A Look at Oil, Natural Gas, Gold and Silver (Bespoke, MarketClub)

Tuesday, May 31st, 2011

Below we pro­vide our trad­ing range charts for four key com­modi­ties.  In each chart, the green shad­ing rep­re­sents between two stan­dard devi­a­tions above and below the 50-day mov­ing aver­age, and moves above or below the green shad­ing are con­sid­ered over­bought or oversold.

As shown, nat­ural gas is now right at over­bought ter­ri­tory, while oil is close to over­sold ter­ri­tory.  No, that's not a mis­print, nat­ural gas really is at over­bought ter­ri­tory, while oil is close to over­sold territory.

Gold is also now close to over­bought ter­ri­tory once again as it closed the week above $1,530.  After the sharp pull­back sil­ver saw ear­lier this month, it has made a decent recov­ery as well.

The rally in com­modi­ties to close out the week coin­cided with a pull­back in the dol­lar.  The US Dol­lar index broke above its 50-day mov­ing aver­age a cou­ple of weeks ago, and it was even close to break­ing its long-term down­trend as we noted ear­lier in the week.  Thoughts of the long-term down­trend com­ing to an end proved to be wish­ful think­ing, however, and the Dol­lar index fin­ished off the week back below its 50-day.

[AA] Accord­ing to MarketClub's tech­ni­cal indi­ca­tors, gold is in a solid uptrend, with all three of their trade tri­an­gles point­ing upward. The monthly tri­an­gle sig­nalled in at $1,430.90, the weekly tri­an­gle turned on at $1,444.28 and the daily tri­an­gle turned on at $1,499.83. The Williams%R indi­ca­tor says that gold is in over­bought ter­ri­tory, and the MACD indi­cates accu­mu­la­tion. Cur­rently, at the time of this chart, gold was trad­ing at 1,537.68.

Sil­ver shows an uptrend (+65), up 8.3% last week, fol­low­ing the sub­stan­tial sell-off in the wake of mar­gin require­ments being raised. With the monthly (18.74) and daily (35.39) tri­an­gles, green, the near term weekly tri­an­gle (which turned red at 39.66) is set to turn green, as the price of sil­ver nears the Don­nchian chan­nel (pur­ple chan­nel lines) mid-point, and MarketClub's Adam Hewi­son says that sil­ver could reach up into the low 40s in the short term. Williams%R took off into the over­bought zone at the end of last week, and the MACD shows a solid diver­gence in favour of accumulation.

Oil too, is expe­ri­enc­ing a strong recov­ery, in the wake of the sell­off in early May, and shows a solid uptrend (+100), and monthly and daily Mar­ket­Club trade tri­an­gles green, and the Weekly tri­an­gle still red, hav­ing turned so at 106.44. Had you been in crude before the sell­off, the effec­tive red weekly sell tri­an­gle was loss minimizing.

Williams%R indi­cates oil is over­bought, how­ever, MACD indi­cates diver­gence in favour of accumulation.

[AA]

Copy­right © Bespoke Invest­ment Group

Tags: Aa, Accumulation, Commodities, Crude Oil, Macd, Margin Requirements, Marketclub, Mid Point, Moving Average, Natural Gas, Price Of Silver, Range Charts, Shading, Sharp Pullback, Standard Deviations, Technical Indicators, Triangle, Triangles, Uptrend, Us Dollar Index, Wishful Thinking
Posted in Markets, Oil and Gas | Comments Off

Jim Rogers — Why The Commodity Bull Still Has Room To Run

Monday, May 30th, 2011

(May 23, 2011-Edinburgh, Scot­land) Jim Rogers, Co-Founder of Quan­tum Group of Funds, talks to Dan Richards about why the com­mod­ity bull still has room to run.

Source: ClientInsights.ca

Tags: Autoload, Bull Run, Co Founder, Commodity, Edinburgh Scotland, Flv Player, Jim Rogers, Quantum Group, Rogers Co, True Loop, True Source
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Why Jim Rogers is Bullish Gold

Monday, May 30th, 2011

(May 23, 2011-Edinburgh, Scot­land) Jim Rogers, Co-Founder of Quan­tum Group of Funds, talks to Dan Richards about why he is bull­ish on gold.

Source: ClientInsights.ca

Tags: Autoload, Co Founder, Edinburgh Scotland, Flv Player, Gold, Hana, Jim Rogers, Quantum Group, Rogers Co, True Loop, True Source
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Mobius Says "Financial Crisis Around the Corner"

Monday, May 30th, 2011

by Trader Mark, Fund My Mutual Fund

Much like FPA's Robert Rodriquez (high­lighted yes­ter­day), another of the world's bright­est finan­cial minds, Templeton's Mark Mobius says we wasted a cri­sis, and noth­ing really has been fixed — the same thoughts this hum­ble writer offered in 2008 and 2009 as bailout after bailout was granted, with no fun­da­men­tal change to the sys­tem.  While Mobius says it is "around the cor­ner" I have great faith than the world's cen­tral banks will be able to print enough money to keep the balls jug­gling for quite a while more.  Much like Rodriquez I have no idea when the prover­bial manure hits the fan, but the seeds of said cri­sis are sown nicely.  We can how­ever be assured that a Fed who under Greenspan and Bernanke knows how to do noth­ing but cre­ate bub­bles while kick­ing cans... and then crater the sys­tem, while being the bank's drug dealer in chief, will have another mess (of their own mak­ing) to clean up in due time.  And just like this last time around when the house comes burn­ing down, The Bernank (or maybe easy money Yellen by that moment) will race to the scene of their crime, pour water on the burn­ing sys­tem and tell every­one to thank them for res­cu­ing us!   And no one will ask why we keep hav­ing the same prob­lems, and who is the nexus of them all.

Until then we dance!

Via Bloomberg:

• Mark Mobius, exec­u­tive chair­man of Tem­ple­ton Asset Management’s emerg­ing mar­kets group, said another finan­cial cri­sis is inevitable because the causes of the pre­vi­ous one haven’t been resolved.  “There is def­i­nitely going to be another finan­cial cri­sis around the cor­ner because we haven’t solved any of the things that caused the pre­vi­ous cri­sis,” Mobius said at the For­eign Cor­re­spon­dents’ Club of Japan in Tokyo today in response to a ques­tion about price swings. “Are the deriv­a­tives reg­u­lated? No. Are you still get­ting growth in deriv­a­tives? Yes.”
• The total value of deriv­a­tives in the world exceeds total global gross domes­tic prod­uct by a fac­tor of 10, said Mobius, who over­sees more than $50 bil­lion. With that vol­ume of bets in dif­fer­ent direc­tions, volatil­ity and equity mar­ket crises will occur, he said.  The global finan­cial cri­sis three years ago was caused in part by the pro­lif­er­a­tion of deriv­a­tive prod­ucts tied to U.S. home loans that ceased per­form­ing, trig­ger­ing hun­dreds of bil­lions of dol­lars in writedowns.
• “With every cri­sis comes great oppor­tu­nity,” said Mobius. When mar­kets are crash­ing, “that’s when we’re going to be able to invest and do a good job,” he said.
• The freez­ing of global credit mar­kets caused gov­ern­ments from Wash­ing­ton to Bei­jing to Lon­don to pump more than $3 tril­lion into the finan­cial sys­tem to shore up the global economy.
• The largest U.S. banks have grown larger since the finan­cial cri­sis, and the num­ber of “too-big-to-fail” banks will increase by 40 per­cent over the next 15 years, accord­ing to data com­piled by Bloomberg.  “Are the banks big­ger than they were before? They’re big­ger,” Mobius said. “Too big to fail.”

Copy­right © Trader Mark, Fund My Mutual Fund

Tags: Bailout, Bernanke, Central Banks, Due Time, Easy Money, Emerging Markets Group, Enough Money, Executive Chairman, Financial Crisis, Foreign Correspondents Club, Fundamental Change, Great Faith, Humble Writer, Kicking Cans, Mark Mobius, Price Swings, Robert Rodriquez, S Central, Templeton Asset Management, Yellen
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FPA's Robert Rodriguez: We'll Have Another Crisis

Monday, May 30th, 2011

by Trader Mark, Fund My Mutual Fund

FPA's Robert Rodriquez is one of those rare breed who can invest pre­scient macro obser­va­tions with an astute invest­ing mind.  He does not mind going against the masses, and wait­ing for his the­sis to play out.  More often than not he has been proven cor­rectly.  After tak­ing a 1 year sab­bat­i­cal from FPA in 2010 [Mar 12, 2009: "FPA Funds" Robert Rodriquez to Take 1 Year Sab­bat­i­cal], he has returned to the com­pany and in this recent inter­view with Money Mag­a­zine is warn­ing we really have not fixed (nor learned) much of any­thing related to the cri­sis of 2008–2009.

Some excerpts below:

• Few mutual fund man­agers could pull off what Robert Rodriguez did. Dur­ing the tumul­tuous 2000s, his FPA Cap­i­tal stock port­fo­lio, which is closed to new investors, man­aged to earn an annu­al­ized 9% even as the S&P 500 lost money. At the same time, he also co-managed FPA New Income, a bond fund that earned a spot on our Money 70 list of best funds.
• Rodriguez, 62, is known for think­ing big: In early 2007 he laid out a detailed case for why hous­ing debt could trig­ger a cri­sis. Now he's just as wor­ried about the fed­eral debt.
• Rodriguez took a sab­bat­i­cal in 2010 — he trav­eled the globe, read about the fall of Rome, indulged his car-racing hobby — and has returned to FPA as CEO, with an advi­sory role on the funds. He spoke with editor-at-large Pene­lope Wang; the con­ver­sa­tion has been edited.

• Now that you're back, do you have a dif­fer­ent per­spec­tive on the econ­omy? I would say a lot of noth­ing has changed. Before I left, I was vocal about the dif­fi­cul­ties that were going to hit the U.S. econ­omy: the grow­ing fed­eral debt and the lack of mean­ing­ful fis­cal reform. These issues still have not been addressed.  Mean­while, banks are oper­at­ing much as before — "too big to fail" is con­tin­u­ing. Investors are still chas­ing after higher yields and load­ing up on risky invest­ments. The search for safety in the wake of the finan­cial cri­sis lasted maybe two years. Very lit­tle has been learned.

• Won't the eco­nomic recov­ery help us grow out of these prob­lems? At best, we're fac­ing a sub­stan­dard recov­ery. It will prob­a­bly take another eight years for the con­sumer to recover. But mainly I worry about the swelling debt of the U.S. gov­ern­ment, which is bal­loon­ing faster than the econ­omy is expanding.

• So you see rates ris­ing, and bond prices falling. How big will the cor­rec­tion be? Before my sab­bat­i­cal, I told clients that if present trends in gov­ern­ment con­tinue, we will have another finan­cial cri­sis within three to seven years — by 2018. I still believe that. We still have time to start the process of fis­cal rec­ti­tude. But the win­dow of oppor­tu­nity is shrink­ing because 2012 will be an elec­tion year, when noth­ing hap­pens.  But it's hard to put a fore­cast together because when prob­lems occur, they don't occur in a lin­ear fash­ion. Take Greece. When the moment came that the emperor had no clothes, what hap­pened to the Greek bond? It went from 4% rates to 10%.

