Reuters reported that automaker; Chrysler is recalling about 210,000 Jeep Liberty’s due to problems resulting from extreme rust that might lead to loss of control by the driver.Model years recalled are 2004 and 2005 while states affected are cars registered in Connecticut, Delaware, Illinois, Indiana, Iowa, Maine, Maryland, Massachusetts, Michigan, Minnesota, Missouri, New Hampshire, New Jersey, New York, Ohio, Pennsylvania, Rhode Island, Vermont, West Virginia, Wisconsin and Washington, D.C.
USDJPY remains in uptrend from 76.02, the price action in the trading range between 80.01 and 81.86 is treated as consolidation of the uptrend. Lengthier sideways movement in the range would likely be seen over the next several days. As long as 80.01 support holds, we’d expect uptrend to resume, and another rise towards 85.00 is still possible after consolidation, and a break above 81.86 could signal resumption of the uptrend.
By MoneyMorning.com.au
The single biggest risk to Australia’s prosperity this year: a bursting Chinese bubble. Hedge fund manager Hugh Hendry, a genuine contrarian, made an important speech some time ago.
His idea is that the comparison between 19th century America and 21st century China is not a valid comparison. That comparison, in brief, is that a rising economic power is, at first, a source of global deflation thanks to its enormous production (commodities exports in 19th century America, manufacturing exports in 21st century China.) They accumulate large trade surpluses, build a middle class, a big military, and shift toward more consumption in the economy to drive growth.
Hugh’s main point is that America’s 19th century boom was governed by the discipline of the gold standard. In the absence of a credit boom, American entrepreneurs had to use capital wisely, assuming they could get it from investors, who had to invest prudently in order to preserve their capital and maximise the return.
The American boom, Hugh suggests, was driven by an investment boom where the return on capital was the main requirement for investment. If you didn’t invest wisely, you went bankrupt. In a competitive market place, this meant losing business models quickly failed and their investors were liquidated (not literally).
China’s boom has taken place in the confines of a fiat money model. Its currency is pegged to the US dollar. And the main requirement of Chinese investment, to the extent its official investment is dictated by the government through State Owned Enterprises, is full employment.
Hugh argues that with full employment as the main driver of Chinese investment decisions over the last decade, massive misallocations of capital are going to be made. In other words, you’re going to get huge infrastructure projects, bridges to nowhere, empty cities, and investment for the sake of employment. When you have several trillion dollars in new credit to play with, you can get a lot of boom for your buck.
Dan Denning
Editor, Australian Wealth Gameplan
From the Archives…
The Stock Market Financial Winter is Coming
2012-03-02 – Dan Denning
Why You’ll Want to Watch This ‘Bad’ Retail Stock Very Closely
2012-03-01 – Kris Sayce
Higher Oil Prices – Government Guaranteed
2012-02-29 – Dr. Alex Cowie
Asymmetric and Economic Warfare with Iran
2012-02-28 – Dan Denning
Why the Greek Debt Crisis Has Nothing to Do With the Euro
2012-02-27 – Nick Hubble
For editorial enquiries and feedback, email [email protected]
By MoneyMorning.com.au
If there is one issue that divides the world of investing more than any other right now, it’s China.
On the one side, you’ve got those who think the Asian giant is going to keep growing, growing… and growing.
Others point out that China is not immune from the rest of the world’s woes – and that it has its own batch of problems to deal with on top.
We’re in the bearish camp. China’s economic successes over the past 30 years have obscured the fact that its institutions still have plenty of room for improvement, and that the state controls much of industry.
That’s fine at the early stages of development. It’s one way to get things done quickly. But as it gets richer, these problems start to matter more. This will make it more vulnerable to shocks.
And confirmation that things could get much tougher than the optimists expect has come from an unexpected source – the Chinese government.
One of the problems China observers have is that the data simply isn’t that reliable. The Chinese state uses a mixture of carrot and stick to keep Chinese citizens in line: the carrot is ongoing economic growth and improving standards of living.
This means the government is anxious to show that the economy is advancing quickly – even when it clearly isn’t. For example, as Cris Sholto Heaton noted recently, there were at least five periods of very low growth between 1979 and the present day. However, none of these are reflected in the data.
So when the Chinese Premier Wen Jiabao cuts the growth target to 7.5%, it’s clear that he is managing expectations lower. He also suggested that China’s exports were likely to grow at a slower rate in the future.
Of course, the political spin on this is that lower growth is all part of a grand plan to increase domestic demand. He also made noises about economic reform. However, it’s like a politician resigning “to spend more time with my family” – you know that it’s just an excuse.
So what does all this mean for markets?
The biggest losers from a Chinese hard landing are going to be commodities, industrial materials in particular. China’s economic growth has turned it into a major consumer of raw materials. For instance, it accounts for around 40% of copper and aluminium consumption. This means that both those metals – and others, such as iron ore – should be badly hit by a slowdown.
Of course, there are exceptions. A lack of attractive alternative investments has seen Chinese investors flock into gold. Wen Jiabao also restated plans to increase defence spending, so prices of related metals – such as tungsten – should hold up.
The Middle Eastern crisis also means that oil prices could well remain high in the short run. Capital Economics thinks that Brent will remain above $100 in the first half of the year. However, the research group also believes that crude oil could fall to as low as $85 by the end of the year, on the back of falling demand.
A Chinese slowdown will also hit Australia hard.
