Is 1,600 the Next SP500 Support Level?

By J.W. Jones –

Investors and traders alike are heading into the long weekend with a variety of potential risks facing them. The media has made us aware of the situation that is going on in Syria and that the United States may be planning a military strike.

Since the current Syrian situation arose, we have seen some strong volatility return to U.S. financial markets. The observed volatility has included both realized volatility and implied volatility in many of the various option chains. There are pundits who will surmise a variety of outcomes, but frankly no one knows for sure. Will oil prices spike if military action occurs in Syria? Will oil prices fall on a military action(s)? What will happen to gold? What will happen to risk assets? Will they find Jimmy Hoffa?

I have recently received several emails asking these questions. I have answered them all in the same manner. I have no idea what is going to happen in financial markets for sure. Anyone who says they do does not respect the randomness of markets. We can look at option based probabilities for some clues, but there is no definitive answer.

Instead I want to look at a very powerful tool that is available on most trading software platforms. Volume by price is a powerful tool to determine where key levels are in an index or price chart. The S&P 500 Index is shown below.

Chart1 (1)

As can clearly be seen above, the obvious price points where we saw the most volume trade are highlighted. If price breaks below the current support level the 1,580 – 1,600 support zone is likely going to act as a magnet for price action.

Currently I think there is a high probability that we at least test the 1,600 price level in the next few weeks. The current probability that the 1,600 price level will be at least touched before the September SPX option expiration (expire in 20 days) is around 65% on Friday morning. The probability that the SPX touches 1,600 before the October SPX option expiration (48 days) is over 76%.

Clearly the implied volatility in the SPX option chain is telling us that odds are greater than 50% that prices work below the current support level over the next 3 – 7 weeks. Additionally we have strong volume by price data that indicates that the 1,580 – 1,600 price level will act as support.

I do not believe that making predictions is a great way to trade, but I think assumptions based on obvious support / resistance level as well as implied volatility based probability assumptions keep traders from making just pure guesses based on very little facts.

Back on August 16th I displayed the following chart in an article that was titled “Will 1,650 Offer Buying Support for the SP500?”.

Chart2 (1)

Unlike many market prognosticators, I will tell readers when I was wrong, when I was right, and when I was close. On August 16th I called for a bottom to play out around 1,650 and I was close. The bottom was actually formed intraday on August 21st. The forthcoming bounce rallied roughly 30 points before reversing back to the downside to our next support level around 1,630.

Ultimately we have the long weekend ahead and with Syria remaining in the forefront and the United States government fiscal debate looming down the road, markets could become quite volatile over the next 6 – 8 weeks. Traders need to act accordingly and manage risk through appropriate position sizing. Market conditions could get very interesting in the near future.

Consider joining us for  Stock and ETF Option trades.
Coupon Code: “LaborDay35OFF”

Trade Stock & ETF Options Like a Pro – JOIN NOW


This material should not be considered investment advice. J.W. Jones is not a registered investment advisor. Under no circumstances should any content from this article or the website be used or interpreted as a recommendation to buy or sell any type of security or commodity contract. This material is not a solicitation for a trading approach to financial markets. Any investment decisions must in all cases be made by the reader or by his or her registered investment advisor. This information is for educational purposes only.



What to Expect for the first week of September on the Forex Market?

Article by

The last week of august should have past smoothly, because there were no expected very important events. Still the conflict in Syria has raised the volatility of the markets. Overall the stock market has fallen, the price of oil rallied and touched a new high for the past six months and on the Forex Market safe heavens appreciated the most. On Thursday the spirits calmed down regarding Syria, but the release of the US GDP above expectations (2.5% vs. 2.2% exp.) has triggered another rally for the US dollar.

The first week of September it is expected to bring high volatility especially on the FX market because of the economic releases.