• Speak­ing of stocks, your team doesn't seem to see much oppor­tu­nity there either — FPA Cap­i­tal is 30% cash. Is there any­thing you like? So far the biggest oppor­tu­ni­ties we're see­ing in stocks are in energy, where we've been invest­ing heav­ily for more than 12 years. It's a supply-demand sit­u­a­tion. Wher­ever I trav­eled last year, the one word that came to mind was "grid­lock." Cities from Korea to Moscow to South Amer­ica were totally filled with cars. It makes the 4 o'clock rush on San Diego Free­way in Los Ange­les look like a speed­way in com­par­i­son. There will be more and more demand for oil as con­sumers' incomes rise in devel­op­ing nations.

Please fol­low the link above for the full inter­view if interested.

Copy­right © Trader Mark, Fund My Mutual Fund

Tags: 2000s, Advisory Role, Bond Fund, Capital Stock, Car Racing, Different Perspective, Fall Of Rome, Federal Debt, Fiscal Reform, Fpa Capital, Fpa Funds, Money 70, Money Magazine, Mutual Fund Managers, Penelope Wang, Rare Breed, Risky Investments, Robert Rodriguez, Robert Rodriquez, Stock Portfolio
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Four Catalysts Needed For The Industrial Commodities Rally To Resume

Monday, May 30th, 2011

by ZeroHedge.com

The recent slug­gish­ness in equity mar­kets has cer­tainly affected indus­trial com­modi­ties over the past few months, if not gold, which as pointed out ear­lier is just 2% below its nom­i­nal highs and ris­ing despite the 4th mar­gin hike on the Shang­hai Gold Exchange overnight — once again gold is seen at the apex of the fiat cur­rency replace­ment pyra­mid. So what could cause a rally in indus­trial com­modi­ties in the near term? Sean Cor­ri­gan lists the four key cat­a­lysts, whose occur­rence listed in order of prob­a­bil­ity, could rekin­dle the recently fal­ter­ing rally.

From the most recent edi­tion of Sean Corrigan's Mate­r­ial Evidence

So, the burn­ing ques­tion now is whether com­mod­ity prices can shake off the dis­quiet caused by May’s sharp liq­ui­da­tion and val­i­date the sound­bite sup­po­si­tions of the past few days.

With so much hot money still swill­ing around the world, read­ily avail­able at low nom­i­nal and largely neg­a­tive real rates of inter­est, we can never say never, but so many other ben­e­fi­cia­ries of the Bernanke Bub­ble are either los­ing momen­tum and/or break­ing trend, that it may be that the whole shell game has been busted pro tem.

Cer­tainly, the fun­da­men­tal back­drop is begin­ning to look less rosy, with Japan suf­fer­ing a 13% decline in exports, Taiwan’s indus­trial expan­sion slow­ing, Thailand’s turn­ing neg­a­tive, US macro num­bers reg­is­ter­ing a series of dis­ap­point­ments, UK busi­nesses still cut­ting back on invest­ment and broad swathes of China’s cor­po­rate land­scape expe­ri­enc­ing a severe mar­gin squeeze.

Our feel­ing is that for a sig­nif­i­cant rally to take place from here (that is, with­out endur­ing any fur­ther, inter­ven­ing weak­ness), one of four things has to hap­pen soon, listed here in a loose order of their assumed probability:?

1. The Japan­ese gov­ern­ment will forego the chance to intro­duce the mean­ing­ful, per­ma­nent fis­cal rebal­anc­ing to which it might accus­tom the elec­torate under the guise of a sup­pos­edly tem­po­rary, disaster?relief mea­sure and invei­gle the BOJ into mon­e­tiz­ing (albeit at one remove) the vast recon­struc­tion effort needed in the coun­try instead.
2. The Chi­nese will pre­ma­turely relin­quish their fight against the infla­tion which was unleashed by their huge, unfo­cused stim­u­lus’ efforts of the past two years, in the esti­ma­tion that the threat to the régime’s pre­dom­i­nance posed by slow growth and falling employ­ment is now greater than that posed by rapidly ris­ing prices.
3. The Fed will find an excuse to revisit a pro­gramme of ’quan­ti­ta­tive eas­ing’ (i.e., money print­ing) with­out first being forced to sit by and watch a pro­longed retrench­ment in eco­nomic activity
4. The US dol­lar will undergo a renewed, sharp decline, allow­ing exist­ing carry?trades and ‘Risk On’ mixes to be rein­sti­tuted with the least demand for orig­i­nal thought. Here we should note that while, ceteris paribus, a flight from the dol­lar should not auto­mat­i­cally boost com­mod­ity prices in other cur­ren­cies, a com­bi­na­tion of hav­ing a greater mar­ginal impact in a much smaller mar­ket and the active con­tract­ing of paired trades does in prac­tice tend to bring about such a broad appreciation.

If none of these US Cav­alry troop­ers appear over the hori­zon in a timely enough fash­ion, or until there is unequiv­o­cal evi­dence that spec­u­la­tive appetite has oth­er­wise fully returned, our worry is that the indus­trial com­modi­ties in par­tic­u­lar remain at risk of another 10?15% cor­rec­tion and a more thor­ough­go­ing purge of lever­aged long posi­tions before we can find some sort of mean­ing­ful base from which to re?enter a fuller exposure.

Copy­right © Sean Cor­ri­gan, via ZeroHedge.com

Tags: Burning Question, Catalysts, Commodity Prices, Corporate Landscape, Corrigan, Disappointments, Disquiet, Fiat Currency, Gold Exchange, Hot Money, Industrial Commodities, Industrial Expansion, Japanese Government, Macro Numbers, Material Evidence, Rebalancing, Shell Game, Sluggishness, Suppositions, Uk Businesses
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Commodities Under Pressure (Young)

Monday, May 30th, 2011

by Jeff Young, Nex­gen Financial

Com­mod­ity mar­kets around the world have been under pres­sure of late as investors are tak­ing prof­its on increas­ing evi­dence of a slow­down in the global eco­nomic recov­ery. The S&P/TSX with its heavy com­mod­ity weight has been one of the weaker per­form­ing indexes and is now down slightly for the year to date. Most other devel­oped mar­ket indices have held on to low sin­gle digit gains. While all com­modi­ties have been under pres­sure since the begin­ning of May, sil­ver has seen the high­est per­cent­age losses. As Fig­ure 1 illus­trates sil­ver was unable to sus­tain the par­a­bolic advance it had in April and has fallen 35% from its ephemeral highs.

Fig­ure 1: Spot Sil­ver Prices

While there are a num­ber of likely rea­sons for the recent weak­ness in com­mod­ity prices, what is of real inter­est is under­stand­ing if the fun­da­men­tals that have sup­ported the multi year sec­u­lar uptrend in com­modi­tiy prices have changed to the point that we can expect the long term uptrend to end, or if this is just another shorter term cycli­cal cor­rec­tion. As with all things eco­nomic, one needs to look at sup­ply and demand.

While the sup­ply side of the equa­tion is rel­a­tively under­stand­able given the scarcity of var­i­ous com­modi­ties and the long lead times needed to bring new projects on stream, the demand side remains more prone to uncer­tainty. Since 2008, the pri­mary dri­ver of real demand has been the global eco­nomic recov­ery with devel­op­ing nations and China in par­tic­u­lar play­ing a star­ring role. Finan­cial demand has also been very high with ultra loose mon­e­tary con­di­tions and an ever weak­en­ing USD steer­ing investors into com­modi­ties as an alter­na­tive store of wealth. Real and finan­cial demand are not mutu­ally exclu­sive as many of the same dri­vers impact both sources.

Look­ing first at real demand, recent reports have shown a slow­ing in global eco­nomic growth. Fig­ure 2 shows the Global Com­pos­ite Pur­chas­ing Man­agers Index which dropped in April for the sec­ond con­sec­u­tive month and is show­ing its weak­est level since 2009. Investors fear an accel­er­a­tion of this down­trend as fis­cal and eco­nomic stim­u­lus mea­sures are reduced around the world.

Fig­ure 2: J.P. Mor­gan Global Com­pos­ite Pur­chas­ing Man­agers Index

China and the US, as rep­re­sented in Fig­ures 3 and 4, respec­tively, have also seen poten­tial peaks in their man­u­fac­tur­ing growth.

Fig­ure 3: China Man­u­fac­tur­ing Pur­chas­ing Man­agers Index

Fig­ure 4: ISM Man­u­fac­tur­ing Pur­chas­ing Man­agers Index

While we have seen a slow­down in the rate of global growth it is too early to con­clude that this is any­thing more than a mid-cycle slow­down. That said; given the large gains in com­modi­ties and com­mod­ity related equi­ties since last sum­mer investors appear to be book­ing prof­its as a pre­cau­tion­ary measure.

In addi­tion to con­cerns relat­ing to real (end user) demand for com­modi­ties mon­e­tary tight­en­ing in Asian and Euro­pean coun­tries is reduc­ing finan­cial mar­ket liq­uid­ity mak­ing it more expen­sive for investors to hold com­modi­ties. The loom­ing end of QE2 in the US will only exac­er­bate this trend. Many coun­tries around the world are fac­ing a grow­ing infla­tion prob­lem and are using var­i­ous mea­sures to ensure infla­tion expec­ta­tions don’t get out of con­trol. What­ever the mea­sure taken, the impact is less liq­uid­ity which pres­sures both eco­nomic growth and asset prices.

An increase in the mar­gin require­ments for sev­eral com­modi­ties futures con­tracts in the US also hasn’t helped mat­ters. A con­spir­acy the­o­rist might sug­gest that the US is attempt­ing to bring down com­mod­ity prices, a key source of recent infla­tion­ary con­cerns, in the near term to buy them­selves some room to con­tinue a highly accom­moda­tive mon­e­tary pol­icy (and per­haps intro­duce QE3) as they focus on improv­ing the US employ­ment sit­u­a­tion. Any hint of a QE3 would have an imme­di­ately pos­i­tive impact on com­mod­ity prices and a neg­a­tive impact on the USD which would, of course, be ben­e­fi­cial to US exporters.

Sec­tor Performance:

Fig­ure 5 is an inter­est­ing table from a recent Mor­gan Stan­ley mar­ket dis­cus­sion piece. It looks at Indus­try group per­for­mance at var­i­ous stages of the ISM (Insti­tute for Sup­ply Man­age­ment PMI) cycle. As ear­lier dis­cussed, the ISM, shown above in Fig­ure 4, recently looks to have peaked at just over 60 and is poten­tially rolling over. This would rep­re­sent stage 3 in Fig­ure 5.