Up until now, Australia’s role as an exporter of primary materials and its trade links with the People’s Republic – a quarter of its exports go to China – mean that it has performed strongly, even as other developed economies have slumped.
Australia has only had two quarters of real negative growth in the past ten years. Since 2004, unemployment has never risen above 6% – it is currently 5.1%. However, a Chinese slowdown will whack it with a double whammy of falling exports and worsening terms of trade (it’ll no longer be exporting lots more than it imports).
Australia also has a third problem – it still has a rampant housing bubble. According to The Economist, house prices are 40% above their historical levels relative to income. That can’t go on.
Indeed, the bubble may already have popped. According to the Australian Bureau of Statistics, the average house price in eight major cities fell by nearly 5% from December 2010 to 2011.
Both JP Morgan and Saxobank believe that there is a good chance Australia could go into recession. And to be fair, if you read the local press, it’s clear that many Aussies who don’t work in the mining sector feel like they’re already in one. Tim Colebatch in The Sydney Morning Herald points out that the latest data shows that the non-mining parts of the Australian economy are not growing.
Matthew Partridge
Contributing Editor, MoneyWeek (UK)
Publisher’s Note: This is an edited version of an article that first appeared in MoneyWeek (UK).
From the Archives…
The Stock Market Financial Winter is Coming
2012-03-02 – Dan Denning
Why You’ll Want to Watch This ‘Bad’ Retail Stock Very Closely
2012-03-01 – Kris Sayce
Higher Oil Prices – Government Guaranteed
2012-02-29 – Dr. Alex Cowie
Asymmetric and Economic Warfare with Iran
2012-02-28 – Dan Denning
Why the Greek Debt Crisis Has Nothing to Do With the Euro
2012-02-27 – Nick Hubble
For editorial enquiries and feedback, email [email protected]
By MoneyMorning.com.au
The underlying trend in the market is a general deflation in financial assets. This is what always happens at the end of a credit boom. During the boom, easy credit accelerates growth and expansion, including the use of raw materials and energy resources, and benefits financial firms the most. In the bust, those assets deflate as each additional unit of credit leads to less and less real growth (mostly because each new borrowed dollar is going to pay off previously borrowed dollars).
The only way to pay off accumulated debts is to grow again. That can only happen once the bad debts of the boom have been liquidated. In other words, it is no longer possible in today’s economy for economic growth to pay off the massive debts accumulated by governments and households.
What we do know is that economic growth has two engines: credit and energy. If credit is diminishing in influence (because we’re in a credit depression) energy is gaining in influence. You can’t have growth in anything – especially an economy – without more energy. We know that when growth resumes, wherever it resumes, it will require energy resources.
That means the only reason to be in a market that’s heavily manipulated by interventionists is if you can buy energy assets when they’re cheap. This energy is quite literally the fuel of future booms. It is a non-monetary real asset that gains in value due to a variety of factors, including the depletion of conventional crude oil and natural gas resources
If you’re going to be in the market at all right now, you might as well own companies that give you the chance to make five or 10 times your money in the next five years. Unconventional energy stocks fit that description. In the bigger picture, you want an investment portfolio you can sleep with at night. One that gives you the chance to grow your wealth from powerful long-term trends, but doesn’t rely on “the market” going up.
Dan Denning
Editor, Australian Wealth Gameplan
From the Archives…
The Stock Market Financial Winter is Coming
2012-03-02 – Dan Denning
Why You’ll Want to Watch This ‘Bad’ Retail Stock Very Closely
2012-03-01 – Kris Sayce
Higher Oil Prices – Government Guaranteed
2012-02-29 – Dr. Alex Cowie
Asymmetric and Economic Warfare with Iran
2012-02-28 – Dan Denning
Why the Greek Debt Crisis Has Nothing to Do With the Euro
2012-02-27 – Nick Hubble
For editorial enquiries and feedback, email [email protected]
Why Energy Resources Are The Only Reason to be Invested in This Market
Kraft Foods (KFT) was downgraded today by Jefferies (JEF) to hold from buy with a price target of $41, as there are no near term catalysts for the stock price to increase. Shares are lower by about one percent.
Jack In The Box (JACK) was upgraded today by Credit Suisse (CS) to neutral from underperform with a price target of $24, as top line growth has been better than expected. Shares are higher by about 1.8 percent.
Staples Incorporated (SPLS) announced its quarterly dividend of 11 cents per share, an increase of about 10% over its prior dividend in December of 10 cents. The dividend is payable on April 12, 2012, to shareholders of record on March 23, 2012.
ISM non-manufacturing number came in higher than expected at 57.3. That’s a 12-month high, up from 56.8 in January, and it maintained the upward trend established since last September. Business activities, new orders and price indices maintained above 50 for 31 consecutive months. Employment, export and import indices were still within the expansionary territory, although they were slightly lower than their readings a month ago. Major equity indices fell today however, due to concerns on slowing growth in areas outside of the United States. Precious metals also fell across the board with silver and platinum leading the way.
IBM announced today that according to technology research firm Gartner, IBM captured the top spot in server sales in the fourth quarter of 2011 and accounted for 1/3 of the total market share during that period. For full year 2011, it captured 30.5% of the overall market share, edging out its closest competitor by 1.5%. Stock rallied over a percent today and broke the important $200 milestone. It was up 7% YTD, outpacing the Dow’s 4%, and up 25% in the last 12 months.