Date Currency Forecast Previous
SunSep 1 CNY Manufacturing PMI 50.6 50.3
MonSep 2 NZD Overseas Trade Index q/q 3.90% 4.10%
AUD AIG Manufacturing Index 42
JPY Capital Spending q/y -2.00% -3.90%
AUD MI Inflation Gauge m/m 0.50%
AUD Building Approvals m/m 4.10% -6.90%
AUD Company Operating Profits q/q 1.10% 3.00%
CNY HSBC Final Manufacturing PMI 50.2 50.1
AUD Commodity Prices y/y -11.80%
EUR Spanish Manufacturing PMI 50.1 49.8
CHF SVME PMI 55.9 57.4
EUR Italian Manufacturing PMI 50.7 50.4
EUR Final Manufacturing PMI 51.3 51.3
GBP Manufacturing PMI 55.2 54.6
CAD Bank Holiday
USD Bank Holiday
TueSep 3 GBP BRC Retail Sales Monitor y/y 2.20%
JPY Monetary Base y/y 41.30% 38.00%
CNY Non-Manufacturing PMI 54.1
NZD ANZ Commodity Prices m/m 0.60%
AUD Retail Sales m/m 0.40% 0.00%
AUD Current Account -8.3B -8.5B
JPY Average Cash Earnings y/y 0.80% 0.60%
JPY 10-y Bond Auction 0.80|3.5
AUD Cash Rate 2.50% 2.50%
AUD RBA Rate Statement
CHF GDP q/q 0.30% 0.60%
EUR Spanish Unemployment Change -5.2K -64.9K
GBP Construction PMI 58.4 57
EUR PPI m/m 0.20% 0.00%
USD Final Manufacturing PMI 53.9 53.9
USD ISM Manufacturing PMI 54.2 55.4
USD Construction Spending m/m 0.30% -0.60%
USD IBD/TIPP Economic Optimism 46.2 45.1
USD ISM Manufacturing Prices 51.6 49
WedSep 4 GBP BRC Shop Price Index y/y -0.50%
AUD AIG Services Index 39.4
AUD GDP q/q 0.60% 0.60%
GBP Halifax HPI m/m 0.90%
EUR Spanish Services PMI 49.3 48.5
EUR Italian Services PMI 49.2 48.7
EUR Final Services PMI 51 51
GBP Services PMI 59.8 60.2
EUR Retail Sales m/m 0.50% -0.50%
EUR Revised GDP q/q 0.30% 0.30%
USD Challenger Job Cuts y/y 2.30%
CAD Trade Balance -0.4B -0.5B
USD Trade Balance -38.6B -34.2B
CAD BOC Rate Statement
CAD Overnight Rate 1.00% 1.00%
USD Total Vehicle Sales 15.8B 15.7M
USD Beige Book
ThuSep 5 AUD Trade Balance 0.11B 0.60B
JPY Monetary Policy Statement
JPY BOJ Press Conference
EUR French 10-y Bond Auction 2.32|1.7
EUR Spanish 10-y Bond Auction 4.72|2.3
EUR German Factory Orders m/m -0.70% 3.60%
GBP Asset Purchase Facility 375B 375B
GBP Official Bank Rate 0.50% 0.50%
GBP MPC Rate Statement
EUR Minimum Bid Rate 0.50% 0.50%
USD ADP Non-Farm Employment Change 181K 200K
EUR ECB Press Conference
USD Unemployment Claims 330K 331K
USD Revised Nonfarm Productivity q/q 1.50% 0.90%
USD Revised Unit Labor Costs q/q 1.00% 1.40%
USD ISM Non-Manufacturing PMI 55.2 56
USD Factory Orders m/m -3.20% 1.50%
USD Natural Gas Storage 67B
USD Crude Oil Inventories 3.0M
ALL G20 Meetings
FriSep 6 AUD AIG Construction Index 44.1
JPY BOJ Monthly Report
JPY Leading Indicators 107.90% 107.20%
EUR German Trade Balance 15.9B 15.7B
EUR French Gov Budget Balance -59.3B
EUR French Trade Balance -4.5B -4.4B
CHF Foreign Currency Reserves 434.9B
CHF CPI m/m 0.00% -0.40%
GBP Manufacturing Production m/m 0.40% 1.90%
GBP Consumer Inflation Expectations 3.60%
GBP Trade Balance -8.2B -8.1B
GBP Industrial Production m/m 0.20% 1.10%
EUR German Industrial Production m/m -0.30% 2.40%
USD FOMC Member Evans Speaks
CAD Employment Change 30.2K -39.4K
CAD Unemployment Rate 7.20% 7.20%
CAD Labor Productivity q/q 0.30% 0.20%
USD Non-Farm Employment Change 181K 162K
USD Unemployment Rate 7.40% 7.40%
USD Average Hourly Earnings m/m 0.20% -0.10%
CAD Ivey PMI 55.1 48.4
GBP NIESR GDP Estimate 0.70%
ALL G20 Meetings
USD FOMC Member George Speaks
SatSep 7 AUD Parliamentary Elections