Fig­ure 5: Indus­try Group Performance

Source:Morgan Stan­ley

While energy and mate­ri­als typ­i­cally do well dur­ing this phase of the ISM cycle, the US Fed’s quan­ti­ta­tive eas­ing efforts may have pull for­ward the out-performance phase of these sec­tors. While energy and mate­ri­als stocks have been cor­rect­ing we are con­tin­u­ing to see strength in many of the other sec­tors that typ­i­cally out­per­form in Stage 3. This has largely been a pos­i­tive for the funds given the strong rep­re­sen­ta­tion of many com­pa­nies from these sectors.

In sum­mary, from a macro­eco­nomic per­spec­tive we are see­ing a slow­ing in global growth, reduced liq­uid­ity, par­tic­u­larly in the devel­op­ing world as these coun­tries fight to keep infla­tion in check; increased mar­gin require­ments in com­mod­ity mar­kets; and a strength­en­ing (at least tem­porar­ily) in the USD. All are head­winds to the “risk on” trade which favours com­modi­ties, emerg­ing mar­kets and US exporters. A return to the “risk on” trade could come from an end to mon­e­tary tight­en­ing in China; any hints of a QE3 in the US, renewed USD weak­ness or an uptick in global growth rates.

Cor­po­rate Earnings:

On the cor­po­rate front we are now largely through Q1 earn­ings report­ing in Canada and the US and the results have been less pos­i­tive than those of recent quar­ters. In Canada, the aggre­gate earn­ings sur­prise, that is the amount by which reported earn­ings are dif­fer­ent than con­sen­sus ana­lyst esti­mates, has come in at a mar­ket cap weighted –4.4%., Fig­ure 6 shows the per­cent­age earn­ings sur­prise for quar­terly reports since 2006. It is rare to see a neg­a­tive result so these results are dis­ap­point­ing. The energy and mate­ri­als sec­tors were the largest sources of neg­a­tive earn­ings sur­prises. On the other hand the Tele­com sec­tor was a source of pos­i­tive sur­prise. Port­fo­lio hold­ings Telus and BCE both reported stronger than expected earn­ings, raised their div­i­dends and have seen their stock prices react favourably. Over­all, the US results were much more in line with recent quarters.

Fig­ure 6: Earn­ings Sur­prise by Quarter (%)

Source: CIBC world Markets

As Fig­ure 7 illus­trates, reported rev­enue growth was also dis­ap­point­ing in Canada, although bet­ter in the US. With cor­po­rate mar­gins near all-time highs we con­tinue to depend on increas­ing rev­enue to drive earn­ings growth in the quar­ters ahead.

Fig­ure 7: Rev­enue Sur­prise by Quarter

For Canada, Fig­ures 6 and 7 do not include the Q2 results from the banks which will report over the next two weeks. While we do have some con­cerns that mort­gage lend­ing in Canada will slow we expect increas­ing busi­ness lend­ing, strong cap­i­tal posi­tions and an improv­ing US econ­omy will sup­port con­tin­ued earn­ings and div­i­dend growth.

The under­rep­re­sen­ta­tion of cycli­cal stocks has been ben­e­fi­cial for the port­fo­lios as these sec­tors have borne the brunt of recent mar­ket weak­ness. While the funds will always main­tain their focus on div­i­dend stocks con­tin­ued out­per­for­mance in “defen­sive” sec­tors may stress their val­u­a­tions. In this case we expect to take advan­tage of any fur­ther mar­ket weak­ness by adding more cycli­cal com­pa­nies where we expect to see higher div­i­dend growth rates as (and if) these com­pa­nies become more attrac­tive from a rel­a­tive val­u­a­tion stand­point. We believe that the eco­nomic recov­ery will be uneven but will con­tinue; sup­ported by favourable mon­e­tary conditions.

Copy­right © Nex­gen Financial

Tags: Canadian Market, Commodities, Commodity Markets, Commodity Prices, Consec, Developing Nations, Economic Recovery, Figure 1, Global Economic Growth, Indexes, Lead Times, Market Indices, Monetary Conditions, New Projects, Purchasing Managers Index, Scarcity, Slowdown, Spot Silver Prices, Supply And Demand, Term Uptrend, Tsx
Posted in Canadian Market, Markets | Comments Off

Shifting Sentiment (Sonders)

Monday, May 30th, 2011

Schwab Per­spec­tives: Shift­ing Sentiment

Liz Ann Son­ders, Senior Vice Pres­i­dent, Chief Invest­ment Strate­gist, Charles Schwab & Co., Inc.,
Brad Sorensen, CFA, Direc­tor of Mar­ket and Sec­tor Analy­sis, Schwab Cen­ter for Finan­cial Research, and
Michelle Gib­ley, CFA, Senior Mar­ket Ana­lyst, Schwab Cen­ter for Finan­cial Research

May 27, 2011

Key points

• Eco­nomic head­winds are caus­ing growth expec­ta­tions to be reeval­u­ated, result­ing in chop­pier action in a major­ity of asset classes, includ­ing stocks. This trend seems likely to con­tinue in the near-term, with uncer­tainty some­what ele­vated over the next few months.
• The Fed is mov­ing steadily closer to end­ing its pur­chases of Trea­suries but we don’t believe it’s a major mar­ket event. Nor­mal­iza­tion of mon­e­tary pol­icy still seems slow in com­ing, while a game of brinkman­ship in Wash­ing­ton has the poten­tial to rat­tle mar­kets, although we believe QE2 end­ing on sched­ule is nearly certain.
• Europe's debt cri­sis con­tin­ues to plague the euro­zone. Solu­tions appear to be lim­ited and agree­ment is still any­thing but assured. Mean­while, China's slow­down is also weigh­ing on investors, but we don’t believe a hard land­ing is in store.

There has been a down­shift in eco­nomic growth lately that has caused mar­kets of all types to gyrate. Com­modi­ties moved sharply lower before rebound­ing mod­estly; Trea­sury yields have moved even lower; the dol­lar has shown some strength; and stocks have been more volatile, but have still moved in a roughly side­ways fash­ion. While dis­con­cert­ing, this type of action is to be expected as some of the "dol­lar carry trades" unwind and investors adjust to a slower growth phase.

This is an excel­lent exam­ple of why invest­ing with a short-term view can be so dif­fi­cult. Invest­ing has to be viewed through a longer time hori­zon with objec­tives and risk tol­er­ances well estab­lished ahead of time. We believe that the most likely path of the stock mar­ket over the next few months is side­ways, although there is cer­tainly the poten­tial for siz­able moves in both direc­tions depend­ing on news flow. We remain con­fi­dent that the longer-term trend in the stock mar­ket is higher, while bond prices are likely to head at least some­what lower (result­ing in higher yields) over time.

Data tells a story of decel­er­a­tion
Recent eco­nomic data has been some­what weaker. Regional man­u­fac­tur­ing sur­veys dropped sharply last month, although they are noto­ri­ously volatile and mostly remained in expan­sion ter­ri­tory. Indus­trial pro­duc­tion was flat in April, ver­sus expec­ta­tions of a gain of 0.4%, while capac­ity uti­liza­tion fell 0.1%, and remains 3.5% below the 1972–2010 aver­age. These indi­ca­tions of a slow­down in growth has been con­firmed by Trea­sury yields mov­ing lower, indi­cat­ing growth con­cerns trump infla­tion. It is a bit sur­pris­ing that investors con­tinue to loan to com­pa­nies and the gov­ern­ment at such low rates; lock­ing in a low return if held to matu­rity and the poten­tial for some­what worse results if rates start to move higher. Investors who have over-weighted fixed income may do well to take some prof­its and look to have a more bal­anced portfolio.

It's easy to get mired in the dis­ap­point­ing. Growth has indeed slowed and con­cerns are jus­ti­fied, but the major­ity of indi­ca­tors still indi­cate eco­nomic expan­sion. Addi­tion­ally, there have been sev­eral exter­nal fac­tors we believe have impacted data tem­porar­ily. The Japan­ese nat­ural dis­as­ters dis­rupted sup­ply chains that are start­ing to come back online, while extreme weather impacted pro­duc­tion and dis­tri­b­u­tion in the United States. Fur­ther, the spike in oil prices above $110 per bar­rel seemed to have a large affect on sen­ti­ment among busi­nesses but we have seen that improve with the recent weaker oil price. And while the Index of Lead­ing Eco­nomic Indi­ca­tors fell 0.3% in April, it was only the sec­ond neg­a­tive monthly read­ing since March of 2009, and we believe it will resume its pos­i­tive trend in May as some of these tem­po­rary fac­tors dis­si­pate.

LEI dip likely tem­po­rary

Source: Fact­Set, U.S. Con­fer­ence Board. As of May 23, 2011.

Employ­ment con­di­tions illus­trate some of the afore­men­tioned dis­tor­tions. Job­less claims had moved steadily higher over sev­eral weeks recently, mov­ing well above the 400,000 level con­sid­ered key in indi­cat­ing an improv­ing job mar­ket. How­ever, we main­tained that a major­ity of those gains were likely unsus­tain­able as they were impacted by the late Easter hol­i­day, weather, and sev­eral other tem­po­rary events and we have seen claims again start to move lower again. The job mar­ket likely remains key to fur­ther improve­ment in the econ­omy, as increased con­fi­dence in job prospects leads to increased spend­ing, greater demand, and even greater hir­ing. We have seen nascent signs of more rapid improve­ment, but still want and expect to see more hiring.

At this point, an improved jobs pic­ture seems to be the only thing that may help the strug­gling hous­ing mar­ket. Hous­ing starts were down 10.6% in April; per­mits were down 4.0%; and exist­ing home sales were down 0.8%—all con­firm­ing the year-over-year median price drop we saw in exist­ing homes as fore­clo­sures and other dis­tressed sales con­tinue to plague the mar­ket. The sil­ver lin­ing is that mort­gage rates remain extremely low, pric­ing is more attrac­tive, and the impact on the US econ­omy of hous­ing has dropped sub­stan­tially. We con­tinue to believe the heal­ing of the hous­ing mar­ket is going to be a multi-year process, but a more rapid improve­ment in job growth would likely accel­er­ate that development.

Com­mod­ity action helps out Fed, debt drama con­tin­ues
With an eye on the still-lackluster hous­ing mar­ket, the Fed con­tin­ues to buck the global trend and main­tain its extremely easy mon­e­tary pol­icy; again reit­er­at­ing that QE2 will be com­pleted in full and rates will be on hold for an "extended period." The Fed has main­tained their belief that the head­line infla­tion­ary pres­sures remain tem­po­rary in nature, and the recent action in com­mod­ity prices likely bol­sters their case.

Com­mod­ity action means eas­ing infla­tion­ary pres­sures

Source: Fact­Set, Stan­dard & Poor's. As of May 23, 2011.

Read­ings on infla­tion are mea­sured in terms of changes in price over time. There­fore, com­mod­ity prices don’t nec­es­sar­ily have to fall fur­ther to cause more mod­er­ate infla­tion read­ings; they sim­ply have to stop going up. With some recent strength in the dol­lar, and global cen­tral banks tight­en­ing mon­e­tary pol­icy, we believe that com­mod­ity prices are likely to remain rel­a­tively flat or even fall a bit fur­ther in the near term. With head­line infla­tion likely to ease, and core infla­tion still tame, with excess capac­ity still ample and vir­tu­ally no wage growth; the Fed will likely feel lit­tle pres­sure to accel­er­ate its path toward nor­mal­iza­tion in the near term.

