Month: July 2012

Source: ForexYard

Riskier assets saw major gains during the European session, following a speech from ECB President Draghi in which he pledged to do everything necessary to preserve the European Union. That being said, analysts were quick to mention that the speech did not contain any specifics on different ways to combat the region’s debt crisis, and any gains made by higher-yielding assets could be temporary. As we close out the week, traders will want to pay close attention to the US Advance GDP figure, scheduled for 12:30 GMT. It is expected that the news will indicate a further slowdown in the US economic recovery, which if true, could lead to dollar losses during afternoon trading.

Economic News

USD – Dollar Tumbles amid Increase in Risk Taking

The safe-haven US dollar fell against most of its main currency rivals yesterday, following a speech from the President of the European Central Bank, which resulted in risk taking in the marketplace. The AUD/USD shot up more than 100 pips after the speech, eventually peaking at 1.0414 before staging a mild downward correction and leveling out at the 1.0395. The USD/CHF tumbled some 155 pips over the course of the European session to reach as low as 0.9749. The pair did see minor upward movement later in the day, and eventually stabilized at 0.9770.

Turning to today, the dollar is forecasted to see another volatile session when the US Advance GDP figure is released at 12:30 GMT. Most analysts expect today’s news to come in around 1.5%, which if true, would represent a slowdown in the US economy and could lead to further losses for the USD before markets close for the week. That being said, traders will also want to pay attention to any developments out of the euro-zone. Negative European news could result in another round of risk-aversion, which could help the dollar recover some of its recent losses.

EUR – Analysts Warn Euro Gains Could be Limited

The euro surged in mid-day trading yesterday, following a positive speech from the President of the European Central Bank in which he said all necessary steps would be taken to preserve the common-currency. The EUR/USD spiked close to 200 pips as a result of the speech, eventually peaking at the 1.2315 level. The EUR/JPY, which only recently hit a 12-year low, gained over 150 pips before hitting resistance at 96.25. Furthermore, the EUR/AUD, which hit a record low earlier in the week, moved up around 80 pips.

As markets prepare to close for the weekend, analysts continue to warn traders that the euro’s recent upward trend may be temporary. While yesterday’s speech from the ECB President did boost confidence in the euro-zone economic recovery, it did not provide any specific plan for combating the region’s debt crisis. Any negative announcement today regarding rising Spanish bond yields or a slowdown in the German economy could result in losses for the euro.

Gold – Gold Gains Close to $20 during European Trading

The price of gold soared above $1620 an ounce yesterday, following a speech from ECB President Draghi which resulted in risk taking in the marketplace. Overall, the precious metal increased by just under $20 for the day before staging a minor downward correction and leveling out around the $1615 level.

Today, the direction gold takes will largely be dependent on how investors interpret the US Advance GDP figure, set to be released at 12:30 GMT. If the indicator signals a slowdown in the US economy, the dollar may extend yesterday’s bearish trend against the euro, which could help gold extend its recent upward movement.

Crude Oil – Crude Oil Benefits from Euro-Zone News

The price of crude oil increased by over $2 a barrel yesterday, as an increase in risk taking benefited commodities during the European session. A bearish dollar made crude oil more affordable for international buyers, resulting in the upward correction. Oil peaked at $90.43 before turning downward and stabilizing at the $90.10 level.

Today, crude traders will want to continue monitoring developments out of the euro-zone. Any signs that the debt crisis in the region is spreading to Germany may outweigh the positive outlook from the ECB President yesterday. Downward movement by the euro could result in oil giving back some of its recent gains.

Technical News

EUR/USD

The Relative Strength Index on the weekly chart has crossed into oversold territory, indicating that this pair could see upward movement in the coming days. This theory is supported by the Slow Stochastic on the same chart, which is currently forming a bullish cross. Going long may be a wise strategy for this pair.

GBP/USD

A bullish cross has formed on the daily chart’s MACD/OsMA, signaling that an upward correction could occur in the near future. Furthermore, the Williams Percent Range on the weekly chart has fallen into oversold territory. Opening long positions may be the right choice for this pair.