As you can see in the calendar, there will be a lot of events happening next week, from economic releases to monetary policy meetings and press conference. By far the most awaited will be the ECB monetary policy statement and afterwards the press conference, on Thursday, and Friday the data from the US labor market.

The post What to Expect for the first week of September on the Forex Market? appeared first on

Colombia holds rate, sees better growth but risks rise

By     Colombia’s central bank held its benchmark interest rate steady at 3.25 percent, as expected, saying economic growth is expected to improve during the year due to earlier rate cuts and government spending though the downside risks have recently risen.
    The Central Bank of Colombia, which has held rates steady since April after cutting them by 200 basis points since July 2012, also said it was possible that the recent devaluation of emerging market currencies, including Colombia’s peso, would continue “and contribute to a better performance of the tradeable sectors of the economy, and hence, to a more balanced growth.”
    The central bank did not make any comments about its foreign exchange intervention program that is set to expire at the end of September.
    Trade data suggest that domestic demand and economic growth in the second quarter will exceed the first quarter, the central bank said, adding that household consumption and investment in civil works and buildings probably grew at a slightly higher rate.  Growth in the mining, agriculture and trade sectors would also accelerate while industry would shrink again, though less pronounced.

    Colombia’s Gross Domestic Product expanded by only 0.3 percent in the first quarter from the fourth for annual growth of 2.8 percent, slightly below 3.1 percent in the fourth quarter but the same as in the third quarter.
    Colombia’s economic growth has been decelerating since hitting a 7.5 percent rate in the third quarter of 2011 and the central bank said its staff maintained its growth forecast for the second quarter in a range of 2.5 to 4.0 percent, with 3.4 percent the most likely outcome.
    For the full year, growth of 4.0 percent is seen as the most likely, the same as in 2012 but sharply down from 2011’s 6.6 percent growth.
    Growth in advanced economies in the second quarter was slightly better than expected, the bank said, though growth in many emerging economies in Asia and Latin America was below expectations and the overall growth of Colombia’s trading partners will probably be less than last year.
    Although the inflation rate rose to 2.22 percent in July, up from June’s 2.16 percent, and the highest rate this year, the central bank said it was lower than forecast and average basic inflation was relatively stable at 2.5 percent.
    The average expectations of analysts and those based on market prices revolve around the central bank’s inflation target of 3.0 percent.
    Last year the central bank embarked on a program to intervene in foreign exchange markets to keep the peso from rising and making Colombia’s exports less internationally competitive. The intervention program was renewed in May, calling for the central bank to purchase at least $30 million a day through September.
    The peso weakened against the U.S. dollar from the beginning of the year, hitting a low of just under 1,950 by late June. It then rose until early this month and started weakening again. For the year, the peso is down around 8 percent against the U.S. dollar, trading at 1,932 earlier today.


Money Weekend’s Technology FutureWatch 31 August 2013



A Meeting of the Minds On Steroids

Next week at the 02 Arena in London the world’s biggest electronic entertainment event will take place. As the organisers say, ‘Campus Party unites the brightest young minds in technology and science under the idea that “the Internet is not a network of computers, it’s a network of people.”

It’s a huge event for the whole week, running 24 hours a day. There will be keynotes from some of the brightest minds in global technology. Previous keynote speakers include Steve Wozniak, Michio Kaku and Al Gore. This year Professor Alex ‘Sandy’ Pentland will be a keynote along with one of the men who worked on the ARPANET project, Vint Cerf.

There will also be a mix of technologists, futurists, developers and hackers. The technologies on display and being discussed will include security, big data, robotics, e-health and green tech.

Basically this is a nerd’s dream come true. And that means we’ll be there first hand to find the best breakthrough technologies and views on what the future might hold.