In con­trast, the pres­sure in Wash­ing­ton con­tin­ues to rise as the debt ceil­ing has now been reached and no agree­ment to raise it appears immi­nent. As noted before, the Trea­sury has var­i­ous account­ing "tricks" it can use to move the reck­on­ing date into at least early August, but the closer we get, the more jit­tery mar­kets may become. We have lit­tle doubt this will come down to the last few days, but are also quite pos­i­tive that the United States will not default on its debt. But the strug­gle over this rel­a­tively rou­tine maneu­ver illus­trates the fight for the 2012 bud­get is likely to be a bruis­ing one.

Euro­zone debt wor­ries linger
Such events are unset­tling in the United States, but cir­cum­stances in the euro­zone are even more com­pli­cated given diverse economies with inde­pen­dent national bud­gets using a com­mon cur­rency, the euro.

The sit­u­a­tion in the euro­zone has heated up because Greece has not met its fis­cal goals agreed to in its bailout plan for the third quar­ter in a row. Due to Greece's missed fis­cal tar­gets, cash may be run­ning low. With­out either a restruc­tur­ing or addi­tional funds, Greece could default if it runs out of cash to fund inter­est or prin­ci­pal pay­ments due this summer.

There­fore, investors increas­ingly view a restruc­tur­ing as a neces­sity. Restruc­tur­ing can be done either by extend­ing matu­ri­ties (also called a "soft" or vol­un­tary restruc­tur­ing, or re-profiling), or reduc­ing prin­ci­pal (invol­un­tary). Bond­hold­ers would take losses in an invol­un­tary sce­nario, while receiv­ing reduced pay­ments each year in a vol­un­tary sce­nario. Com­pli­cat­ing mat­ters, the Euro­pean Cen­tral Bank said it may pull fund­ing for Greek banks in the event of a restructuring.

While Greece itself is a small por­tion of the global econ­omy and debt mar­kets, mar­kets are skit­tish about the broader impli­ca­tions of a Greek restruc­tur­ing or default due to the inter­con­nect­ed­ness of the euro­zone bank­ing sys­tem, as well as the risk of con­ta­gion to other coun­tries. In May, lead­ing French bank Credit Agri­cole had its credit rat­ing down­graded due to its Greek expo­sure, and Moody’s warned that a default by Greece could result in credit down­grades in other periph­eral nations.

We think pol­i­cy­mak­ers will pro­vide Greece with more money, but writ­ing a new adjust­ment plan will be a tough sell. Vot­ers in fis­cally pru­dent euro­zone coun­tries have already pushed back, unwill­ing to pay for bailouts in fis­cally weak coun­tries, and have ush­ered in polit­i­cal changes. These changes have increased uncer­tainty over bailout responses, as well as fis­cal spend­ing plans. Gov­ern­ment uncer­tainty was cited in both Italy’s and Belgium’s low­ered sov­er­eign credit rat­ings out­looks in May; and investors are con­cerned that new off-balance sheet lia­bil­i­ties for Span­ish local gov­ern­ments may come to light under new leadership.

Why euro­zone debt mat­ters
We believe the inabil­ity of euro­zone pol­i­cy­mak­ers to speak and act with unity is cre­at­ing an ongo­ing euro­zone debt hang­over. With euro­zone debt con­cerns con­tin­u­ing to hit head­lines, what does it all mean?

Our atten­tion on euro­zone sov­er­eign debt ulti­mately relates to the Euro­pean bank­ing sys­tem due to cross-country hold­ings of debt. We are con­cerned Euro­pean banks could recoil from lend­ing, the lifeblood of eco­nomic growth. Euro­zone banks may either lend con­ser­v­a­tively to pre­serve cap­i­tal or raise lend­ing rates. The first quar­ter Europe Bank Lend­ing Sur­vey showed a tight­en­ing in credit stan­dards and banks expect fur­ther tight­en­ing. A euro­zone bank CEO recently said that many euro­zone banks are fac­ing higher fund­ing costs due to the sov­er­eign debt cri­sis, often higher than the com­pa­nies they lend to, which is "clearly unsus­tain­able." Unlike in the United States, Euro­pean com­pa­nies are more reliant on bank loans than cap­i­tal mar­kets for funding.

Sov­er­eign debt con­cerns hit Euro­pean banks

Source: Fact­Set, STOXX. As May 24, 2011.

Euro­pean bank stocks have sold off due in part to these wor­ries. A reduc­tion in euro­zone eco­nomic growth due to a mod­er­a­tion in lend­ing would sub­tract from global growth. As a region, the euro­zone ranks as the second-largest econ­omy, only slightly smaller than the US econ­omy, and roughly twice the size of China’s.

China slow­down wor­ries arise
China's growth tends to evoke strong emo­tions in both bulls and bears, and a likely slow­down in growth will result in bears becom­ing more vocal. Con­cerns have shifted from grow­ing too fast and the risk of infla­tion, to slow­ing too much. We believe the truth will likely fall some­where in the middle.

A num­ber of fac­tors point to a poten­tial slow­down, includ­ing a slower rate of money sup­ply, a slump in prop­erty sales, declines in com­mod­ity imports, a mod­er­a­tion in pur­chas­ing man­ager indexes, and the reduc­tion of global growth esti­mates. Access to credit has tight­ened with reports that small busi­nesses are hav­ing dif­fi­culty obtain­ing loans, banks are com­pet­ing for deposits, inter­bank rates are increas­ing and some prop­erty devel­op­ers are pay­ing steep pre­mi­ums in non-bank chan­nels to access capital.

Regard­less, eco­nomic growth in China is esti­mated by the Bloomberg sur­vey of econ­o­mists to remain above 9% for 2011. Prior peri­ods of sub-8% growth, the range at which a hard land­ing is con­sid­ered a risk, have coin­cided with global reces­sion or major exter­nal shocks. We don’t see a hard land­ing in China’s econ­omy as likely, as detailed in our China bears and bulls arti­cle.

How­ever, it will likely take sev­eral months before mar­kets get con­fi­dence on whether Chi­nese pol­i­cy­mak­ers have been able to engi­neer slower infla­tion with­out overly threat­en­ing growth.

Do inter­na­tional issues mat­ter to US investors?
US investors may won­der how much euro­zone debt, the quake in Japan, or a slow­down in China mat­ters. Indeed they do because the globe is more inter­con­nected than ever before and events over­seas could reduce global growth. If global growth is reduced, cor­po­rate earn­ings in the United States could also be reduced, although still post solid growth in 2011. Of S&P 500 Index com­pa­nies report­ing for­eign sales, roughly 45% of rev­enues and 40% of net income is from inter­na­tional sources, pre­dom­i­nately Europe.

In terms of broader impli­ca­tions, a slow­down in China is a risk to com­mod­ity prices. China’s slow­down will likely be con­cen­trated in con­struc­tion on infra­struc­ture and hous­ing, which con­sti­tutes nearly 50% of Chi­nese eco­nomic activ­ity. China rep­re­sents roughly 40% or more of global con­sump­tion of cement, iron ore, coal, steel, alu­minum and copper.

China slow­ing, will com­modi­ties fol­low?

Source: Fact­Set, Shang­hai Stock Exchange, Com­mod­ity Research Bureau. As May 24, 2011.

While Chi­nese shares may have dis­counted slower growth, and the Chi­nese mar­ket tends to be a lead­ing indi­ca­tor of global growth, com­mod­ity prices could ease. Read more in our arti­cle on the break­down in com­modi­ties.

How­ever, we believe a Chi­nese con­struc­tion slow­down could be short in nature due to the Chi­nese government’s afford­able hous­ing pro­gram, which seeks to build 10 mil­lion new homes in 2011, and China, as well as many other emerg­ing nations and Japan, have fur­ther infra­struc­ture build­ing plans.

Visit www.schwab.com/oninternational for more inter­na­tional perspective.

Impor­tant Disclosures

The MSCI EAFE® Index (Europe, Aus­trala­sia, Far East) is a free float-adjusted mar­ket cap­i­tal­iza­tion index that is designed to mea­sure devel­oped mar­ket equity per­for­mance, exclud­ing the United States and Canada. As of May 27, 2010, the MSCI EAFE Index con­sisted of the fol­low­ing 22 devel­oped mar­ket coun­try indexes: Aus­tralia, Aus­tria, Bel­gium, Den­mark, Fin­land, France, Ger­many, Greece, Hong Kong, Ire­land, Israel, Italy, Japan, the Nether­lands, New Zealand, Nor­way, Por­tu­gal, Sin­ga­pore, Spain, Swe­den, Switzer­land and the United Kingdom.

The MSCI Emerg­ing Mar­kets Index^SM is a free float-adjusted mar­ket cap­i­tal­iza­tion index that is designed to mea­sure equity mar­ket per­for­mance in the global emerg­ing mar­kets. As of May 27, 2010, the MSCI Emerg­ing Mar­kets Index con­sisted of the fol­low­ing 21 emerging-market coun­try indexes: Brazil, Chile, China, Colom­bia, the Czech Repub­lic, Egypt, Hun­gary, India, Indone­sia, Korea, Malaysia, Mex­ico, Morocco, Peru, Philip­pines, Poland, Rus­sia, South Africa, Tai­wan, Thai­land and Turkey.

The S&P 500® index is an index of widely traded stocks.

Indexes are unman­aged, do not incur fees or expenses and can­not be invested in directly.

Past per­for­mance is no guar­an­tee of future results.

Invest­ing in sec­tors may involve a greater degree of risk than invest­ments with broader diversification.

Inter­na­tional invest­ments are sub­ject to addi­tional risks such as cur­rency fluc­tu­a­tions, polit­i­cal insta­bil­ity and the poten­tial for illiq­uid mar­kets. Invest­ing in emerg­ing mar­kets can accen­tu­ate these risks.

The infor­ma­tion con­tained herein is obtained from sources believed to be reli­able, but its accu­racy or com­plete­ness is not guar­an­teed. This report is for infor­ma­tional pur­poses only and is not a solic­i­ta­tion or a rec­om­men­da­tion that any par­tic­u­lar investor should pur­chase or sell any par­tic­u­lar secu­rity. Schwab does not assess the suit­abil­ity or the poten­tial value of any par­tic­u­lar invest­ment. All expres­sions of opin­ions are sub­ject to change with­out notice.

The Schwab Cen­ter for Finan­cial Research is a divi­sion of Charles Schwab & Co., Inc.