USD/JPY

While the weekly chart’s Williams Percent Range has dropped into oversold territory, most other long term technical indicators place this pair in the neutral zone. Traders may want to take a wait and see approach, as a clearer picture is likely to present itself in the near future.

USD/CHF

A bearish cross on the weekly chart’s Slow Stochastic appears to be forming, indicating that a downward correction could occur in the near future. Additionally, the Relative Strength Index on the same chart has crossed into overbought territory. Going short may be the wise choice for this pair.

The Wild Card

USD/CAD

A bullish cross has formed on the daily chart’s MACD/OsMA, signaling that an upward correction could occur in the near future. Furthermore, the Williams Percent Range on the same chart has dropped into oversold territory. This may be a good time for forex traders to open long positions ahead of a possible upward breach.

Forex Market Analysis provided by ForexYard.

© 2006 by FxYard Ltd

Disclaimer: Trading Foreign Exchange carries a high level of risk and may not be suitable for all investors. There is a possibility that you could sustain a loss of all of your investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with Foreign Exchange trading.

Article by AlgosysFx

European Central Bank chief Mario Draghi has pledged full support for Europe’s single currency, boosting stock markets and easing pressure on Spanish borrowing costs. The ECB is ready to do whatever it takes to preserve the Euro.  Keeping risk premiums under control was part of the central bank’s mandate as they affected the transmission channels for ECB policy. The interest rate, or yield, on 10-year Spanish bonds fell to 7.197 percent from 7.376 percent, a level that is nonetheless still considered
unsustainable over the long term.

The comments by ECB president Mario Draghi look to have been the main catalyst sending the markets higher. In particular the comments about doing whatever it takes within the central bank’s mandate to preserve the Euro has seen markets rebound, but the statement that addressing high yields on sovereign debt in the euro area comes within the central bank’s mandate is particularly noteworthy. It suggests that the ECB may well do something about capping rising bond yields. Attention will now inevitably shift the focus towards next week’s ECB rate meeting to see if Mr Draghi means what he says.

Financial markets have relentlessly tested the Euro Zone’s ability to overcome debt crises in countries like Greece, Ireland, Portugal and Spain, and the ECB is the European Union institution most able to react quickly to developments. ECB responses to date include two cash injections of more than €1 Trillion in the Euro Zone banking system via long-term refinancing operations and the purchase of government bonds on secondary markets. The central bank has also cut its benchmark refinancing rate to a record low of 0.75 percent. Euro Zone leaders have agreed meanwhile on measures to help stem the crisis, and Mr Draghi stressed that progress has been extraordinary in the last six months.

But Europe’s current anti-crisis strategy is having only a limited effect and the central bank is the only player currently capable of acting fast enough. The bank could inject even more money into the banking sector, resume its purchases of government bonds on secondary markets, cut interest rates further, or come up with a way to provide Euro Zone financial rescue funds with more resources. Mr Draghi’s comments underpin recent remarks by ECB members such as Nowotny yesterday that the central bank could participate in beefing up current measures, such as increasing the firepower of ESM bailout funds, which would lead the ESM to have a banking license. He referred to the future Euro Zone rescue fund, the European Stability Mechanism.

This suggests the ECB is moving closer to undertake QE, which would be a much-needed shot in the arm for markets and go some way into forming the fiscal unity the euro-area desperately needs in order to arrest the debt crisis.

Get more news and analysis at AlgosysFx Forex Trading Solutions

Source: ForexYard

According to the International Monetary Fund (IMF), Britain’s economy is set to slump by a massive 2.8% this year. The global economic watchdog was extremely concerned, as this forecast indicates that Britain’s economy will decline twice as fast as previously predicted. Therefore, Britain’s economy is set to shrink more than that of the Euro-Zone, the United States and Japan. This data is likely to kick-in when the Bank of England (BoE) meets next week and cuts Britain’s Interest rates. The consequence of this is highly likely to lead to a further weakening of the Pound Sterling.