What you also need to recognise is events like this are crucial for the development of technology in the world. Because when you get so many minds together in one space, you can’t help but collaborate with each other. It’s a ‘meeting of the minds’…on steroids (not literally).

And when that kind of collaboration happens, breakthroughs occur, new ventures are formed, and problems are solved.

If we come across truly revolutionary tech we’ll reveal everything to Revolutionary Tech Investor subscribers. But we’ll also share a few pics and snippets of information next weekend. Hopefully it will give you some insight as to just how important events like this are.


No Magic Tricks Here, Turning Carbon into Bricks Is Real

Australia is home to a lot of smart people. I’d go so far to say per capita Australia has more smart people than the world’s technology heavyweight, the US.

This country is good at pioneering new technologies. Sometime there are legitimate world first breakthroughs. And occasionally a billion dollar company spawns from these breakthroughs.

Some examples of previous Autralian breakthroughs include the Cochlear implant, the CSIRO pioneering Wi-Fi, and even Google Maps. Having covered this in more detail back in June, you can scrub up on your Australian tech breakthroughs here.

But profitable companies that develop from technology breakthroughs are few and far between ‘down under’. What usually happens is a larger foreign company swoops in to snaffle up the technology for themselves.

Hopefully sooner rather than later business and government will realise the potential Australia has to stand on its own two feet. Domestic investment and development of homegrown technologies might just be the answer we need to future proof the country economically, as rocky roads lay ahead.

One of the more recent technological breakthroughs is indeed a world-first. The University of Newcastle, GreenMag Group and Orica [ASX: ORI] have had this technology under wraps for six years. Having tested their R&D over this time they’re now ready to unleash a pilot plant.

What this pilot plant is designed to do is, ‘to trial a new technology that transforms captured CO2 emissions into forms of carbonate rock for potential use as new green building materials in the construction industry.

The company running the show is called Mineral Carbonation International Pty Ltd (MCI). Thanks to a $3.04 million funding from the Australian and NSW government and Orica there’s enough cash to last a little while.

It’s encouraging to see another Australian start up established from world-class research. Not only that, but it’s tackling a global problem and providing a clean and green solution.

The end game is to scale the technology to be price competitive and ultimately profitable. Considering they are taking carbon and effectively turning it into bricks, it’s one piece of breakthrough tech we’re hoping is around for the long term. Who knows, one day MCI might even be recognised globally with the same kind of affinity as a company like Cochlear.


The Force Is Strong in These Researchers

Every day science and technology gets a little closer to the mystery of mind control. As projects like BRAIN (funded by the US) and the Human Brain Project (funded by the EU) continue their research we learn more about the most complex machine on earth.

The benefits of this include future advances in computing, microprocessors and technology in general. The medical applications and benefits too are huge. It means we’re on the cusp of breaking through to figuring out diseases like Alzheimer’s and Parkinson’s.

One of the more weird aspects of these projects is to understand how to manipulate the brain in the right ways. And one team of researchers at the University of Washington believe they’ve undertaken a world first.

Two of the researchers, Rajesh Rao and Andrea Stocco, hooked up to an electroencephalography (EEG) machine that let them read the others brain waves. The difference being Stocco had a magnetic coil attached to his head that stimulated part of his brain.

What happened next is extraordinary. Rao started to play a video game. But instead of actually moving his hands, he thought about it. He thought about moving his right hand and hitting the spacebar. Instantaneously across the other side of the campus in his office, Stocco involuntarily moved his right hand and triggered the spacebar.

This breakthrough is the first example of humans using a networked connection to control the movements of another. It’s these breakthroughs that reinforce the point we’re truly on the edge of mind-blowing technology in the years to come.

But don’t worry about mind control just yet. This technology only allowed for certain types of movement. It didn’t mean Rao could read Stocco’s thoughts, and it certainly didn’t mean either man had ‘The Force’.