Tags: Asset Classes, Brazil, Brinkmanship, Canadian Market, Charles Schwab, Chief Investment Strategist, Debt Crisis, Downshift, Growth Expectations, Growth Phase, Headwinds, Infrastructure, Liz Ann, Market Analyst, Monetary Policy, Normalization, Sector Analysis, Senior Vice President, Slowdown, Stock Market, Time Horizon, Treasuries, Treasury Yields
Posted in Brazil, Canadian Market, Infrastructure, Markets | Comments Off

Cynthia Caskey — Canadian Bank Earnings: Sizzle or Fizzle?

Monday, May 30th, 2011

May 27, 2011 (8 minutes)

This week's online video fea­tures Cyn­thia Caskey, Vice Pres­i­dent & Cana­dian Equity Port­fo­lio Man­ager, TD Water­house in con­ver­sa­tion with Patri­cia Lovett-Reid, dis­cussing the Q2, 2011 trends in Cana­dian bank earn­ings and the prospects for div­i­dend increases going for­ward. She pro­vides her out­look for the sec­tor and shares names of some stocks she likes.

In the video inter­view, Ms. Caskey addresses the following:

• Cana­dian Bank earn­ings: is this a buy­ing opportunity?
• Impact of National Bank's acqui­si­tion of Welling­ton West?
• What do you think of the div­i­dend increases?
• Do Inter­na­tional oper­a­tions matter?
• Which met­rics mat­ter, which stocks do you like?

Click here, or on the image below to view:

Cyn­thia Caskey Bio

Cyn­thia Caskey is Vice Pres­i­dent and Cana­dian Equity Port­fo­lio Man­ager for TD Water­house Canada Inc. With over 23 years of expe­ri­ence, Cynthia’s broad spec­trum of knowl­edge spans from pri­vate client invest­ing to cor­po­rate finance. At TD Water­house, Cyn­thia plays a key role in the con­struc­tion and main­te­nance of the Core Port­fo­lios, which pro­vide clients with a long-term, dis­ci­plined approach to invest­ing. Addi­tion­ally, Cyn­thia leads the TD Water­house Cana­dian Quan­ti­ta­tive Research Port­fo­lio, is a mem­ber of the Port­fo­lio Man­age­ment Review Com­mit­tee. A char­tered finan­cial ana­lyst, Cyn­thia also holds a Bach­e­lor of Com­merce from Car­leton University.

Copy­right © TD Water­house

Tags: Bachelor Of Commerce, Broad Spectrum, Canada Inc, Canadian, Canadian Equity, Canadian Market, Carleton University, Caskey, Chartered Financial Analyst, Corporate Finance, Dividend Increases, International Operations, Interview Ms, Patricia Lovett Reid, Portfolio Management, Portfolio Manager, Private Client, Quantitative Research, Research Portfolio, Td Waterhouse Canada, Video Interview, Wellington West
Posted in Canadian Market, Markets | Comments Off

Pastor: Why Stocks May Not Be Necessarily Best for the Long Run

Monday, May 30th, 2011

This week on Wealth­track, Con­suelo Mack talks to a finan­cial thought leader who is chal­leng­ing a bedrock prin­ci­ple of invest­ing. Award-winning Uni­ver­sity of Chicago finance pro­fes­sor, Lubos Pas­tor explains why stocks are not nec­es­sar­ily best for the long run. Need­less to say, his research con­clu­sions are quite dif­fer­ent from Jeremy Siegel’s clas­sic study, clas­sic study, “Stocks for the long run”.

Source: Wealth­track, May 27, 2011.

Tags: Bedrock Principle, Consuelo Mack, Finance Professor, Jeremy Siegel, Lubos, Research Conclusions, Study Stocks, Thought Leader, University Of Chicago, Wealthtrack
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Chinese USD Diversification Continues: First Euro Bonds, Now JGBs

Monday, May 30th, 2011

by ZeroHedge.com

Even as the peanut gallery debates whether or not the dol­lar is the reserve cur­rency of choice for the world, China con­tin­ues to diver­sify away from the USD. After last week's news that Bei­jing had not had enough of Por­tuguese bonds, in a repeat of the same sce­nario from Jan­u­ary 2011, and was prepar­ing to bid up Euro­zone bonds across the curve (aka dou­ble down) we now learn that China, or rather third-party London-domiciled banks doing its bid­ding, is now the actor behind "mas­sive Japan­ese bond buy­ing" seen over the past month. Per Reuters: "For­eign investors have flocked to Japan­ese gov­ern­ment bonds in the past five weeks, finance min­istry data shows and mar­ket sources say China was among the main buy­ers, although a large part of buy­ing was made through banks in London."

That said, even Reuters appears unable to get its story straight: "For­eign­ers bought a net 4.696 tril­lion yen ($57.7 bil­lion) of Japan­ese bonds in the five weeks to May 20, a record amount of pur­chases for any five con­sec­u­tive weeks since data began to be com­piled in its cur­rent form in 2005. One source said China appears to be buy­ing the four to five-year sec­tor after hav­ing sold a large amount of short-term bills ear­lier in the month. But other sources said for­eign investors, includ­ing China, were buy­ing long-dated bonds with less than one year left to matu­rity, effec­tively the same as buy­ing short-term bills." Wher­ever in the curve China is focus­ing, the fact that it con­tin­ues to actively buy JGBs after 5 con­sec­u­tive months of declines in its UST pur­chases (cou­pled with the news bro­ken by Zero Hedge that Fed cus­to­dial accounts of for­eign UST hold­ings suf­fered the largest one week drop in almost 4 years) is send­ing a very clear polit­i­cal mes­sage to the US. One that cer­tainly got some air­play when the Trea­sury once again declined to brand China an FX manip­u­la­tor, despite rhetoric out of very brave Gei­th­ner at the first pos­si­ble oppor­tu­nity this week, that China is pre­cisely that.

More from Reuters:

One likely trig­ger for the shift to the short-term yen mar­ket is the fall in yields for dol­lar gov­ern­ment bills since April.

The for­eign binge on Japan­ese gov­ern­ment bonds started in the week of April 18–22, shortly after a squeeze in U.S. bills pushed U.S. bill yields lower.

A new deposit insur­ance rule sparked a tor­rent of buy­ing in gov­ern­ment bills, push­ing the U.S. three-month T-bill yield as low as 0.01 per­cent in early May and below Japan­ese gov­ern­ment bill yields.

The yield spread between the two coun­tries widened to around 0.09 per­cent­age point in early May although it has since come back to around 0.05 percent.

Then came a sharp fall in the euro, which may have also prompted investors to move funds to the yen.

"As the euro started to suf­fer from debt prob­lems again, some reserve man­agers could have shifted some of their euro-denominated to assets to the yen," said Makoto Noji, senior strate­gist at SMBC Nikko Securities.

This was sim­i­lar to last year when China's foray in the short-term yen mar­ket coin­cided with wor­ries about Greece's abil­ity to pay back debt.

But China quickly moved out of that posi­tion, sell­ing a large amount of yen bills in August to take prof­its after the yen rose. Mar­ket play­ers said at that the time China was unlikely to keep a large amount of funds in the yen because yields were low.

Slowly China is real­iz­ing the joy of an inter­linked fiat world: at best it can rotate out of one insol­vent régime into another. The bot­tom line is that all regimes are insol­vent. So the only ques­tion is whether or rather when, just like back in April 2009 China dropped the bomb that over the past 6 years it had accu­mu­lated secretly 454 tons of gold, will China announce that while it has been rotat­ing in and out of paper, the ulti­mate source of its $3 tril­lion in USD reserves will be non-dilutable com­modi­ties which hand­ily dou­ble up as currencies.

Tags: Airplay, Banks In London, Consecutive Weeks, Custodial Accounts, Declines, Diversification, Euro Bonds, Finance Ministry, Foreign Investors, Geithner, Japanese Government Bonds, Manipulator, Market Sources, Ministry Data, Peanut Gallery, Political Message, Reserve Currency, Reuters, Term Bills, World China
Posted in Markets | Comments Off

Fundamental Wins Over Cap-Weighted Indexing, Demonstrates Rob Arnott

Sunday, May 29th, 2011

Rob Arnott, chair­man of Research Affil­i­ates, which is famous for bring­ing fun­da­men­tal index­ing to the invest­ment world, on why this method is supe­rior to tra­di­tional cap weighted index­ing. His con­trar­ian method which ‘sells what­ever is most newly beloved and buys what­ever is most newly feared and loathed’ is gain­ing admir­ers. He says it deliv­ers 2–3 per cent value add in the devel­oped mar­kets and 3–4 per cent in small com­pa­nies and emerg­ing markets.

[My firm, Plexus Asset Man­age­ment, is the South African licence holder for the Research Affil­i­ates Fun­da­men­tal Index­ing (RAFI) over here, and we are see­ing very sig­nif­i­cant out­per­for­mance vs the mar­ket cap equiv­a­lent indices. Do con­tact me if you want to access the Johan­nes­burg Stock Exchange by means of RAFI technology.]

Click here or on the image below to view the clip.

Rob Arnott, chair­man of Research Affil­i­ates, which is famous for bring­ing fun­da­men­tal index­ing to the invest­ment world, on why this method is supe­rior to tra­di­tional cap weighted index­ing. His con­trar­ian method which ‘sells what­ever is most newly beloved and buys what­ever is most newly feared and loathed’ is gain­ing admir­ers. He says it deliv­ers 2–3 per cent value add in the devel­oped mar­kets and 3–4 per cent in small com­pa­nies and emerg­ing markets.

[AA Note] In Canada, RAFI Fun­da­men­tal Indices are avail­able through mutual funds spon­sored by Pro-Index Funds, and ETFs spon­sored by Clay­more Invest­ments. [AA Note]

Source, Finan­cial Times, May 25, 2011.

Tags: Aa, Admirers, Asset Management, Canadian Market, Claymore Investments, Emerging Markets, ETFs, Financial Times, Fundamental Indexing, Index Funds, Investment World, Johannesburg Stock Exchange, Licence Holder, Market Cap, Mutual Funds, Outperformance, Rafi, Research Affiliates, Rob Arnott, Source Financial
Posted in Canadian Market, ETFs, Markets | Comments Off

Railway Revolution Builds China's Consumer Culture

Sunday, May 29th, 2011

Rail­way Rev­o­lu­tion Builds China's Con­sumer Culture

By Frank Holmes
CEO and Chief Invest­ment Offi­cer
U.S. Global Investors

Fre­quent read­ers of my weekly arti­cles should be famil­iar with the story of China’s high speed rails. We’ve pre­vi­ously dis­cussed how China is build­ing the world’s largest net­work of high speed rails at an incred­i­ble speed.

Since open­ing the first high speed line between Bei­jing and Tian­jin in 2008, the coun­try has laid down more than 4,600 miles of new tracks. This is three times more than Japan, where the bul­let train was invented, and this is just the start. Once com­pleted near the end of this decade, the high speed rail sys­tem will con­nect more than 250 Chi­nese cities, span 18,641 miles and reach roughly 700 mil­lion people.

Cur­rently, the high speed rail net­work con­nects about one-third of China’s cities. That fig­ure is set to nearly dou­ble over the next two years. If cur­rent fore­casts hold true, 100 per­cent of the China’s cities will be con­nected through high speed rails by 2019.