The IMF data has sparked worries across the financial world, as London is seen as 1 of the top 3 global financial capitals, along with New York and Frankfurt. The Pound may therefore weaken as the financial crisis continues to take its toll on the British economy. It is true that every advanced country in the world is suffering from the global economic downturn. However, Britain has been hit severely largely due to her previously strong banking and energy sector.

Since the commencement of the global financial crisis, banks around the world and Oil prices have been hit significantly. For example, the British government increased its stake in the Royal Bank of Scotland (RBS) last week, which sparked renewed fears of the nationalization of Britain’s banking sector. Additionally, the price of Crude Oil has slid from as high as $147 a barrel back in July, to $41 today. Britain has felt the brunt of the global recession more than any other country in the developed world, owing to its dependence on these 2 sectors. Also, the Pound sterling has felt the knock-on effects, as the British currency has tumbled against the Dollar and Euro in recent months.

A couple of months ago, the Pound against the Euro and Dollar stood at €1.53 and $2.11 respectively. However, the GBP’s rate vs. these 2 currencies currently stands at €1.078 and $1.43. The British government and the Bank of England (BoE) have run out of things to do to stimulate Britain’s economy. Things have gotten so bad in Britain that the opposition Conservative Party has opened a double-digit lead in most polls. In the short-medium term, the Pound is likely to decline against most of its major currency pairs. If you want to learn more about the current global economic situation and the forex market, you can start trading with our standard account, please visit ForexYard.

Forex Market Analysis provided by ForexYard.

© 2006 by FxYard Ltd

Disclaimer: Trading Foreign Exchange carries a high level of risk and may not be suitable for all investors. There is a possibility that you could sustain a loss of all of your investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with Foreign Exchange trading.

By TraderVox.com

Tradervox.com (Dublin) – The US dollar was near two-week low against the euro prior to a report expected to show that US economy expanded slowest in a year. Dollar’s demand was also clipped by the gains in global stock yesterday, which increased the demand for riskier assets. The dollar was also down as speculations of a third round of quantitative easing rose in the market. The euro strengthened for the third day against the dollar and the Japanese currency as European Central Bank President Mario Draghi indicated that the bank will do whatever is necessary to protect the euro.

Robert Rennie who is the Chief Currency Strategist in Sydney at Westpac Banking Corp indicated that the market might be headed for a short term risk-on period as there are signs of combined additional stimulus from the Fed and the ECB. The continued release of poor data from the US, has spurred speculations of QE3 while ECB council member has hinted that there are arguments in favor of giving ESM a banking license which would give it unlimited firepower to fight euro zone debt crisis. In addition, Draghi’s comment on commitment to fighting the euro crisis comes just a week after Fed Chairman Ben S. Bernanke indicated that the Fed is looking for ways to address weaknesses in the US economy.

The US Gross Domestic Product report, which shows the value of goods and services produced by the US, is projected to have expanded by 1.4 percent in the second quarter down from 1.9 expansion in the first quarter of the year. The dollar closed the day yesterday in New York at $1.2330 against the euro, which is the weakest it has been since July 10. It was trading at $1.2281 against the euro during the Tokyo trading session today. The dollar is set for a weekly drop against the euro as it has fallen one percent this week. Against the yen, the greenback was little changed at 78.23 from 78.21 yen, it has fallen by 0.3 percent against the yen this week.

Disclaimer
Tradervox.com is not giving advice nor is qualified or licensed to provide financial advice. You must seek guidance from your personal advisors before acting on this information. While we try to ensure that all of the information provided on this website is kept up-to-date and accurate we accept no responsibility for any use made of the information provided. Opinions expressed at Tradervox.com are those of the individual authors and do not necessarily represent the opinion of Tradervox.com or its management. 

Article provided by TraderVox.com
Tradervox.com is a Forex News Portal that provides real-time news and analysis relating to the Currency Markets.
News and analysis are produced throughout the day by our in-house staff.
Follow us on twitter: www.twitter.com/tradervox

By TraderVox.com

Tradervox.com (Dublin) – The Canadian dollar climbed to its strongest in more than two months against the greenback after the European Central Bank president Mario Draghi indicated that the central bank would do everything possible to protect the euro, sparking demand for riskier assets. Further, the increase came as world commodities including stocks and crude oil prices increased. The Canadian dollar is set to record a weekly gain against the US dollar this week.

