Posted by Finance Professional on October 22, 2010 under Commodity & Futures News | 
The only way to protect your savings (and make money) during the dollar devaluation that’s coming is to buy things that will gain value as the dollar falls. Gold is one of those things—arguably the strongest currency humans have ever relied on. Gold is an eztrader. Gold prices rise when the value of other currencies declines. As for other things that will gain, they are almost all commodities—with a concentration on copper and iron ore. With too many dollars chasing a limited supply of real assets like oil, silver, copper and rare earth minerals, and with global demand for raw materials and energy on the rise, commodities will likely be the most profitable investments you can ever make.
With economic power comes political power. China has already officially surpassed Japan as the second-largest economy in the world, and it’s showing that politically it also wields more clout than ever. It can be seen in the recent incident where a Chinese fishing trawler reported colliding with two Japanese Coast Guard ships in territorially disputed waters.
Japan detained the Chinese captain for more than two weeks, but after mounting pressure from China, it relented and released the captain, to the chagrin of some Japanese nationals who felt that their country bowed to China. What’s telling, however, is that China achieved its means not through military might but through economic pressure.
After Chinese Premier Wen Jiabao warned that China would take unspecified action if Japan refused to release the captain, China broke off bilateral talks on various economic issues and the Chinese trade ministry suspended issuing licenses to exporters of rare earth metals to Japan, effectively stopping shipments to Japan of the important group of metals used to make components for products from hybrid cars and televisions. China controls nearly all of the world’s reserves of rare earth metals, thus holding tremendous leverage, and had already reduced global export.
One hot topic now is the valuation of the binary options in Chinese yuan. In mid-June, China ended the yuan’s two-year peg to the dollar. The yuan has appreciated about 2 percent versus the dollar since, but it’s been deemed too little by U.S. policymakers and some are pressing for a 20 percent appreciation in binary options. The House of Representatives is moving closer to a vote that would lead to higher duties imposed on Chinese imports to compensate for the undervalued yuan, which has served a popular scapegoat for the economic malaise of the U.S.
The flipside of enacting legislation imposing higher duties on Chinese imports, of course, is that China can retaliate against U.S. imports and also make life difficult for multinational corporations that have presence in China. China has long maintained that a stable yuan is vital for stability in its economy which, although trending toward more domestic consumption, still relies heavily on exports. So it’s unlikely to allow a sizeable appreciation of its currency in a short period of time. An escalation of trade protectionism is a “lose-lose” situation for both sides so an eventual compromise on the issue is likely.
Going back to Japan, it is considering a stimulus package worth the equivalent of about $55 billion to support its sluggish economy. Two weeks ago, Japan aggressively sold the yen for the greenback on the open market to try to artificially lower the yen’s exchange rate. The currency had surged to a 15-year high against the dollar earlier this month as investors flocked to the yen for safety due to Japan’s large foreign reserves and current account surplus. An expensive yen hurts exports. A 915 billion yen ($11 billion) stimulus package was also announced earlier this month to spur their economy. Now with signs of a faltering Japanese recovery, Step 3 appears to be on the way.
With the possibilities of more monetary actions down the road form major economies—the aforementioned Japan, plus the U.S. and the E.U.—precious metals have greatly benefited. Gold set a record closing high and silver hit a 30-year high. Expect some normal corrections along the way, but both gold and silver’s uptrends are going to continue.
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Posted by Finance Professional on October 12, 2010 under Stock Market News |
Two of the most reliable leading economic indicators from anyoption have been acting in unusual ways this decade. Their behavior helps illuminate both why the recovery remains so anemic and why the economy has grown increasingly hostage to the twin extremes of deflation and inflation.
One of the binary option indicators is the unemployment insurance claims (UIC). High numbers, for obvious reasons, mean economic times are tough. Historically a level above 450,000 new claims a week signals a recession or at least very little economic growth. But once new claims fall below 400,000, it indicates the economy is out of the woods.
In the recent recession, UIC topped 600,000 for just the second time in postwar history. The previous instance was in the early 1980s, when unemployment hit double-digit levels.