While link­ing megac­i­ties such as Bei­jing and Shang­hai car­ries sig­nif­i­cance, con­nect­ing the urban East with rural areas of West and Cen­tral China is equally as impor­tant. This data from Mor­gan Stan­ley shows that the West and Cen­tral regions of China lag con­sid­er­ably in terms of GDP per capita, urban­iza­tion rate and prop­erty prices.

Many, includ­ing our invest­ment team, believe that con­nect­ing these areas of the coun­try could have a sim­i­lar effect to what took place in the United States when Eisenhower’s inter­state high­way sys­tem linked cities such as Chicago and Philadel­phia with their coun­ter­parts on the West Coast includ­ing Seat­tle and San Francisco.

The effect this mas­sive build­out can have on com­modi­ties is evi­dent: thou­sands of miles of new track, hun­dreds of new sta­tions and dozens of new trains will cer­tainly boost demand for steel. But there’s also a corol­lary effect that can expe­dite the trans­for­ma­tion of China’s econ­omy. More peo­ple trav­el­ing across the coun­try means there will need to be more places for them to eat, sleep and shop.

Take hotel rooms for exam­ple. Cur­rently, the U.S. has just fewer than 5 mil­lion hotel rooms spread across the coun­try; China has about half that amount. How­ever, Mor­gan Stan­ley fore­casts that the two are set to switch places near 2025 as China pushes to offer more than 9 mil­lion hotel rooms by 2039. Famil­iar names such as Wyn­d­ham, Star­wood and Hilton are plan­ning major addi­tions to their pipelines in China.

Mor­gan Stan­ley also says that the high speed rail expan­sion presents oppor­tu­ni­ties in areas such as con­sumer sta­ples, car rentals and tourism. The lat­ter is espe­cially impor­tant because the aver­age Chi­nese cit­i­zen is going to be able to explore cul­tur­ally rich areas of the coun­try that were pre­vi­ously too dif­fi­cult or expen­sive to visit. A poll from CLSA’s China Real­ity Research last year showed that travel remained a top aspiration.

Rail pas­sen­ger traf­fic has a strong cor­re­la­tion with instant noo­dle con­sump­tion (79 per­cent pos­i­tive cor­re­la­tion) and soft drink vol­ume (86 pos­i­tive cor­re­la­tion), accord­ing to Mor­gan Stan­ley. This means that chains such as McDonald’s (1,300 stores in China) and KFC (4,000 stores in China), both of which are largely con­cen­trated in the east­ern third of the coun­try, will likely fol­low the high speed tracks into Cen­tral and West­ern China.

These are all exam­ples of how the dynam­ics of the Chi­nese con­sumer are for­ever chang­ing. As investors, it’s impor­tant to under­stand these inter­mar­ket rela­tion­ships and how a devel­op­ment in one area of an econ­omy can dra­mat­i­cally affect another seem­ingly unre­lated area of the econ­omy. Being able to spot these trends and devel­op­ments before they bub­ble up to the sur­face is how active money man­agers can cre­ate alpha for their shareholders.

Tags: Bullet Train, Central China, Central Regions, Chief Investment Officer, China Railway, Chinese Cities, Consumer Culture, Corollary, Frank Holmes, Frequent Readers, High Speed Rail, Interstate Highway System, Investment Team, Morgan Stanley, Regions Of China, Speed Line, Tianjin, Track Hundreds, U S Global Investors, Urbanization Rate
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Time to be More Selective in US Markets

Sunday, May 29th, 2011

by Vikash Jain, Vice Pres­i­dent, Port­fo­lio Man­age­ment, ArcherETF

Last Wednesday’s com­ments by the US Fed­eral Reserve offered another indi­ca­tion that we are at least half-way through the cur­rent eco­nomic cycle. How­ever, this does not mean sell your stocks; it just means be more selective.

In its Min­utes released yes­ter­day, the Fed out­lined its plans to grad­u­ally end its easy money pol­icy. It said that the econ­omy was recov­er­ing, albeit not as quickly as it would pre­fer. On infla­tion, the Fed said it did not expect high energy and food prices to per­sist for very long. The net result was that the Fed said it would keep inter­est rates low for now. It also said that when the time comes, it will stop buy­ing US Trea­sury Bonds. This would effec­tively tighten US money sup­ply with­out actu­ally rais­ing rates. This “neu­tral, wait-and-see” state­ment indi­cates the Fed sees nei­ther a cri­sis nor an over­heat­ing econ­omy – in other words, an econ­omy that, while still weak, is more or less back to nor­mal. Truly, a mid-cycle hallmark.

The tim­ing is also just about right. It has been 26 months since US (and Cana­dian) mar­kets hit bot­tom in March 2009. Eco­nomic cycles typ­i­cally last 48 to 60 months. Over the last 26 months, the S&P 500 has climbed 68% to about 1340, stun­ning until you look up at the 1558 peak it fell from. Over the next 12 months, given the stage of the cycle, we’d expect returns to be closer to his­toric norms.

We also expect that qual­ity blue-chip and dividend-paying stocks will out­per­form. In Decem­ber, we began shift­ing the US equity por­tion of our port­fo­lios into the iShares S&P 100 ETF (OEF). OEF holds the largest US com­pa­nies with strong bal­ance sheets and global rev­enue bases.

We would also like to add a US blue-chip ETF with a bet­ter div­i­dend yield to add to the port­fo­lio. In our search, we took a closer look at the iShares S&P Pre­ferred Fund (PFF). With a yield of 7.2% it looks tempt­ing. But we find it is too con­cen­trated. 85% of it is invested in big banks like Citi, Deutsche, Bank of Amer­ica – a group that is still work­ing through issues. And while its total hold­ings are listed at 245, many of those are dif­fer­ent share classes from the same issuer. Unique issuers total 92, of which the top ten – all banks but for one util­ity – account for 50% of the fund.

There are other US ETFs in this cat­e­gory avail­able. We’ll take a look at one of those next week.

The archerETF Global Tac­ti­cal Portfolio

archerETF offers Global Tac­ti­cal Port­fo­lio Management.

Our out­look is Global: we invest across coun­tries, sec­tors, com­modi­ties and other asset classes to improve returns. Our man­age­ment is Tac­ti­cal: we strive to select the right oppor­tu­ni­ties at the right times in response to chang­ing mar­ket con­di­tions to man­age and min­i­mize port­fo­lio risk.

Please call us at TF 1–866-469‑7990 for more information.

Tags: Balance Sheets, Blue Chip, Buying Us Treasury Bonds, Canadian, Canadian Markets, Closer Look, Dividend Paying Stocks, Dividend Yield, Easy Money, Economic Cycle, Economic Cycles, Federal Reserve, Food prices, Ishares, Mid Cycle, Money Policy, Money Supply, Norms, Pff, Portfolio Management, Us Federal Reserve
Posted in Canadian Market, ETFs, Markets | 1 Comment »

U.S. Blue Chips with Dividends Too

Sunday, May 29th, 2011

by Vikash Jain, Vice Pres­i­dent, Port­fo­lio Man­age­ment, archerETF

This Week: Wis­domTree Div­i­dend ex-Financials Fund ( Ticker: DTN )

As I wrote last week, with the US econ­omy at mid-cycle, we are look­ing for an ETF that holds better-quality, dividend-paying stocks to add to our port­fo­lio. I rejected the iShares S&P US Pre­ferred (PFF), despite its tempt­ing 7.2% yield, because it was nearly all finan­cials, among other rea­sons. The Wis­domTree Div­i­dend ex-Financials ETF (DTN) com­pletely shuns finan­cials but that is not why I would choose it. Instead, DTN offers a good bal­ance between qual­ity hold­ings and a great dividend.

Wis­domTree has its own process for select­ing DTN’s hold­ings. It first short-lists the 300 US com­pa­nies that are 1) the largest by mar­ket cap­i­tal­iza­tion, 2) pay a div­i­dend and 3) are not in the finan­cial sec­tor. Then, sec­tor by sec­tor, it selects up to 10 com­pa­nies in each sec­tor that offer the high­est yield.

The result is an ETF that has 85 hold­ings dis­trib­uted across all sec­tors (except finan­cials of course – more on those next week when I look at PGF, a high yield, all-financials ETF that can be com­bined with DTN). The largest weight is in Util­i­ties at 17% and then Con­sumer Sta­ples at 12% and Telecom­mu­ni­ca­tions at 11%. By com­par­i­son, in the S&P 500, those three sec­tors are 3.3%, 3.0% and 11% respec­tively. DTN’s ten largest hold­ings make up 17% of the ETF and include sev­eral tele­coms and tobacco.

DTN’s div­i­dend is unbeat­able. Based on the 12-month trail­ing pay­ments, the yield is 3.26%. How­ever, based on the cur­rent div­i­dend, the for­ward yield is nearer 4.05%. That’s more than dou­ble the for­ward yield of 1.80% on the S&P 500 ETFs, IVV or SPY. The higher for­ward yield also sug­gests there is some room for cap­i­tal gains from DTN.

Noth­ing is free how­ever. DTN does dip down in mar­ket cap ver­sus the S&P 500. A quar­ter of its hold­ings are Mid-Caps, the small­est being Pepco (POM), a $4 bil­lion elec­tric util­ity. DTN’s Price to Earn­ings ratio, at 16.4, is also higher than the S&P 500′s 13.3. Nor does DTN offer the best liq­uid­ity. Its total assets and aver­age daily vol­ume are both less than I gen­er­ally pre­fer but suf­fi­cient for most transactions.

How­ever, as men­tioned above, with the US econ­omy at mid-cycle, our goal is a mod­er­ate reduc­tion in total port­fo­lio risk. For that, DTN is a good choice as part of broadly diver­si­fied portfolio.

The archerETF Global Tac­ti­cal Portfolio

archerETF offers Global Tac­ti­cal Port­fo­lio Management.

Our out­look is Global: we invest across coun­tries, sec­tors, com­modi­ties and other asset classes to improve returns. Our man­age­ment is Tac­ti­cal: we strive to select the right oppor­tu­ni­ties at the right times in response to chang­ing mar­ket con­di­tions to man­age and min­i­mize port­fo­lio risk.

Please call us at TF 1–866-469‑7990 for more information.

Tags: Stocks
Posted in ETFs, Markets | Comments Off

U.S. Equity Market Cheat Sheet (May 30, 2011)

Sunday, May 29th, 2011

U.S. Equity Mar­ket Cheat Sheet (May 30, 2011)

The fig­ure below shows the per­for­mance of each sec­tor in the S&P 500 index for the week. Three sec­tors gained, and seven sec­tors declined. The best-performing sec­tor for the week was mate­ri­als which rose 2.07 per­cent. Other top-three sec­tors were energy and tele­com ser­vices. Util­i­ties were the worst per­former, down 1.65 per­cent. Other bottom-three per­form­ers were health­care and con­sumer staples.