The market has been moved by Draghi’s comment today, which is something Ravi Bharadwaj, a market analyst in Washington at Western Union Business Solution noted in an interview today. He also added that the risk appetite, which is propelling the Canadian dollar, may recede if the ECB fails to back up Draghi’s comments. The Canadian dollar also moved up as the Standard & poor’s 500 Index advanced to by 1.7 percent while crude oil for September delivery increased by the same margin to settle at $90.47 per barrel in New York. Stocks and crude oil are some of the commodities related to the Canadian dollar. Crude oil is Canada’s largest export commodity to the US.

However, as the Canadian dollar was increasing, the Government bonds dropped for a second day, while the ten-year yields increased by six basis points to 1.65 percent. The Canadian dollar, which has risen by 2 percent this year, strengthened past the 50-, 100-, and 200-day moving averages leading to option traders paying less for the protection against the currency declines versus the US counterpart. In analyzing the currency movements, Jeremy Stretch who is the Chief Currency Strategist in London at Canadian Imperial Bank of Commerce, noted that the 100-moving average of C$1.0087 has been a significant level to the market than the 200-day moving average.

The Canadian dollar increased by 0.9 percent against the dollar to trade at C$1.0102 at the close of trading yesterday in Toronto, which is its strongest since May 16.

Disclaimer
Tradervox.com is not giving advice nor is qualified or licensed to provide financial advice. You must seek guidance from your personal advisors before acting on this information. While we try to ensure that all of the information provided on this website is kept up-to-date and accurate we accept no responsibility for any use made of the information provided. Opinions expressed at Tradervox.com are those of the individual authors and do not necessarily represent the opinion of Tradervox.com or its management. 

Article provided by TraderVox.com
Tradervox.com is a Forex News Portal that provides real-time news and analysis relating to the Currency Markets.
News and analysis are produced throughout the day by our in-house staff.
Follow us on twitter: www.twitter.com/tradervox

By MoneyMorning.com.au

‘When at the summit of his power, he [King Canute] ordered a seat to be placed for him on the sea-shore when the tide was coming in; thus seated, he shouted to the flowing sea, “Thou, too, art subject to my command, as the Iwid on which I am seated is mine; and no one has ever resisted my commands with impunity. I command you, then, not to flow over my land, nor presume to wet the feet and the robe of your lord.” The tide, however, continuing to rise as usual, dashed over his feet and legs without respect to his royal person. Then the king leaped backwards, saying: “Let all men know how empty and worthless is the power of kings, for there is none worthy of the name, but He whom heaven, earth, and the sea obey by eternal laws.”‘ – The Chronicle, Henry of Huntingdon, 13th century

The acts of central bank interest rate manipulation and government central planning are like King Canute trying to hold back the tide.

The difference is that Canute knew it was impossible for one man — however powerful — to influence the tide. So he showed his toadying bureaucrats that he was only human and not a God.

The central bankers and politicians wouldn’t dare do the same. For a start, they aren’t as humble. They believe they can turn back the tide. That all they have to do is change the interest rate, raise a tax and subsidise an industry…and hey presto! The economy booms.

Only it doesn’t, because there’s no turning back the natural law of the free market. The free market goes where the components of the market (individuals) want it to go…and that’s in millions of different directions…

That’s what the bureaucrats and central planners can’t handle. When you’ve got millions of people making decisions in their own lives, it makes it hard for the central planner to gain power and grant favours to their buddies.

The only way they can resolve this is to pass laws that force individuals to act in a certain way…and use the threat of violence to ensure individuals comply.

Unfortunately, there seems to be no limit to what the politicians will do to hang on to power and spend your money. Overnight, the European Central Bank (ECB) president, Mario Draghi said:

‘Within our mandate, the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough.’

In other words, the ECB will turn back the tide. We’ll watch how that works out with interest.