In 1982 it took UIC about 13 months to drop from its peak to below 400,000. Today, approximately 18 months since the peak (which was below the 1982 peak), UIC remains stubbornly near 450,000. This is by far the longest stretch of time above 400,000 and is strong confirmation that economic growth is lackluster at best and nowhere near levels needed to reduce unemployment.
But that’s just part of the story. The second indicator, the anyoption industrial commodity prices (ICP), refers to an assortment of raw commodities traded among businesses, including tallow, scrap steel, and scrap copper (and excluding oil). When ICP is uptrended, demand for basic commodities exceeds supply, which is what you’d expect in a growing economy. Historically, as an economy enters a recession, ICP falls; as the economy starts to grow, ICP rises.
Beyond signaling economic shifts, ICP also has been perhaps the best measure of corporate health. That makes sense in that rising corporate revenues and profits would lead companies to invest in new facilities and produce more, placing a greater call on commodities.
In the past 18 months we have seen ICP rise by a record amount, which should indicate soaring revenues and profits for corporations. But this time ICP has been associated just with rising profits—revenues, meanwhile, have lagged. The explanation: profits have come because corporations have cut costs by squeezing labor—not hiring or actually firing.
This is a critical change. As the chart shows, until now high levels of ICP have gone hand in hand with low levels of UIC. The snapping of this relationship implies a new paradigm that will make U.S. economic growth exceedingly hard to generate. That’s because even small gains in domestic revenues are likely—because of the much greater growth in China and other developing economies—to be overwhelmed by bigger gains in commodities, leading to more pressure to keep costs down. Since commodity prices can’t be controlled, cost containment will continue to come at labor’s expense. At best, less hiring will constrain growth. At worst, it will lead to another recession.
Sooner or later we expect the government will come to the rescue with stronger stimulation—resulting in inflation. The breaking of the long-term relationship between ICP and UIC is one more piece of evidence for why the economy is headed for either high inflation—the likeliest scenario—or if the government fails, for deflation and severe recession.
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Posted by Finance Professional on August 22, 2009 under Stock Market News |
In last week’s update, I outlined the no-win situation the U.S. economy finds itself in today. I was pleased that so many people sent me comments and questions. Considering how much work I put into these missives, it’s great to know people are reading them. And while I can’t reply to every message individually, I can attempt to address the most common issues and questions people had.
My basic argument is that the U.S. is becoming a smaller part of the global economy, while the combined emerging markets and resource-rich markets are starting to matter more.
This shift in power and influence carries some dire implications for Americans. For, if the world’s economy continues growing, commodity prices will rise to ever higher levels. For obvious reasons, the resource-rich nations will benefit from this trend. Brazil, Canada, Australia (and to some extend Russia and China) will grow rich by supplying commodities to everyone else. Emerging nations too will prosper. Their strong growth will be the driving force behind commodity prices. At the same time, that growth will outpace inflation, enabling them to comfortably pay more for commodities.
Unfortunately, the U.S. is neither emerging nor possesses excess resources. Moreover, the U.S. consumer has been dealt a serious blow in this recession. In the past decade, consumers spent more money than they earned, creating more GDP growth than their GDP contribution. But those days are over, forcing the U.S. to experience much slower growth. Consequently, for Americans, rising commodity prices will not be a sign of expansion but rather a tax that inhibits spending.
Some experts suggest that commodity prices and the growth of the U.S. have a direct correlation. But there are two problems with the idea that one automatically means the other. Over short-term periods commodity prices correlate strongly with world growth, including U.S. growth. Higher production usually raises demand for raw materials. Thus I see that this year stock prices have risen along with commodities. Similarly, brief downturns in commodity prices can occur alongside brief downturns in stocks.
However, over longer periods, the correlation reverses. In fact, looking at data as far back as the 1970s, I can see a negative relationship between commodities and growth. Sharply higher commodity prices can limit growth and rapid growth can bring commodity prices down. I won’t go into the math here, but the statistics clearly support this view. (If you want the figures, let me know.)