Within the mate­ri­als sec­tor the best-performing stock was CF Indus­tries Hold­ings which rose 11.6 per­cent. Other top-five per­form­ers were AK Steel Hold­ing, Freeport-McMoRan Cop­per & Gold, Mon­santo, and New­mont Mining.

Strengths

• The diver­si­fied met­als & min­ing group was the best-performing group for the week, up 7 per­cent, led by its sin­gle mem­ber, Freeport-McMoRan Cop­per & Gold. The prices of cop­per and gold were both up for the week.
• The fer­til­izer & agri­cul­tural chem­i­cals group out­per­formed, up 6 per­cent, dri­ven by strength in both of its mem­bers (Mon­santo and CF Indus­tries Hold­ings). Corn prices are up from their May low. A major bro­ker­age firm upgraded CF Indus­tries from “Neu­tral” to “Over­weight,” cit­ing its val­u­a­tion, solid cash low char­ac­ter­is­tics, strong crop prices, and a favor­able out­look for agri­cul­tural fun­da­men­tals in the year ahead.
• The spe­cialty stores group out­per­formed, ris­ing 5 per­cent. Tiffany & Com­pany advanced sharply after report­ing quar­terly earn­ings and rev­enue above the con­sen­sus esti­mates. The firm also raised its earn­ings guid­ance for the full year.

Weak­nesses

• The health­care ser­vices group was the worst per­former, down 4 per­cent, led by Medco Health Solu­tions. Phar­macy ben­e­fits man­ager Medco said that, after this year, it will lose its con­tract to han­dle mail order and spe­cialty drug ben­e­fits for the Fed­eral Employ­ees Health Ben­e­fits Pro­gram, a pro­gram that pro­vides it with about $3 bil­lion a year in revenue.
• The air­lines group under­per­formed, los­ing 4 per­cent on weak­ness in the stock of its sin­gle mem­ber, South­west Air­lines. High winds and hail affected the air traf­fic pat­tern in Dal­las this week. South­west said it expected to can­cel or delay an unde­ter­mined num­ber of flights as it checks eight air­craft for damage.
• The elec­tronic equip­ment & instru­ments group fell 3 per­cent on weak­ness in its sin­gle mem­ber, FLIR Sys­tems. The com­pany said it will pay two for­mer exec­u­tives $39 mil­lion to set­tle claims over the firm’s use of infrared tech­nol­ogy obtained through a past acquisition.

Oppor­tu­ni­ties

• There may be an oppor­tu­nity for gain in merger & acqui­si­tion (M&A) trans­ac­tions in 2011. Cor­po­rate liq­uid­ity is high, thereby pro­vid­ing the means to pur­sue acquisitions.

Threats

• Should investors’ expec­ta­tions for an improv­ing econ­omy not come to fruition on a rea­son­able time frame, it could be a threat to stock prices.
• The end of quan­ti­ta­tive eas­ing cur­rently sched­uled by the Fed­eral Reserve for the end of June might result in a weaker economy.
• The nuclear dis­as­ter in Japan cre­ates uncer­tainly, which is not good for stock prices.

Tags: Agricultural Chemicals, Ak Steel Holding, Amp Company, Cf Industries, Cf Industries Holdings, Chemicals Group, Consumer Staples, Corn Prices, Favorable Outlook, Federal Employees Health, Federal Employees Health Benefits, Federal Employees Health Benefits Program, Freeport Mcmoran, Freeport Mcmoran Copper, Health Benefits Program, Healthcare Services Group, Mail Order, Medco Health, Medco Health Solutions, Newmont Mining
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The Economy and Bond Market Cheat Sheet (May 30, 2011)

Sunday, May 29th, 2011

The Econ­omy and Bond Mar­ket Cheat Sheet (May 30, 2011)

U.S. Trea­suries ral­lied this week send­ing yields lower across the curve by 5 to 10 basis points. Eco­nomic news was not par­tic­u­larly encour­ag­ing this week and Greek debt con­cerns cap­tured most of the attention.

Durable goods orders for April fell 3.6 per­cent, well below esti­mates and one more indi­ca­tion that global man­u­fac­tur­ing is slow­ing. The neg­a­tive trend can be seen in the chart below which shows the year over year change in durable goods orders.

Strengths

• Mort­gage rates con­tin­ued to fall, hit­ting the low­est lev­els of 2011, at 4.60 percent.
• A gal­lon of reg­u­lar gaso­line fell to $3.81, down from a peak of $3.99 on May 4.
• Ger­man busi­ness con­fi­dence remained steady in May.

Weak­nesses

• Greek default fears esca­lated this week.
• Hous­ing data remains weak with house prices falling 0.3 per­cent in March and pend­ing home sales for April drop­ping a shock­ing 11.6 percent.
• Ini­tial job­less claims rose to 424,000 this week remain­ing stub­bornly high.

Oppor­tu­ni­ties

• In an inter­est­ing twist, higher oil prices may actu­ally act as a defla­tion­ary force if it mate­ri­ally slows the global eco­nomic growth.

Threats

• Greek default risks con­tinue to rise as the idea of a “soft restruc­tur­ing” of Greek debt was floated last week.

Tags: Basis Points, Bond Market, Business Confidence, Cheat Sheet, Curve, Durable Goods Orders, Economic News, Economy, Estimates, Fears, Gasoline, German Business, Global Economic Growth, House Prices, Initial Jobless Claims, Mortgage Rates, Negative Trend, Oil Prices, Restructuring, Treasuries
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Gold Market Cheat Sheet (May 30, 2011)

Sunday, May 29th, 2011

Gold Mar­ket Cheat Sheet (May 30, 2011)

On Fri­day, spot gold closed at $1,536.42, up $24.12 per ounce, or 1.59 per­cent for the week. Gold equi­ties, as mea­sured by the Philadel­phia Gold & Sil­ver Index, rose 4.61 per­cent. The U.S. Trade-Weighted Dol­lar Index lost 0.78 per­cent for the week.

Strengths

• Gold in euro terms reached a new all-time high of €1,080 per ounce on Mon­day as sev­eral unnerv­ing devel­op­ments occurred in Europe over the week­end that spooked investors. Stan­dard & Poor’s low­ered its out­look on Italy’s credit rat­ing, Spain’s rul­ing Social­ist polit­i­cal party suf­fered its worst ever defeat in regional elec­tions, and gov­ern­ment bond yields on Greek debt spiked to fresh all-time highs.
• Utah has now made offi­cial the use of gold and sil­ver coins as legal ten­der. This marks the first time since 1971 that any gov­ern­ment entity in the United States has legal­ized the use of gold and sil­ver as cur­rency. The law, signed by Gov­er­nor Gary Her­bert, does not require cit­i­zens to pay or accept pay­ment in gold or sil­ver, but rather offers an alter­na­tive to the fiat-based Fed­eral Reserve note. The Utah law will also exempt the sale of gold and sil­ver coins from state cap­i­tal gains taxes.
• The Asso­ci­ated Press noted that ear­lier this month, “Min­nesota took a step closer to join­ing Utah in mak­ing gold and sil­ver legal ten­der. A Repub­li­can law­maker there intro­duced a bill that sets up a spe­cial com­mit­tee to explore the option. North Car­olina, Idaho and at least nine other states also have sim­i­lar bills drafted.”

Weak­nesses

• Indone­sia will audit more than 8,000 exist­ing min­ing per­mits to make sure they are in line with min­ing and envi­ron­men­tal laws. The announce­ment came days after the coun­try passed new reg­u­la­tions on envi­ron­men­tal pro­tec­tion. Pres­i­dent Susilo Bam­bang Yud­hoy­ono last week signed a two-year mora­to­rium on per­mits for log­ging and another decree allow­ing under­ground min­ing in pro­tected forests if con­di­tions such as an envi­ron­men­tal assess­ment had been met. The rules were softer than expected by envi­ron­men­tal­ists and it was not clear if the audit of per­mits would lead to any can­cel­la­tions. Indone­sia had already stopped issu­ing new min­ing per­mits ahead of min­ing reg­u­la­tions stem­ming from a 2008 law.
• With­out increased domes­tic explo­ration, sig­nif­i­cant declines in U.S. min­eral pro­duc­tion are unavoid­able as reserves are exhausted, said House Sub­com­mit­tee Chair­man Doug Lam­born. In his tes­ti­mony, Hal Quinn, the CEO of the National Min­ing Asso­ci­a­tion, observed that while the U.S. “has one of the world’s greater min­eral repos­i­to­ries, our abil­ity to get these min­er­als into the sup­ply chain to help meet more of America’s needs is threat­ened. Numer­ous pub­lic poli­cies have placed high hur­dles in our lane of the global race to remain competitive.”
• Among the hur­dles referred to by Quinn are restric­tions on fed­eral land access, as well as the strug­gle of U.S. min­ing “under the world’s high­est statu­tory tax­a­tion rate.” Quinn also objected to decade long U.S. reg­u­la­tory hur­dles, par­tic­u­larly per­mit delays that he asserted “pose the high­est hur­dle for domes­tic min­ing. If com­mod­ity cycles are his­tor­i­cally 20 years in dura­tion, the 10 years it takes to obtain per­mits leaves U.S. min­ing still in the start­ing blocks with the race half way over.”

Oppor­tu­ni­ties

• Chi­nese gold demand could rise over 22 per­cent in the next three years and sharply out­pace domes­tic pro­duc­tion, the head of the country’s largest state owned gold miner China National Gold Group said, sig­nal­ing room for a strong ramp up in imports. Gold pro­duc­tion should reach 400 tons by 2014, a gain of nearly 19 per­cent from 2010, but con­sump­tion is set to grow by nearly a quar­ter to 700 tons.
• Investors are closer to being able to use gold as a trad­ing secu­rity after a Euro­pean par­lia­men­tary com­mit­tee approved a pro­posal to allow clear­ing houses to accept gold as col­lat­eral. “It is very sig­nif­i­cant that the Euro­pean Par­lia­ment is putting its weight behind the argu­ment that the unique char­ac­ter­is­tics of gold make it an ideal form of high qual­ity liq­uid col­lat­eral,” said Natalie Demp­ster, direc­tor of gov­ern­ment affairs at the World Gold Council.
• Chi­nese investors are focused on using gold as a pro­tec­tion against ris­ing con­sumer prices. Unlike paper cur­ren­cies, gold retains its value when prices increase. That has prompted many Chi­nese investors to flock to the pre­cious metal. Also, for those who say gold has no indus­trial use, the World Gold Coun­cil reported that amidst a weak global econ­omy, gold saw record demand from the tech­nol­ogy sec­tor of 326 tons or $13 billion.

