson County is home to Birmingham, the state’s biggest city and economic hub.

Financial troubles are also leading to federal cut backs. The U.S. Postal Service has decided to close about half of its 487 mail processing centers:

“The post office had bad news on Monday for all those who like to pop a check into the mail to pay a bill due the next day: don’t count on it.

“The United States Postal Service said it planned to largely eliminate next-day delivery for first-class mail as part of its push to cut costs and reduce its budget deficit. Currently, more than 40 percent of first-class mail is delivered in one day.”

New York Times (12/5)

The pace of the deteriorating economic trend appears to be accelerating. Our analysis suggests that it’s part of a larger deflationary trend that has a long way to go.

See what we’re seeing so you can prepare and protect yourselfDiscover Robert Prechter’s views on the unfolding deflationary trend by reading the 90-page report, The Guide to Understanding Deflation. This guide will help you survive a major deflationary trend, and even equip you to prosper. Plan and prepare for your financial future. Download Your Free 90-Page Deflation Survival Guide eBook.