Sam Volkering+
Technology Analyst, Revolutionary Tech Investor

Join Money Morning on Google+

From the Archives…

Why Risky Stocks are Best in Risky Markets
23-08-2013 – Kris Sayce

Why Al Gore Won’t Like Big Data
22-08-2013 – Kris Sayce

Debt and the the Patient Investor
21-08-2013 – Vern Gowdie

How to Apply Reynold’s Law to Your Retirement Savings
20-08-2013 – Nick Hubble

Holding Cash is an Investment Strategy Too
19-08-2013 – Vern Gowdie

Is the Great Dividend Rally Over?


Well, how about this. Aussie companies will pay out a cool total of $54 billion worth of dividends in the 2013 financial year. But Goldman Sachs put everyone on notice this week by pointing out that payout levels are nearing their historic peak. The great dividend rally of the last year or more might be coming to a natural limit.

According to the vampire squid investment bank, the last time Aussie companies were dishing out near this percentage of profit was back in the days of Australia’s last recession in 1992.

The vibe is that boards are reluctant to invest in their own businesses in the face of a weak economy. And investors are happy to get their hands on the cash thanks to low interest rates. That’s all fair enough.

Of course, if you’re interested in income, you do have to make sure you’re buying good businesses, not just a fancy yield…

The Choice Every Company Has to Make

For the record, here’s an idea of how strong the dividend rally has been. Check out the chart for the iShares S&P/ASX High Dividend Fund over the last half year:

Dividend, Anyone?

Source: Yahoo Finance

Around a 30% return from a reasonably conservative ETF is pretty good going.

But in the end companies can only payout so much. They need to keep some money to grow their business.

Take Woolworths (ASX: WOW), for example. Tony Boyd pointed out in the Australian Financial Review this week that CEO Grant O’Brien is turning the company into a tech investment story:

For the first time, the money earmarked for the Woolworths supply chain’s information technology, multi-option strategy and stay-in-business projects will exceed refurbishment… The combination of a cutting edge point-of sale-system, data analytics, loyalty cards and core systems that connect with suppliers should put Woolworths ahead of competitors.

Woolworths doesn’t want to lose market share to international retailers with tech marketing savvy who could use local distributors to shift their product. The pay off for investors is that this investment in tech and systems now should show up as capital gains down the track. There’s no guarantee, of course. You have to trust management to turn retained earnings into market value.

Over at Australian Small-Cap Investigator, this is the attitude Kris Sayce has been hunting with success, but at the other end of the market; small caps. He calls these type of companies ‘Turbocaps’. You can see why here.

Travel agent Flight Centre (ASX: FLT) is no small cap stock, but it’s a pretty handy guide for the kind of business to look out for. It managed to grow its profit by 20% and its dividend by 28% in the last financial year. The share price is at an all time high and up almost 100% for the year.

But don’t be led into thinking a rising dividend is an automatic sign of a healthy business. Unfortunately, not all companies are doing it with rising earnings and profits like Flight Centre. That’s not sustainable in the long run and will eventually show up in a weaker share price.

Our value investing expert Greg Canavan recently explained why over at The Daily Reckoning:

If companies don’t reinvest then it makes it hard to generate sustainable earnings growth. Without earnings growth you get little to no growth in intrinsic value. So even though reinvested dividends might push up share prices, the intrinsic value of the company isn’t increasing, and it may even be falling. A higher share price with little to no earnings growth simply reflects a stock getting more expensive.

We’re generalising here to make a point. The point is that higher dividend payout ratios might sound good to shareholders thirsting for income, but it undermines a company’s long term intrinsic value by having the board make capital management decisions to satisfy the short term demands of investors rather than the long term demands of the business.

Greg’s take is the market rally will hit a wall and turn down.

A Different View

Of course, all that only applies if you’re actually in the market. One who isn’t is the latest editor to join our team, Vern Gowdie. He’s 100% cash for now.


Vern is expecting a major correction in the US stock market, which in turn he expects will take down the stock market here. You can see why he’s expecting such a fall in a special report released later this afternoon.

But Vern’s mission is not just to analyse the stock market. He’s looking at guiding subscribers with his near 30 years in financial planning. He’ll cover such topics as how to establish a model portfolio, cultivating the right family wealth culture, how to avoid the common pitfalls that destroy your capital and plenty more topics that impact your money.

After all, there’s a lot more to building and keeping wealth than just dividends.