Protect Your Savings Now

But it’s not just overseas where politicians and bureaucrats are harming and taking personal wealth. This week we received the following email from the Australian Treasury:

‘The exposure draft for the transfer of State and Territory unclaimed superannuation to the Commonwealth regulations and the accompanying explanatory materials has been released for public consultation…[This] will allow prescribed public sector superannuation schemes to pay unclaimed superannuation money to the Australian Taxation Office (ATO).’

We first warned you over three years ago about the threat the government posed to your retirement savings.

We told you the expropriation of retirement savings would happen in stages. Of course, as with our call warning of a housing crash and the fragility of the world economy, our critics ridiculed us.

But slowly, as time passes, once again we’re being proven right. This time the government is even taking money from its ‘own people’ – public sector workers.

Of course, we’ve less sympathy for public sector employees than private sector employees. But what concerns us more is that this is simply the next step on the government’s path to take all private wealth.

Not that the government sees this as theft. Naturally, when the government does anything, it’s always spun as a benefit to the people. In this case, the government authorising the tax office to take personal savings will…

‘…improve the administration of superannuation by facilitating the transfer of various unclaimed monies to the ATO.’

[Clap, clap, clap…]

Very clever.

But as we say, this is only the beginning.

It’s set to get worse.

The ultimate government aim is to take all private wealth, whether directly (taxes) or indirectly (inflation), and then fob the rightful owners off with a piddly little government pension.

As much as we’re not fans of the big banks and their investment performance, we know for sure private investments are a far better bet than anything the government will give you.

That’s why it’s important you take steps to plan for your retirement now…and preserve your wealth outside the financial system…

Gold and Silver:
The Assets The Government Can’t Delete

The best way to do that is with gold and silver.

The fact is gold remains the best way to protect your wealth against government tyranny.

Bank savings, shares and other securities, are all electronically traded. The government can freeze these assets at the flick of a switch. And if it wants to, delete and expropriate them.

The government can close the banks and shut down the stock exchange.

But gold and silver are physical and tangible assets.

It’s not easy for the government to close down the gold and silver markets, because anyone with any sense will hold physical gold and silver. The government can’t delete your gold.

Of course, cash in your hand (or under the mattress) is a physical asset too. But unlike gold, cash only has a value as long as the government allows it to have value.

You can hoard as much cash as you like, but if the government decides to withdraw or cancel the currency from circulation, your hoarded paper dollars will be worth no more than any other piece of paper.

So holding physical assets like gold and silver is important for anyone who’s serious about protecting their wealth from government meddling.

How much you own is up to you. We’ve heard of some people who have more than 90% of their wealth in gold and silver.

But we’d suggest at least 5-10% of your wealth in gold and silver…more if you’re really serious, and worried about the threat of government meddling with your wealth.

It’s important to hold a portion of your wealth outside the financial system. Banks worldwide are under immense financial pressure due to the fragility of the banking system (Australian banks included).

And governments are struggling to pay for the Welfare State benefits they’ve promised to generations of people. As governments don’t generate their own revenues and profits, their only funding sources are debt and taxes.

Both are close to reaching saturation point. The market can’t handle much more debt and taxes are already oppressively high. That’s why governments are looking towards a third source — expropriation of private wealth.

Gold and Silver Will Prevail
Where Paper Money Will Fail

That’s why it’s important to act now and seek out ways to protect your wealth. But where do you start?

Our advice is to start with Dr. Alex Cowie’s May 2011 issue of Diggers & Drillers. In that issue he set out in detail how to buy gold and silver, and how to store it safely.

It’s a must read if you’re serious about protecting your wealth. In fact, that one issue alone is worth the subscription fee.

When the ECB president admits he’ll do everything it takes to protect the institution of paper currencies, it tells you the destruction of the euro (and eventually paper currencies) is certain.

When that happens, there will only be two ways to protect your wealth, and they are gold and silver.

Cheers,
Kris

Related Articles

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Why You Should Stick With Gold Through the Eurozone Crisis

China’s Big Move Could be a Game-Changer for Gold

Gold and Silver: The Un-deletable Assets

By MoneyMorning.com.au

Being a long-standing gold bull, I get at least a dozen gold research reports in my inbox every week.