The other problem with this belief is to regard the U.S. as the top player on the world stage. That’s because, until quite recently, it was. For decades, the U.S. economy accounted for over 50% of the global economy.
People’s understanding of the world changes much slower than the world itself. So it’s no wonder most people still believe that if the U.S. sneezes the world catches a cold (and, vice versa, if the U.S. strikes gold the whole world gets rich).
The world has been changing, however, in ways that few Americans comprehend. China and India combined now account for more of the world’s GDP than does the U.S. (in real terms). Moreover, their growth rates are many times ours, which means that by the time you read this, the difference between China/India and us will be even greater. Throw in Brazil, Russia, and the rest of Asia and you’ll discover the U.S. is no longer the economic superpower it once was.
Today, growth in the U.S. can falter without derailing commodity prices (at least not for long). What’s more, the longer the developing world keeps its growth rate above ours, the bigger its influence on the world economy will become, and the smaller ours will be. Just as no one worries if a recession in Switzerland will cause the price of cocoa beans to plummet, eventually a recession in the U.S. will have much less of an effect on oil prices.
So the question is — How do we deal with this brave new world?…Give me your thoughts.
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Posted by admin on July 5, 2009 under Commodity & Futures News |
Oil bounced off its highs last week and started trading in a clear downtrend. Brent crude oil lost more than 3 percent to finish around 66.65 per barrel last week. This was below the 34 day moving average which is a key level for technical analysts. The 34 day moving average is integral in the Fibonacci sequence created by Italian mathematician Leonardo Fibonacci. The sequence deals with the ratio between prices and is used by technicians to identify support and resistance levels. The commodity was hitting new eight months highs of around 73.50 per barrel near the end of June. It has since lost $7 a barrel and is expected to go lower over the next week. However continuing attacks on oil interests in Nigeria could push crude higher despite the technical signals. Either way we are still a far cry from the almost $150 a barrel we were seeing at this time last summer.
The economic data set to be released this week for commodities is on Wednesday the EIA Petroleum Status Report. The report is released weekly and contains data on petroleum inventories in the United States. Released a day later on Thursday is the EIA Natural Gas Report. Essentially the same report but for natural gas, detailing the inventory of natural gas stored underground in the US, also released weekly. Both reports are released by the Energy Information Administration and contain information for the week ending on the previous Friday.
Gold prices also fell from the top end of their recent trading levels. Even though on Friday the precious metal jumped more than two dollars a troy ounce it closed out the week at 932.80, over $9 lower than its high the previous week. Silver prices also followed suit dropping off of late June highs of more than $14, to end the trading week at around $13.40. While gold prices are expected by many to go significantly higher (some analysts say above $1000 per ounce in the near term and over $1200 an ounce by the end of the year), they seem to have paused and are trading in tandem with both falling oil prices and dropping equity prices.
Over the past few weeks oil and precious metals have been trading in concert with stock markets and for next week it is believed stock traders will be focused on earnings to drive any momentum. One company reporting earnings next week that both equity and commodity traders will be watching is Chevron. The consensus estimates on Wall Street for the energy drilling, refining, and generation company are for $1.18 profit per share versus $2.90 per share in the same period a year ago. They report on Thursday, July 9th after the bell. The stock (CVX) has been trading in the $65 to $70 dollar a share range over the past couple months, down from around $100 per share a year ago.
Tags: Chevron, commodity, CVX, economy, energy, gold, investing, oil, silver, Stocks, wall street
Posted by admin on under Stock Market News |
It was one of the worst pre-July 4th holiday trading sessions in the history of the stock markets. The Dow Jones Industrial Average lost more than 223 points or 2.63% in what was a very broad based decline. For a significant portion of the trading day all 30 of the Dow components were in the negative. The technology heavy Nasdaq lost nearly 50 points or 2.67% as well and the broadest measure of the three, the S & p 500 Index was off 26.91 points or 2.91%. A large amount of the selling was attributed to the worse than expected non farm payroll report released this morning.
