Jan. 10 (Bloomberg) — Alan Higgins, chief investment officer at Coutts & Co., discusses his investment strategy for high-yield stocks, corporate bonds and Asian currencies. He speaks with Mark Barton on Bloomberg Television’s “Countdown.” (Source: Bloomberg)
Forex CT 10-1-12 Video News Market Update & Outlook
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.
EUR Remains Vulnerable Following Small Gains Monday
Source: ForexYard
Despite the small gains made by the euro in trading yesterday, analysts are quick to warn that the common currency still has room to fall if negative news continues to be released from the euro-zone. While there is a light news day today, traders will still want to watch out for any developments from the meetings between France and Germany which could affect euro pairs.
Economic News
USD – USD Takes Slight Losses but Remains Bullish Overall
The US dollar took slight losses against its main currency rivals throughout the trading day on Monday, as fears that the dollar was becoming too strong dominated market sentiment. The EUR/USD came off its recent 15-month low, but failed to gain enough momentum to stage a meaningful correction. The USD/JPY also continued to fall throughout the day after peaking at 77.23 last week.
Analysts are quick to warn that any bearish movement from the dollar is likely temporary, and that risk aversion is still the driving market force at the moment. Last week’s bullish USD had less to do with the positive US jobs report then the euro-zone debt crisis, which has driven traders away from riskier assets. With negative news still coming out of the euro-zone, the dollar’s upward momentum may continue.
Turning to today, a slow news day means that the euro-zone debt crisis is once again forecasted to dictate the direction markets take. Meetings held yesterday between France and Germany will likely do nothing to help the euro unless concrete plans are unveiled to overcome the crisis. With Italian and Spanish debt once again in the headlines, the dollar could extend its gains today.
EUR – European Debt Keeps EUR Bearish
While the euro was able to squeeze out small gains in trading yesterday, the dominant market sentiment is still against the currency going into today. Investors are eagerly waiting to see whether yesterday’s meeting between French and German leaders would produce any concrete plans to combat the euro-zone debt crisis. Without a solution to the current crisis, the euro may resume its bearishness for the rest of the week.
Turning to today, the lack of significant economic indicators means that all eyes will once again be on the euro-zone. At the moment, Italian and Spanish bond sales are forecasted to determine the direction the common currency takes. In addition, Greece is once again in the news after a report came out that the International Monetary Fund was losing confidence in the country’s ability to handle its debt. None of these events are forecasted to give investors very much confidence in the euro-zone and could result in further risk aversion which would push the euro down once again.
AUD – Aussie Sees Slight Gains despite Risk Aversion
The Australian dollar saw slight gains against the safe-haven US dollar and Japanese yen in trading yesterday. The currency, which is largely linked to commodity prices, saw mild bullish behaviour as traders sold off some short USD positions in favour of riskier currencies. That being said, the market is still extremely risk averse and currencies like the AUD may resume their recent bearish run in the near future.
Today, euro-zone news will likely indicate which direction the aussie is going to move. Investors are waiting to see if meetings between EU leaders and the International Monetary Fund will do anything to restore confidence in the euro-zone. If so, the AUD may see some small gains throughout the day.
Crude Oil – Oil Steadily Declines Following Last Week’s Highs
Crude oil saw a mixed trading day yesterday, as risk aversion continues to dominate market sentiment. Following last week’s bullish run due to Middle East tensions, oil seems once again to be leveling out. While the commodity has stayed above the psychologically significant $100 a barrel level, traders should be aware that this could change at any time.
With investors eagerly paying attention to euro-zone meetings and bond sales, crude oil prices could see some heavy fluctuations in trading today. Analysts are still pessimistic about the prospects of a euro-zone recovery. Unless positive news is released today, oil may see further downward movement.
Technical News
EUR/USD
Technical indicators on the daily chart place this currency pair in the oversold zone, indicating that an upward correction may take place in the near future. A bullish cross is forming on the Stochastic Slow, while the Williams Percent Range is right around the -90 level. Going long in your positions may be a wise choice.
GBP/USD
Indicators on the weekly chart are showing a possible upward correction for this pair may take place. The Relative Strength Index is drifting toward the oversold zone, while the Williams Percent Range is already below the -90 level. Traders may want to go long in their positions.
USD/JPY
Most long-term technical indicators are showing this pair trading in neutral territory, meaning that a clear trend has yet to present itself. Traders are advised to take a wait-and-see approach with their trades until a clearer picture develops.