Every now and then, you get one that warrants special attention.

The annual Erste Bank gold report is in this category.

It is a long read at 120 pages or so, but is written in plain English by Ronald Stoeferle, who has been picking the big trends for gold very well for the 6 years he has been doing this report. There are also enough charts in there to keep chart-nerds like myself busy for weeks.

This report comes at a good time. It gives good cause to hang on, just as gold stock investors are reaching ‘the point of maximum despair’ after more than 12 months of terrible performance.

Gold stocks have been crunched by disappearing margins thanks to rising production costs and falling gold prices.

Gold to Rally?

But some relief may not be far away. Although we are in a seasonally slow period for gold due to the Indian monsoon season, this could end as soon as next month. As Ronni argues:

‘The foundation for new all-time-highs is in place. As far as sentiment is concerned, we definitely see no euphoria with respect to gold. Skepticism, fear, and panic are never the final stop of a bull market. In the short run, seasonality seems to argue in favor of a continued sideways movement, but from August onwards gold should enter its seasonally best phase. USD 2,000 is our next 12M price target. We believe that the parabolic trend phase is still ahead of us, and that our long-term price target of USD 2,300/ounce could be on the conservative side.’

That’s great for gold bullion holders, but what does this mean for gold shares? These make up a large proportion of the Diggers and Drillers tips, from low-cost, dividend paying, growing producers, to an extremely undervalued, near-term producer and an advanced explorer.

‘We believe that the gold mining sector has a solid base. Although the pessimism is about as profound as four years ago, the fundamental shape of the gold industry is substantially healthier today than it was back then. Strong balance sheets, high free cash flows, a substantial increase in margins, low debt levels, and rising dividends all speak in favour of the sector. There are also only few sectors that are more underweighted by investors. In addition, it seems as if the industry has reassessed its former “growth at any cost” approach and is heading towards increasing shareholder value.

We believe that solid mining shares in politically stable regions currently represent a high-leverage bet on the gold price, with an attractive risk/return profile. We therefore believe that the current, historically low valuations offer a good opportunity to invest. At this point, we wish to point out again that we regard gold as a currency and thus as a form of saving, whereas we regard gold shares as a form of investment.’

The report includes a chart I’ve not seen before — not showing the data over such a long time frame anyway.

This chart shows 40 years of the valuation of the world goldmining index relative to the gold price.

Gold Stocks — So Cheap They Are Back to 1989 Valuations!

Click to enlarge

Gold stocks are back to GFC valuations. Or putting it another way, they are back to valuations last seen in 1989 — back when gold was $400 / ounce. Gold stocks would have to increase in value by 43% just to get back to the long term average. Yet they just keep falling.

This is obviously an unsustainable state of affairs.

Nothing stays this cheap forever.

Something has to give…but what?

Watch the Gold Miners

We need higher margins for gold stocks to command better prices. So either production costs fall (no chance), or the gold price rises (inevitable).

An interesting observation in this report was that there is good correlation between analysts revising their earnings projections for gold stocks, and turning points in the gold stock index. Analysts have been busy revising their gold stock profit projections down for 12 months now, and their bad news is slowing down. For the last 20 years, you can see this has signalled the start of the next leg up for gold stocks.

Gold Stocks (yellow) Tend to Rally After Long Periods of Analyst Downgrades (circled)

Click to enlarge

No one can say whether gold stocks will turn back up next week, next month, or next quarter. But the stage is definitively set for some real fireworks to happen, and soon.

The first chart above shows gold stock valuations over a 40 year period, but if you zoom in on what’s been happening the last few months, gold stocks may have finally found a floor.

This chart shows the HUI gold stocks index, which is a good representation of the whole sector. After falling for nearly a year, it has bounced from the current level a few times in recent months. This can be a good technical sign that the gold market has found its low point.

Gold Stocks – Finally Finished Selling Off?