The employment situation report contains the unemployment rate, nonfarm payrolls and wage information. The report as a whole was mostly in line with the low end of expectations, however payrolls came in at -467,000 well off the largest estimates of -435,000 and a substantial miss from the median consensus estimates of -350,000. The unemployment rate came in slightly better than consensus at 9.5%. Also initial jobless claims were better than expected neither of which helped the markets as they continued to focus on the payrolls throughout the day.
This week Citigroup was again in the headlines when it decided to piss people off in several new ways. With the government adding new restrictions on employee bonuses the bank decided to raise salaries, some up to 50%, in order to retain people they consider “key employees”. In a totally unrelated press release Citi said it would be raising rates on the credit cards of up to 15 million customers. Citigroup was among the biggest recipients of federal aid receiving more than $45 billion in TARP funds. Since 2006 their stock has tumbled 95% and over the last six quarters they have lost close to $36 billion.
Another very unpopular company was in the news this week, American International Group or AIG effected a 1 for 20 reverse stock split on Wednesday. The measure was overwhelmingly approved by shareholders, but the stock fell over 22% on the day. Before the split the stock was trading at $1.16 per share on Tuesday, but was down more than 20% in the pre-market on Wednesday and closed the day at $18.08 per share. Executives said the move was necessary to prevent the stock from being delisted from the New York Stock Exchange. In a strange coincidence the NYSE erroneously posted a suspension and delisting notice of AIG on the NYSE’s website, the notice was removed once the error was discovered.
Overall the stock markets have turned decidedly negative for the week and it was one of the worst first weeks of July in the history of the markets. For next week earnings should be the driving factor for stocks. Alcoa reports its earnings on Tuesday which traditionally kicks off earnings season. Chevron, 3com, Progressive Corp among others all report their earnings as well. Next week is pretty light on economic data releases the most important ones to watch are jobless claims on Thursday and Consumer Sentiment on Friday.
Posted by admin on under Stock Market News |
The stock markets had a rough day on Tuesday, giving up virtually all of the gains made on Monday. The Dow Jones Industrial Average lost 82.38 points or almost one percent, the Nasdaq gave up 9 points or half a percent and the Standard and Poors 500 Index, the broadest of the three, was down 7.91 points or 0.85 percent. The Dow was actually in positive territory this morning until the release of the consumer confidence number of 49.3 for June. A big drop from the 54.8 number in May and huge miss of the consensus estimates that were as high as 56. With the consumer being two thirds of the economy this was a painful miss for the markets.
Despite Tuesdays losses the Dow still finished the second quarter with a gain of 838.08 or 11.01%. It was one of the best quarters for the Dow in more than five years. Because of the rough first quarter the Dow Jones is still negative year to date by 3.8%. The Standard and Poors 500 index had its best percentage gain in a quarter in over a decade, tacking on more than 15%, but year to date the index is only up by 1.8%. The technology heavy Nasdaq has been the best performer over both periods gaining 20.1% in the second quarter and 16.4% on the year. Some of the best performing stocks on the quarter were Genworth Financial (GNW), Office Depot (ODP) and Ak Steel (AKS). Some of the worst performing stocks were KeyCorp (KEY), CIT Group (CIT) and Eastman Kodak (EK).
Sealy Corporation the largest global manufacturer of bedding, reported their second quarter earnings after the bell today. Net sales were $298.5 million down from the $375.4 million in the same period a year ago. The net loss turned out to be 0.06 cents per diluted share and was below analysts estimates. The company cited a very difficult retail environment and said they expected a challenging retail environment moving forward. The stock (ZZ) was unchanged on the day at $1.96 per share.
Trading volumes have been increasingly falling since May but after the big consumer confidence surprise trading may step up over the next couple days on the release of more economic data. For Wednesday we have the ADP report, motor vehicle sales, the ISM Manufacturing Index and Construction Spending among others.
The motor vehicle sales report is another measure of consumer spending and is the unit sales of domestically produced cars and light duty trucks. A strong number here is viewed by investors to signify economic growth.
The ADP report is an employment report representing 24 million U.S. employees in the private sector (non government). It is typically released the day before the Bureau of Labor Statistic’s non farm payroll report. The employment statistics also shows data on wage trends and wage inflation helping the federal reserve in determining monetary policy.