USD/CHF
After spiking in trading last week, technical indicators are showing possible bearish movement for this pair in the near future. The daily chart’s Stochastic Slow has formed a bearish cross, while the Relative Strength Index is hovering in the overbought zone. Traders may want to go short in their positions.
The Wild Card
CHF/JPY
Technical indicators on the daily chart are showing that upward movement is possible for this pair in the near future. The Stochastic Slow has formed a bullish cross, while the Relative Strength Index is angling up right around the 20 level. Forex traders will want to keep their eyes on the hourly charts for any signs of a bullish correction today.
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.
Paul Krugman is Dead Wrong: US Debt Does Matter
By MoneyMorning.com.au
Paul Krugman, the Princeton University economics professor, Nobel Prize winner, and regular New York Times op-ed contributor says, “Debt matters, but not that much.”
Not only is he off the reservation on this one, but he’s completely fallen off his high horse.
In the real world, debt actually matters a lot.
In a Houston Chronicle opinion piece last week, Krugman, riding his horse – whose name might as well be Liberal Conscience – trampled conservatives under the guise of an economics lesson that derided “deficit-worriers” for wrongly seeing “America as being like a family that took out too large a mortgage, and will have a hard time making the monthly payments.”
According to Krugman, that’s a bad analogy and “the way our politicians think about debt is all wrong, and exaggerates the problem’s size.”
Decide for yourself. Either debt matters a lot, or not that much…
The World of Debt According to Paul Krugman
Professor Krugman calls all the conversation in Washington about debt and deficits a “misplaced focus” and says all of the economic experts “on whom much of Congress relies have been repeatedly wrong about the short-run effects of budget deficits.”
He derides the fears that deficits will cause interest rates to soar by pointing out that they haven’t moved.
What he doesn’t say is that they haven’t moved because they’re not free to move.
The fact is that the U.S. Federal Reserve has corralled the free market in interest rates by knocking short-term rates to almost zero through successive open market operations and extraordinary quantitative easing measures.
Mr. Krugman mocks those waiting for rates to rise and notes that while they wait “rates have dropped to historical lows.”
Maybe what he doesn’t realize is that the Fed’s actions themselves have been nothing short of historical.
The crux of Mr. Krugman’s supposition that debt doesn’t matter much is based on his bashing of the popular analogy comparing the U.S’s debt problems to those of a mortgaged homeowner.
All of which Krugman claims is “a really bad analogy in at least two ways.”
He says, “First, families have to pay back their debt. Governments don’t – all they need to do is ensure that debt grows more slowly than their tax base.”
“Second,” he says, “an over-borrowed family owes the money to someone else; U.S. debt is, to a large extent, money we owe ourselves.”
He goes on to say that the debt from World War II was never repaid and didn’t make post-war America poorer.
In fact, the Professor points out, “the debt didn’t prevent the post-war generation from experiencing the biggest rise in incomes and living standards in our nation’s history.”
Krugman is Flat Out Wrong About US Debt
First off, the homeowner analogy is excellent–not irrelevant.
Mr. Krugman is wrong when he says that homeowners have to pay back their debt. The truth is they don’t have to.
Just like the government, as long as their creditworthiness is intact and money is available, at whatever cost, homeowners can refinance their mortgages over and over. That’s no different than how the government rolls over its own debts.
We saw this phenomenon play out in stark reality during the housing bubble.
Not only were homeowners refinancing their homes to take out money for consumption purposes, they leveraged themselves to buy more homes to multiply the wealth effect they were already experiencing.
In the case of the housing crash, borrowers were counting on rising property values to finance their expanding debts. That’s the same as what Krugman says governments should do: make sure debt expansion doesn’t outpace revenue growth, in this case taxes.
In the end, though, didn’t the bursting of the housing bubble prove that debt eventually matters?
To me, the housing bubble was a pretty darn good analogy as to what happens when mounting debts aren’t repaid. When it happens on a systemic basis, the entire economy suffers.
Doesn’t our nation’s expanding debt and deficit in the face of falling tax revenues and worse, a lower base, portend similar problems on an even larger scale?
Of course, Krugman has it all figured out.
We just have to grow our debt at a slower pace than our tax base grows. Who knew the answer was so simple…
We’ll just meet our expanding debt obligations by raising taxes faster. Perfect!
Second, to claim that U.S. debt doesn’t matter because we owe it to ourselves, and that homeowners’ debts do matter because they owe them to someone else, is absurd.