Callum Newman+
Editor, Money Weekend

Join Money Morning on Google+

From the Port Phillip Publishing Library

Special Report: Panic of 2013

Daily Reckoning: Emerging Markets Are In Trouble

Money Morning: Why The Real Reason For Owning Gold Has Returned

Pursuit of Happiness: Have You Put Your Portfolio on War Alert?

Angola cuts rate 25 bps as inflation falls further

By     Angola’s central bank reduced its main policy rate by 25 basis points to 9.75 percent as monthly inflation rose by only 0.52 percent, the lowest ever recorded.
    The National Bank of Angola (BNA), which also cut its rate by 25 basis points in in January,  also cut the rate on its standing lending facility to 11 percent from 11.25 percent and the rate on its standing liquidity absorbtion facility to 0.75 percent from 1.0 percent.
    Angola’s annual inflation rate eased to 9.04 percent in July from 9.19 percent in June, continuing the stable trend with inflation between 9 and 10 percent in the last 12 months.

VIDEO: Advice to Young Investors

By The Sizemore Letter

On my last trip to Baltimore, I sat down with InvestorPlace’s Alyssa Oursler to offer advice to young investors who are just getting started.  I shared some of the mistakes I made along the way–and they are legion!–and gave the single most important piece of advice I can give: start saving early.

Every investor will make their share of mistakes as they learn a trading style that is appropriate for them.  What works for me may not necessarily work for you, in the same sense that what works for Warren Buffett does not work for George Soros.  This is something we all have to figure out on our own.

But while you are learning the ropes, save aggressively in your  company’s 401k plan or in an IRA or Roth IRA.   Invest in no-load mutual funds and low-fee ETFs with the bulk of your savings, and trade with a smaller portion.

You can watch the interview in the embedded video above.  And here is a snippet of Alyssa’s article:

When Charles Sizemore was a kid, he used to watch his grandfather furiously jot down stock tickers — and from then on, he was hooked.

Decades later, he now has his CFA, a master’s degree from the London School of Economics, is the founder and editor of theSizemore Investment Letter, and manages client accounts through his firm Sizemore Capital Management.

Yet even he has made his share of mistakes along the way.

Charles says investors need to find a style that works for them — something that can only be achieved with a little experimentation. But even as you’re testing out things like trading, dividend investing and so on, you should be sure to have the core of your portfolio invested reasonably.

That’s because one of the most common investing mistakes — as Charles explains in the video above — is being overconfident. He says, “When you’re young, you think you are so smart and anything you pick will turn to gold. It’s not true.”

You can view the full article here.

Charles Lewis Sizemore, CFA, is the editor of the Sizemore Investment Letter and the chief investment officer of investments firm Sizemore Capital Management. Click here to learn about his top 5 global investing trends and get your copy of “The Top 5 Million Dollar Trends of 2013.”

This article first appeared on Sizemore Insights as VIDEO: Advice to Young Investors

Join the Sizemore Investment Letter – Premium Edition

What’s Next for the Luxury Sector?

By The Sizemore Letter

The luxury sector has been in the headlines this week, though the outlook has been muddled.  High-end home goods retailer Williams-Sonoma (WSM) beat earnings estimates on Wednesday, initially sending shares higher.  Unfortunately, the details were a lot less impressive.  Overall, sales were up 12.3% and same-store sales were up 8.4%… but the retailer had to lower its prices in order to generate those sales—which lowered margins—and management gave guidance that suggested the rest of the year would be tepid.

This came just a day after luxury jeweler Tiffany & Co (TIF) announced strong earnings and boosted its forecast for the rest of the year.  But—importantly—it was a surge in Chinese sales that pushed Tiffany higher.  U.S. growth was actually a little on the sluggish side.

It’s never a great idea to draw firm conclusions from just two data points, but this has been a recurring theme for most of the summer. Last month, British fashion group Burberry (BURBY), announced a knockout quarter, with sales up 21%.  Growth in China—Burberry’s most important market—were particularly strong.  Across the English Channel, Hermès (France:RMS), the French luxury group best known for its leather goods and scarves, also surprised the Street with stronger-than-expected sales for the quarter led by a strong showing in…you guessed it…China.

American sales have been decent, though far from spectacular. The real success—where there has been success—has been in China.