Threats

• South Africa’s National Union of Minework­ers said it would seek a 14 per­cent rise in salaries from gold and coal min­ers in upcom­ing wage talks. There is no date yet for the talks, but the cur­rent deal expires June 30.
• Ecuador expects to obtain higher roy­al­ties from cop­per, gold and sil­ver mines oper­ated by United States and Cana­dian com­pa­nies in the Andean coun­try, Nat­ural Resources Min­is­ter Wil­son Pas­tor said. “The law requires a 5 per­cent roy­alty and we are going to go higher,” Pas­tor said at a news con­fer­ence. The gov­ern­ment expects $7 bil­lion in min­ing invest­ments over the next seven years from the min­ing projects in south­ern Ecuador.
• South Africa’s high­est court ruled that ex-miners can seek redress from com­pa­nies that oper­ated under an apartheid-era sys­tem to use cheap black labor in the world’s deep­est mines. While the ulti­mate num­ber of claims and their size is impos­si­ble to deter­mine, min­ing com­pa­nies may face a lia­bil­ity of as much as $100 bil­lion, Leon Ester­huizen, an ana­lyst at RBC Cap­i­tal Mar­kets. “The whole risk really depends on whether these peo­ple putting these claims up can prove neg­li­gence by the min­ing com­pa­nies,” he said.

Tags: All Time Highs, Bond Yields, Canadian, Capital Gains Taxes, Dollar Index, Gary Herbert, Gold And Silver, Gold Equities, Gold Market, Government Bond, Government Entity, Legal Tender, Philadelphia Gold, Regional Elections, Republican Lawmaker, Silver Coins, Silver Index, Spot Gold, Susilo Bambang Yudhoyono, Underground Mining, Utah Law
Posted in Canadian Market, Markets | Comments Off

Energy and Natural Resources Market Cheat Sheet (May 30, 2011)

Sunday, May 29th, 2011

Energy and Nat­ural Resources Mar­ket Cheat Sheet (May 30, 2011)

The Baltic Dry Index, once an accu­rate indi­ca­tor of com­mod­ity demand and global eco­nomic activ­ity, rose 0.5 per­cent to 1,474 points, the biggest weekly gain since March, on spec­u­la­tion that record scrap­ing will ease an over­sup­ply of cap­size ves­sels. Ship own­ers have been incen­tivized to demol­ish older/obsolete ves­sels due to ris­ing marine fuel costs and attrac­tive scrap prices. In fact, this trend may strengthen given that ship­ping rates are still well below oper­at­ing rates. Look­ing ahead, this rally may sig­nal a bot­tom for the Baltic, par­tic­u­larly given excep­tion­ally strong demand for com­modi­ties among emerg­ing mar­ket coun­tries that are rapidly build­ing new infra­struc­ture to sup­port eco­nomic growth and to become com­pet­i­tive in the global marketplace.

Strengths

• The Depart­ment of Energy sta­tis­tics this week reflect the rebound­ing U.S. oil demand from lack­lus­ter indi­ca­tions at the start of the month. The ini­tial 18.1 mil­lion bar­rel per day read­ing on total demand has been fol­lowed by 18.5 mil­lion bar­rels per day and 18.9 mil­lion bar­rels per day in the lat­est release, as the return of refiner­ies and petro­chem­i­cal plants from out­ages helped ease some of the ear­lier noise.
• China’s daily out­put of crude steel reached a new high in the first 10 days of May at 1.95 mil­lion tons, despite wor­ries about mon­e­tary tight­en­ing and power short­ages, accord­ing to the China Iron and Steel Association.
• The Japan Cop­per and Brass Asso­ci­a­tion reported this week that Japan’s out­put of rolled cop­per prod­uct rose 3.1 per­cent in April from March, with man­u­fac­tur­ers ramp­ing up pro­duc­tion ahead of power short­ages slated for the summer.
• Cop­per pre­mi­ums in China climbed to a seven month high this week. Pre­mi­ums paid by Chi­nese importers over the Lon­don cash price are being quoted as high as $120 a met­ric ton on a cost. Pre­mi­ums are at the high­est level since Octo­ber and com­pares with about $70 at the start of May.
• Chi­nese oil demand is run­ning higher year-over-year, up 11.5 per­cent to an impres­sive 947,000 bar­rels per day. Gaso­line is up 13.8 per­cent and diesel has increased by 13.3 per­cent year-over-year.

Weak­nesses

• Steel out­put in Japan, the world’s sec­ond largest pro­ducer, fell 6.3 per­cent in April year-over-year after the nation’s worst earth­quake dam­aged plants and cut demand from cus­tomers includ­ing car­mak­ers, reported by the Japan Iron and Steel Fed­er­a­tion this week.
• Accord­ing to the State Grid Corp of China, power deficit will amount to 30 gigawatts this sum­mer and could rise to 40 gigawatts if ther­mal coal mar­ket tight­ens and water lev­els are below nor­mal. The north­ern province of Hebei may face power short­falls of up to 3.03 mil­lion kilo­watts, the biggest gap since 2004.
• The National Union of Minework­ers, South Africa’s biggest labor orga­ni­za­tion is ask­ing for a 14 per­cent pay increase, more than three times the infla­tion rate, accord­ing to employ­ers rep­re­sented by the Cham­bers of Mines.

Oppor­tu­ni­ties

• Accord­ing to China’s National Bureau of Sta­tis­tics, China’s annual demand for cok­ing coal will rise by 180 mil­lion tons by 2015.
• India’s Depart­ment of Mines and geol­ogy has ordered a halt to oper­a­tions at 99 iron ore mines in the Hispet-Bellary region in the south of Kar­nataka state, pend­ing a sur­vey. This will fur­ther weaken exports from India, which are already 12 mil­lion tons down year-over-year in the Jan­u­ary through May 2011 period (Kar­nataka ports accounts for 5.3 mil­lion tons).
• Accord­ing to Bom­bay Bul­lion Asso­ci­a­tion Pres­i­dent Prithvi­t­raj Kothari, gold imports by India may rise to an all-time high in 2011 if the nation receives a good mon­soon rain­fall. Rain­fall would result in boost­ing rural income and pur­chases could reach 1,000 met­ric tons; with­out good rain imports would stay between 650 tons to 700 tons.

Threats

• The Inter­na­tional Lead and Zinc Study Group showed that the global zinc metal pro­duc­tion reg­is­tered a sur­plus of 111,000 tons in the first three months of 2011 over zinc metal usage.
• Chi­nese coal prices rose for ninth con­sec­u­tive week, up $1.54 per ton last week to aver­age $133.28 per ton for the week at Qin­huang­dao port.
• Iran’s crude reserves increased by 758 mil­lion bar­rels per day fol­low­ing the dis­cov­ery of a deposit of light oil in south­ern Iran.

Tags: Accurate Indicator, Baltic Dry Index, Chinese Importers, Copper And Brass, Copper Product, Crude Oil, Crude Steel, Emerging Market Countries, Energy Statistics, Global Economic Activity, Global Marketplace, Infrastructure, London Cash, Marine Fuel, Metric Ton, Obsolete Vessels, Oil Demand, Petrochemical Plants, Power Shortages, Rolled Copper, Ship Owners, Steel Association
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Emerging Markets Cheat Sheet (May 30, 2011)

Sunday, May 29th, 2011

Emerg­ing Mar­kets Cheat Sheet (May 30, 2011)

Strengths

• First quar­ter results from Russ­ian retail­ers sur­prised investors on the pos­i­tive side, show­ing strong recov­ery in mar­gins as they suc­cess­fully passed on higher prices to cus­tomers while still enjoy­ing accel­er­a­tion in traf­fic growth.
• A power short­age in China has sup­ported demand for ther­mal coal, as pro­duc­tion dur­ing the Jan­u­ary through April period rose 11 percent.
• The min­is­ter of China’s Min­istry of Water and Irri­ga­tion said China will dou­ble its invest­ment in water projects every year for the next five years.
• Mr. Sun Guo­qing, direc­tor of the Min­istry of Communication’s Com­pre­hen­sion Plan­ning Depart­ment was quoted as say­ing that China plans to invest about 6.2 tril­lion Rmb on trans­porta­tion infra­struc­ture by the end of 2015.
• Ad agen­cies in China expect the country’s over­all ad mar­ket will grow 10 per­cent this year and online is expected to grow 30 per­cent. They believe, as evi­denced by the rev­enue growth of Baidu Inc., a Chi­nese web ser­vices com­pany, that search adver­tis­ing growth will be even stronger, and e-commerce, social media, and online video will be new growth drivers.
• Retail in China is see­ing strong growth: Gome Elec­tri­cal Appli­ances Hold­ing Ltd. reported 66 per­cent sales growth in April, and Belle Inter­na­tional reported same store growth of 22 per­cent for the first quar­ter and expected same growth pace for the sec­ond quarter.
• China’s Rmb strength­ened to a 17-year high at 6.49 per U.S. Dol­lar at close of Fri­day. This will help reduce com­mod­ity import costs in oil and minerals.
• China plans to train 2,000 experts to con­duct research on a new form of nuclear fusion for power gen­er­a­tion called mag­netic con­fine­ment fusion. This proves that China will con­tinue its nuclear power pol­icy and build more capac­ity once safety con­cerns are being addressed.

Weak­nesses

• With the excep­tion of Poland and the Czech Repub­lic, credit growth rates in East­ern Europe have been flat or neg­a­tive due to con­tin­ued high unem­ploy­ment rates, the banks’ impaired bal­ance sheets and hefty bank levies imposed in Hungary.

• China Auto­mo­tive Tech­nol­ogy and Research Cen­ter sug­gested that China’s auto sales may fall 10 per­cent this year with the end of the gov­ern­ment stim­u­lus poli­cies and restric­tion on car licenses.
• The drought in China may affect food prices in the short term and be a drag on indus­trial pro­duc­tion. How­ever, the pre­vi­ous drought has not slowed indus­trial growth.
• The Shang­hai Inter­bank Offered Rate (SHIBOR) has almost tripled since Novem­ber 2010 to 4.6 per­cent, clearly indi­cat­ing a liq­uid­ity dry-up, accord­ing to Bloomberg data.

Oppor­tu­ni­ties

• The RGE Mon­i­tor reports that the euro­zone debt jit­ters could facil­i­tate a bank­ing con­sol­i­da­tion process in East­ern Europe, giv­ing the health­ier banks a larger mar­ket share. Some West­ern Euro­pean banks directly affected by the euro­zone debt crisis—including Allied Irish Banks and EFG Eurobank—have already sold their Pol­ish sub­sidiaries to pre­serve cap­i­tal for their core domes­tic operations.
• China high speed trains are con­nect­ing smaller cities and coun­try­side with major cities and short­en­ing travel time. Retail ben­e­fits from rural and small town travelers.

Threats

• Res­i­den­tial house sales are see­ing a slow­down in major Chi­nese cities this year. With the tight­en­ing of lend­ing to prop­erty devel­op­ers and restric­tion of pur­chases by the gov­ern­ments in China, devel­op­ers are forced to raise money by sell­ing at lower prices.

Tags: Baidu, Chinese Web, Electrical Appliances, Growth Drivers, Growth Pace, Import Costs, Infrastructure, Magnetic Confinement Fusion, Mr Sun, Next Five Years, Nuclear Fusion, Planning Department, Power Shortage, RMB, Safety Concerns, Search Advertising, Thermal Coal, Traffic Growth, Transportation Infrastructure, Water Projects, Web Services Company
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