It is as if we are all going to say to the government, “It’s okay you took all of those taxes from us and spent them on stuff we’ll mostly never see, wipe the slate clean, we’re good. And all the stuff you promised us that you didn’t budget for, or worse, those set aside budgets you stole from, it’s okay, we’re good, we relieve you of what you owe us.” It’s just stupid.
Also, if you are a homeowner you are paying yourself too, in a sense.
While you are paying the mortgage to your bank you are also paying into a capital asset known as your home. You end up with something of fairly equal value, or more when home prices appreciate.
The Truth about U.S. Debt
But we screwed that all up because debts do matter.
Too much debt leads to depreciation and deleveraging, which leads to lower demand, lower production, fewer jobs and a lower tax base.
The last piece of Krugman’s argument that our World War II debts were never repaid and that the huge deficits to pay for the war effort led to an extraordinary peacetime expansion is also frighteningly off the mark.
Of course, the savings bonds issued to fund the War have matured and been paid off. And the portion of our national debt brought on by the War was paid off a long time ago.
Just because the U.S. continues to add to its deficit and has to continually rollover debts doesn’t mean that we’re rolling over debts from 70 years ago.
Mr. Krugman’s own argument even addresses that. Rising incomes and our rapidly expanding economy in the post-war period generated a vastly rising tax base and led to prosperity.
But, that had nothing to do with deficits not mattering.
That had everything to do with soldiers returning home and being educated under the G.I. bill, being able to find work in revved-up manufacturing facilities, and the ensuing baby boom that would lead to a substantial increase in the population and tax base.
A Political Axe to Grind
There are a lot of problems with Professor Krugman’s argument that deficits don’t matter.
But, the biggest problem I have is that instead of addressing deficits in an organic, holistic and objective way, Mr. Krugman addresses these important issues from his political perspective rather than a purely economic perspective.
Bashing conservatives who say deficits matter and spending cuts along with a smaller government are the best way to solve our long-term fiscal problems, and arguing that “responsible governments — that is governments that are willing to impose modestly higher taxes when the situation warrants it” are the answer to deficits that don’t matter much, is polarising at best and dangerous at worst.
What economists should be advocating is an apolitical approach to both our short-term and long-term problems.
We need smaller deficits over time and a smaller, more responsive government in the long-term.
In the short-term, we need real infrastructure spending, not quantitative easing for banks to increase their bonus pools. We need a massive investment in education and we need an industrial policy that promotes manufacturing and job growth – not the exportation of our capital to less developed countries where labour cost advantages fatten up public corporations that don’t pay enough U.S. taxes and hide the money from Uncle Sam in the loopholes Congress digs for them.
Both deficits and politics matter.
And if we don’t figure out how to bridle both we are all going to end up in the dirt being trampled by stampeding emerging economies everywhere.
This article originally appeared in the US edition of Money Morning (www.moneymorning.com)
From the Archives…
A Story of Sell-Offs & Super Spikes by a Stock Market Trader
2012-01-07 – Murray Dawes
Why BHP Will Be the First Victim of China’s Economic Collapse
2012-01-06 – Kris Sayce
The Sun Starts to Set on China’s Economy
2012-01-05 – Kris Sayce
The Sovereign Debt Cycle Continues
2012-01-04 – Murray Dawes
New Year’s Eve 2029: Will the Australian Stock Market Lose a Decade of Growth?
2012-01-03 – Kris Sayce
For editorial enquiries and feedback, email [email protected]
Silver Price Ready to Explode
By MoneyMorning.com.au
In the last eight years the silver price has increased close to five-fold, from US$6 / ounce to US$29 / ounce.
It hasn’t been an easy ride for investors.
The price crashes intermittently when the trade gets overcrowded. With just $50 billion of silver bullion above ground, it is a very small market and gets crowded easily. The Silver price has had four major crashes in the last ten years but has still increased five-fold.
Source: Goldprice
In the first half of 2004 it fell by 36%.
Then during the first half of 2006 the silver price fell 38%.
In 2008 it fell for most of the year with the peak to trough fall a colossal 61%.
Then in 2011, from its April peak to its low point in late December, silver lost 48% in price.
But between these savage dips, silver has surged.
The net result is, if you invested US$10,000 in silver at the start of 2004, it would now be worth US$48,309.
Last year left a bad taste in the mouth for many silver investors. The 48% correction was brutal. And now there’s a lot of negative sentiment around silver.
But – believe it or not – when negative sentiment builds to this point it is often the best time to invest. As Warren Buffet says, “be greedy when others are fearful and fearful when others are greedy.”
There are also some clear signs this latest correction is now finished.