The Institute for Supply Management Manufacturing Index surveys over 300 manufacturing firms on different aspects of business including employment, inventories, production, and new orders. Readings above 50 indicate an expanding factory sector. May’s number was 42.8 and the estimates for June are for an increase to around 45.
For tomorrow Wednesday July 1 if any of these economic release drastically surprise in either direction we could see an increase in volume going into the July 4 holiday. Also six companies will report their earnings tomorrow including Constellation Brands Inc. (STZ) estimates are for 0.32 cents per share and General Mls Inc. (GIS) estimates are for 0.80 cents per share.
Tags: ADP, commodity, Constellation Brands, DOW, economy, General Mills, ISM Manufacturing, markets, Nasdaq, SandP, Stocks
Posted by admin on under Stock Market News |
The summer doldrums are definitely here as the stock markets crept upwards on Monday. The Dow Jones Industrial average had the largest percentage gain of the three major averages rising 90.99 or 1.08% points to close around 8529.38. The Nasdaq added 5.84 or 0.32% and ended the day at 1844.06 and the S and P 500 Index finished up 8.33 or 0.91% settling at 927.23. The news of the day was unrelated to trading and involved Bernie Madoff getting a sentence of 150 years in prison meaning the 71 year old crook will likely die behind bars.
The earnings season is also creeping up on us and the largest tax preparer H and R Block reported today. The companies earnings were better than most stock traders were expecting saying in their press release that income from continuing operations grew to $513 million or 15%. Their earnings per share grew to $1.53 up from $1.36 in the same period last year. Their consolidated net income increased to $1.45 per share or $486 million after reporting a loss for the same period last year. They said earnings for the full year 2010 from continuing operations were expected to be $1.60 to $1.80 per share. The closed at 15.67 per share up around .25 or 1.62% around its highs for the day, it is still down nearly 33% year to date.
The other report stock traders were focused on was Apollo Group, Inc. which reported its third quarter fiscal 2009 results. Apollo Group is a company primary focused on higher education for working adults and runs colleges such as the University Of Phoenix and Western International University. Some of the highlights of their press release were posting their first quarterly revenue of over $1 billion a 26% increase over the same period last year. Apollo reported $201 million in net income on revenue of $1.05 billion for the three months ending May 31, 2009. The company had a third quarter profit of $1.26 per share significantly higher than the .85 cents per share they reported in the year ago period. Also well above analyst consensus estimates of 1.12 per share. The stock opened the day slightly higher but then dropped more 3.6% ahead of the news to close at 65.99 per share. After the bell Apollo Group jumped 5.3% and was trading around 69.53. Look for that good size pop to follow through on Tuesday.
Stock markets on Monday saw a drop in trading volume since the couple large moves last week and should continue the lazy summer trading tomorrow. Tuesdays most popular earnings release will be Sealy Corporation which analysts expected to make 0.04 cents per share. For Tuesday June 30 stock market investors will also be watching the release of the Chicago PMI (Purchasing Managers Index). The Chicago PMI is a survey released by the Institute of Supply Management surveying manufacturing and non-manufacturing business conditions in the Chicago area. Numbers above 50 percent indicate an expanding business sector. Stock market traders are looking for healthy economic growth because the view is that means corporate profits will be higher. While bond traders look for moderate growth that won’t create inflation. May’s number was weaker than expected at 34.9 and the consensus for June is estimated to be 40.
The other economic release traders will be watching is the consumer confidence number. The Conference Board surveys five thousand consumers across the country and asks them about their attitudes and expectations of the economy. Consumer spending is two thirds of the economy so their confidence directly and significantly affects economic growth. Stock market investors look for a high number which would mean higher corporate profits, while bond traders are always worried about excessive inflation should the consumer be overconfident. The number for May was 54.9 a major jump off the April level of 40.8 and the consensus estimate for June is 57.
Tags: Apollo, Chicago PMI, DOW, economy, H&R Block, investing, ISM Manufacturing, Nasdaq, SandP, Stocks, traders