Between sales in Greater China and sales to Chinese travelers abroad, the Chinese consumer is the engine that drives this entire sector.  European sales have held up fairly well, though this is in large part to aggressive buying by foreign visitors.   Data here is a little hard to come by, as stores generally don’t track the nationality of their patrons.  But as a telling case in point, Chinese visitors make up only about 1% of the traffic in London’s Heathrow airport yet they account for nearly a quarter of all luxury goods sales.

Yet not all news coming out of China is good.  Last month, Rémy Cointreau (REMYF), the maker of high-end French cognac, announced disappointing sales stemming from a sharp decline in China.  Rémy, which makes the ultra-high-end Louis XIII cognac, gets over 40% of its sales from China.  As goes China, as goes the company.

What are we to make of all this?

To start, despite an improving American economy, the luxury story begins and ends with China.  This was bad news earlier this year for certain segments of the sector—such as Swiss watches and super-premium wines and spirits (read: Louis XIII cognac and Chateau Lafite Rothschild wines)—because of a Chinese crackdown on conspicuous consumption and on “gift giving” (ahem…bribery) in government circles.  This was less of a problem for handbag and fashion retailers. As the shock of the crackdown wears off, these segments should recover.  But the short-term hit to sales will be felt in the next round of quarterly earnings releases.

Meanwhile, in other segments of the luxury market, it’s business as usual.  Daimler (DDAIF), the maker of the iconic Mercedes-Benz, just announced that it was making €2 billion in new investments in China.  Daimler plans to double its manufacturing capacity by 2015.

So, with all of this said, should you invest in the luxury sector?

I don’t consider the sector the screaming bargain that I did a year ago, but I still see quite a bit that I like.  Daimler is one of my favorite stocks (and my choice in InvestorPlace’s Best Stocks of 2013 contest…which it happens to be winning at time of writing).  Daimler is up over 30% this year, including dividends, yet the stock still trades for a very attractive 8 times earnings.  It also sports a respectable 4.2% dividend.

I also like Swiss watch leader Swatch Group (SWGAY).  In addition to its own highly-successful brands–such as the Omega worn by James Bond–Swatch also makes the “guts” that go into 90% of all high-end Swiss watches. Swatch trades for 17 times earnings and yields 1.24%.

China’s growth looks to be stabilizing at around 7.5%.  The days when Western luxury firms could count on 20% per year annual sales growth are probably over, but the “luxury story” will remain the “China story” for the foreseeable future.

Charles Lewis Sizemore, CFA, is the editor of the Sizemore Investment Letter and the chief investment officer of investments firm Sizemore Capital Management. As of this writing, he was long DDAIF and SWGAY. Click here to learn about his top 5 global investing trends and get your copy of “The Top 5 Million Dollar Trends of 2013.”

This article first appeared on Sizemore Insights as What’s Next for the Luxury Sector?

Join the Sizemore Investment Letter – Premium Edition

Zambia holds rate, notes higher China copper imports

By     Zambia’s central bank held its policy rate steady at 9.75 percent, saying it would continue to maintain a “relatively tight” monetary policy in order to moderate inflationary pressures.
    The Bank of Zambia, which raised its rate in June and July by a total of 50 basis points, said it had taken note of the continued presence of inflationary pressures that were largely due to the anticipated public sector wage rises. This is in addition to pressure that may rise from higher food prices due to continued high demand in the region.
    Continued weak global growth may lead to lower demand for Zambia’s exports though the central bank’s policy committee said it had noted the slight increase in the price of copper on the back of an improvement in Chinese imports in recent weeks.
    On the other hand, the central bank said inflationary pressures may moderate in the coming month due to the recent stability in the kwacha’s exchange rate.
    In August, Zambia’s inflation rate eased slightly to 7.1 percent from 7.3 percent in the previous two months. In May the inflation rate jumped to 7 percent from 6.5 percent and has remained above 7 percent since then. The central bank targets inflation of 6 percent by the end of the year.
    Like many other countries, Zambia’s kwacha depreciated in May through early July. Since July 10 the kwacha has bounced back, rising almost 3 percent, trading at 5.38 kwacha to the U.S. dollar today.  