The main sign comes from the silver futures market.
It is now cheaper to buy a silver futures contract than real, physical silver. Silver rallied more than 60% the last time we saw this happen towards the end of 2010. As I write this, physical silver is US$28.98 / ounce. A silver futures contract is $28.93 / ounce.
This 5-cent difference may sound like small bickies but it is very important. Futures contracts are usually higher than the price of the commodity. Not so much as a price predictor but more to reflect the cost of storing the commodity and the opportunity cost of the capital.
When the futures price dips below the commodity price like this, even by just 0.2%, it is a clear signal to expect higher prices. The market calls this ‘backwardation’.
The silver market went into backwardation a few weeks ago on 28 December 2011. The next day, silver started a three-day bounce that increased the silver price by 12%. This included silver’s biggest one-day move in over three years – a 6.6% jump.
Backwardation tends to happen when there is a shortage of a commodity. The result is a much higher commodity price, which encourages people to sell. Backwardation was in play during the last silver rally that drove the price from $25 / ounce to its peak of $49.50 / ounce.
This is a very exciting development for silver investors. It’s also good to put the silver market in some historical context to see what the next few months could bring.
Like gold, silver tends to set its low point for the year in the first six weeks of the year.
In six of the last 10 years, the low price for the year was set by 8 February.
With a significant correction behind us, and backwardation now in play, it’s easy to imagine we may see the 2012 low point for the silver price very soon. That’s if we haven’t seen it already.
Compared to its recent precedents, the 48% correction in 2011 was bigger than those in 2004 and 2006 and was only smaller than the 61% fall we saw in the GFC of 2008.
What would happen if silver fell further and matched the drop we saw in the GFC?
We would see it down at $19.50/ounce. It’s hard to imagine given the current set up, but anything can happen with silver. I’m a buyer of silver at current prices. But if silver fell this far I would buy even more! The silver price has more than tripled since its GFC drop.
Since 2008′s correction, the silver price has more than tripled
Source: Slipstream Trader
Something I’ve written about in Diggers and Drillers for a while is that you should watch for the cost of buying silver through a bullion dealer to break away from the spot price. The tangible, physical stuff should command a premium. Buying physical silver is very different to buying ‘paper silver’ through a commodities exchange. There is a lot of doubt that silver bought this way is backed by the real stuff. Since the collapse of MF Global, investors have woken up to this.
One way to measure what premium physical silver should be trading at is to watch the price of the Sprott Physical Silver Trust (PSLV) against the spot price of silver. The market believes that Sprott’s fund carries the silver it claims and isn’t a bad proxy for the real value of silver.
So it’s interesting to see Sprott’s silver trust surge in value against the silver price recently. The chart below shows just that. I’ve divided the value of a unit of the Sprott Physical Silver Trust by the silver spot price; my ‘Sprott-to-spot’ index. Since the start of December, the relative value has increased by more than 20%.
‘Sprott-to-spot index’ shows physical silver is commanding a growing premium
Source: Stockcharts, D&D edits
What does this actually tell you? Investors struggle to buy large amounts of silver, and are prepared to pay above the market price for physical if they trust you have it.
For the average investor, we may find that buying bullion from dealers may start coming with extra costs, which reflects its true value above the spot price.
2012 also brings the likelihood of more money printing from the Fed, and possibly the ECB. This is not something you can bank on. But either would be bullish for precious metals prices. As the money supply of the major currencies of the world increases, the price of hard assets, such as gold and silver, rise to reflect their value.
So the stars seem to be aligning for a big year. Silver normally bottoms out at this time of year, the correction looks finished, the metal has gone into backwardation, and physical metal is now priced at a premium.
I expected big things from silver last year based on the fundamentals. All those fundamentals are still in place, and now we have everything you have just read about today on top of that as well.
With a painful correction now out of the way – and the price knocked back down – the silver market looks ready to explode again.
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How to Buy Gold and Silver
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Publisher’s Note: The Australian Government is over $200 billion in debt: 20% of GDP. While American hedge fund veteran Shah Gilani in his article discusses the US debt crisis, we wonder if this argument will be repeated in Australia if trade with China slows, tax receipts fall and the government doesn’t cut spending.
From the Archives…
A Story of Sell-Offs & Super Spikes by a Stock Market Trader
2012-01-07 – Murray Dawes
Why BHP Will Be the First Victim of China’s Economic Collapse
2012-01-06 – Kris Sayce
The Sun Starts to Set on China’s Economy
2012-01-05 – Kris Sayce
The Sovereign Debt Cycle Continues
2012-01-04 – Murray Dawes
New Year’s Eve 2029: Will the Australian Stock Market Lose a Decade of Growth?