Click to enlarge

Everything seems to be pointing towards gold stocks facing better times ahead. I wrote to Diggers and Drillers subscribers yesterday to say:

‘I wouldn’t expect all gold stocks to start recovering overnight, but it is worth keeping an eye on gold stock indices over the next month or two — to see if they continue to at least hold their ground around this level.

If so, then I’d be buying good gold stocks with my ears pinned back!’

Watch this space!

Dr. Alex Cowie
Editor, Money Morning

From the Archives…

No Mr. President, Entrepreneurs Did Build That…
20-07-2012 – Kris Sayce

How an Interest Rate Rise Could Trigger a ‘Punch Bowl’ Rally
19-07-2012 – Kris Sayce

When the Going Gets Tough, Entrepreneurs Innovate
18-07-2012 – Kris Sayce

Is This Man the Ultimate Contrarian Indicator for Mining Shares?
17-07-2012 – Dr. Alex Cowie

How Gold Stocks Could Become Your Gilded Lifeboat
16-07-2012 – Dr. Alex Cowie

Get Ready to Pin Back Your Ears With Gold Stocks

By MoneyMorning.com.au

Jim Chanos spies trouble ahead for China’s banks.

Veteran US investor Jim Chanos has a pretty impressive record of spotting – and profiting from – investment disasters in the making.

He is widely credited as the first person to short Enron, the seemingly solid US energy conglomerate that blew up spectacularly in 2002. He was also one of the first to spot the US housing bubble, which he began shorting in 2005.

And with the economic news coming out of China steadily deteriorating, it seems Chanos may have got another huge call right.

Chanos has been warning that the Chinese economy was due a crash for the last two years. At first, few people listened to him, especially when he admitted that he had never been to the country. But now, with even Chinese leaders admitting that growth will slow, Chanos’s view has become a lot more popular.

In one particularly infamous quote, Chanos said China looked like ‘Dubai times 1,000 – or worse,’ referring to the country’s real estate boom. Now that his take on that sector seems to be coming good, he’s delivered another pithy quote on the banking sector.

One of China’s main problems is ‘bad credit and credit extension that makes Greece and Spain look like child’s play’, Chanos said in recent interview with Opaleque TV. Too much money has been lent for construction projects in particular that will never make big enough returns to repay the original debt.

Chanos isn’t just negative about China’s macro-economic prospects. He is even more scathing about its companies. ‘When you get to the micro of individual companies, they look even worse. The accounting is horrible, they all seem to have negative cash-flow, non-collectable receivables… they all seem to not earn their cost of capital.’

But while this may not be good for China’s economy, it throws up lots of good investment opportunities for him, he says. Kynikos Associates – a hedge fund Chanos founded in 1985 – has short positions on several China-related stocks, which means he will profit if their value falls.

After starting out shorting ‘property companies, developers, cement companies, steel companies, as well as the original iron ore minors in Australia and Brazil’, he has added the Chinese banks too, because they are ‘the nexus for… all of this credit-driven investment.’

James McKeigue

Contributing Editor, Money Morning

Publisher’s Note: This article originally appeared in MoneyWeek (UK)

From the Archives…

No Mr. President, Entrepreneurs Did Build That…
20-07-2012 – Kris Sayce

How an Interest Rate Rise Could Trigger a ‘Punch Bowl’ Rally
19-07-2012 – Kris Sayce

When the Going Gets Tough, Entrepreneurs Innovate
18-07-2012 – Kris Sayce

Is This Man the Ultimate Contrarian Indicator for Mining Shares?
17-07-2012 – Dr. Alex Cowie

How Gold Stocks Could Become Your Gilded Lifeboat
16-07-2012 – Dr. Alex Cowie

Jim Chanos Says China’s Bad Debts Dwarf Greece and Spain’s

EURUSD breaks above the resistance of the upper line of the price channel on 4-hour chart, suggesting that a cycle bottom has been formed at 1.2042, and the fall from 1.2747 (Jun 18 high) has completed. Further rally could be expected over the next several days, and the target would be at 1.2400-1.2500 area. Key support is at 1.2042, only break below this level could trigger another fall towards 1.1876 (2010 low).

Daily Forex Forecast