Gold Erases Week’s 2.5% Gain After UK Rejects Syrian Action

London Gold Market Report
from Adrian Ash
Fri 30 Aug 08:20 EST

The PRICE of gold fell $15 in London trade Friday morning, reversing the last of the week’s 2.5% gain to sit flat at $1395 per ounce.

 Silver had already slipped, and then also fell hard as London opened for business, dipping below $23.50 per ounce.

 Unlike the gold price silver then regained most of that drop to trade back at $23.70 – some 1.7% beneath last Friday’s finish.

 “A delay in any military action in Syria has temporarily pushed demand for gold as a safe haven to the backburner,” says a note from Germany’s Commerzbank.

 “My feeling,” says David Govett at brokers Marex Spectron, “is that without Syria [the gold price] would be sub-1400.

 “[But] with that simmering in the background, the majority [of traders] are nervous of being short.”

 After losing a key vote on Syria last night, British prime minister David Camerson said the UK will not join any action against the Assad regime over alleged chemical weapon attacks on civilians.

 Just as the result was being announced in Parliament, a BBC team in Syria reported a fighter jeg dropping incendiary bombs on a school playground, causing “napalm-like burns” on scores of children.

 “Any sign that the situation may be contained,” says Swiss bank and London market maker UBS, “will keep the focus on the macro picture for now.

 “This remains challenging for the [gold price].”

 Ahead of key US data on inflation and personal spending, major government bonds ticked lower in price, nudging interest rates higher.

 Investors in major government bonds were heading for a fourth month of losses, Bloomberg reports, with US as well as Japanese, UK and Eurozone debt prices all falling in August.

 US stock-market futures meantime pointed higher as European shares cut earlier losses. Commodity indices retreated 0.5% as US crude oil fell back towards $108 per barrel.

 “There’s fear the Fed will cut stimulus [in September], while improving economic data in Europe is having a further upward effect on yields,” says Alain van der Heijden at the €1.4 billion Kempen Capital Management in Amsterdam.

 But “I see the current [emerging market] turbulence leading to a renewed global recession,” counters Societe Generale strategist Albert Edwards, “with waves of deflation flowing to the west from Asia.”

 Rather than tapering, “QE will be ramped up exponentially,” says Edwards, repeating his four-year call for a $10,000 gold price as “inflation is unlikely to be containable.”

 Suffering a 20% drop in the Rupee since mid-July, India’s prime minister Manmohan Singh on Friday blamed “unexpected external developments”, and repeated that “clearly, we need to reduce our appetite for gold.”

 Gold investment – primarily met through imports rather than domestic mine supply or recycling – accounted for 2% of GDP in the last fiscal year, the Reserve Bank of India said last week, down from 2.4% in the prior year.

 Gold trading margins at the Multi Commodity Exchange will double on Monday to address volatility in gold futures, where prices this week hit fresh all-time highs.

 Following Turkey’s lead in using household gold bullion deposits to boost national gold reserves, India is planning to launch “gold banking” soon, according to unnamed sources quoted by the press.

 Reviewing the level of external debt amongt Asian countries, however, “I’m relatively though not totally calm,” writes Princeton economist Paul Krugman on his New York Times blog.

 “Indonesia has a much lower debt ratio now, about half what it was in the mid-90s. India’s external debt level is [also] relatively low.”

 Over on the supply side Friday, producers in world #6 miner South Africa said they’d received 48 hours notice of a strike over pay from the largest and government-aligned union, the National Union of Mineworkers.

 “Our most important industry is in crisis and we have not yet found the answer to stemming the tide of destruction,” said a tearful Mark Cutifani, CEO of Anglo American, blaming “cowards, thugs and murderers” for a wave of violence across South Africa’s gold mining industry.

 Now running Amplats as a division of Anglo, Cutifani said job cuts will be limited to 4,800 rather than the 14,000 previously targeted at the world’s #1 platinum producer.

Adrian Ash


Gold price chart, no delay | Buy gold online


Adrian Ash is head of research at BullionVault, the secure, low-cost gold and silver market for private investors online, where you can buy gold and silver in Zurich or Singapore for just 0.5% commission.


(c) BullionVault 2013

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.