2012-01-03 – Kris Sayce
For editorial enquiries and feedback, email [email protected]
AUDUSD rebounded from 1.0145
Being supported by the lower border of the price channel on 4-hour chart, AUDUSD rebounded from 1.0145, suggesting that the fall from 1.0385 has completed. Now the bounce would possibly be resumption of uptrend from 0.9861, further rise to test 1.0385 resistance is expected later today, a break above this level could bring price to 1.0600 area. Key support is now at 1.0145, only break below this level will indicate that the rise from 0.9861 had completed at 1.0385 already, then the following downward move could pull price back to 0.9500 zone.
Football Pitch-Sized Batteries Could Change the World of Renewable Energy
2011 saw huge advances in solar, wind and other renewable energy sources, and these advancements will continue into 2012. In fact 2012 could be the year that renewable energy sources start to seriously compete with traditional fossil fuels, at least that is the hope in the battle to reduce carbon emissions and our dependence on dwindling oil stocks. However a major problem with renewable energy sources is that they can rarely provide consistent power levels, due to a myriad of factors outside of human control.
Eric Wesoff, an industry analyst with Greentech Media, explains that, “A wind farm only works when the blades are spinning. It might have a nameplate capacity of 100 megawatts, but it never puts out that much. Sometimes it’s 70; sometimes it’s nothing. To a grid operator, that kind of resource is a headache rather than an aspirin.” To overcome these fluctuations energy storage systems can be used to store excess power at peak generating times and release it when needed to provide a more constant level. “So now that 100-MW wind farm can say, ‘We’re a 40-MW, steady-state, 24/7 energy source’-more like a coal plant. That’s more valuable to society.”
The most abundant energy storage system in use around the world is the battery, but producing giant batteries for the electrical grid has always been very expensive. Lots of research has been done into small batteries for mobile phones and MP3 players, etc. and now, according to Haresh Kamath, program manager for energy-storage research at the Electric Power Research Institute (EPRI). “The research applied to those industries is now being applied to batteries for the grid.” In fact the world’s largest battery array, a $500 million system capable of storing 36 megawatt-hours of electricity, has recently been completed in China by the State Grid Corporation of China (SGCC) and the electric car maker BYD. As part of China’s push toward a smart grid system for renewable energy, the battery has been hooked up to 140 megawatts of solar and wind power generation as well as a smart grid transmission system. And we can expect more of these battery facilities after the Deputy Director of China’s National Energy Administration called it the model for the future of Chinese renewable energy development.
As one of the first large battery systems for grid-level energy storage it will prove an intriguing test-bed for the rest of the world to watch and learn from. However we could also have a new, bigger example to study in a few years after Rubenius, the Dubai-based company, finalised plans to build an unprecedented energy-storage facility in Mexicali. Being positioned near the border it will help improve the reliability of both the US and Mexican grids, paving the way for more solar and wind power in both countries.
Giant Batteries for the grid have been seriously discussed for several years and are a very popular idea. In fact, Rubenius estimates that the grid battery market will be worth US $30 billion per year, “plus or minus $5 billion,” says Jacob Rikard Nielsen, vice president of business development. “Of course, that’s not going to materialize tomorrow. But as the technology matures and utilities gain experience, we’ll get to that market status in the next 10 years. I’m quite optimistic.”
It will be interesting to see how the new battery arrays in China and Mexicali fair. If both prove to be a resounding success it really could change the face of renewable energies the world over. Not to mention the huge market that it could create in the development and construction of the facilities.
By. James Burgess of Oilprice.com
Monday 1/9 Insider Buying Report: GPX, TCB
As the saying goes, there are many possible reasons for an insider to sell a stock, but only one reason to buy — they expect to make money. So let’s look at two noteworthy recent insider buys.
Daily Market Wrap: January 9, 2011
Stocks advanced fractionally ahead of the unofficial start of earnings season as Alcoa reports 4th quarter results after the market close today. Heading into the last hour of trading, the Dow, S&P 500 and Nasdaq were all up nearly a quarter of a percent.
Monday 1/9 Insider Buying Report: HUSA, UNIS
Bargain hunters are wise to pay careful attention to insider buying, because although there are many various reasons for an insider to sell a stock, presumably the only reason they would use their hard-earned cash to make a purchase, is that they expect to make money. Today we look at two noteworthy recent insider buys.
