InvestMacro Forex News

By George Leong, B.Comm.

It’s hard to believe we are nearing the end of another year. It seems as though the move into 2013 was just yesterday. I was bullish at the start of the year, but I was not expecting the kind of stock market advances we have seen with the NASDAQ and Russell 2000 up more than 30% and the S&P 500 nearing that level with multiple record-highs.

Recently, I wrote about the need to ride the current market higher, as the signs point to more upside moves ahead. (Read “Why Stocks Likely to Head Higher into the New Year.”) But at the same time, I remain nervous about the vulnerability of the stock market.

The soft results from what was pumped up as a killer Black Friday failed to materialize, as sales on the Thanksgiving weekend fell 2.7% year-over-year, according to the National Retail Federation (NRF). The NRF did estimate sales during the next few weeks prior to Christmas could rise 3.9%, but while it may pan out, it will only do so because of heavy discounting to clear inventory.

What continues to linger on my mind is the fact that we have yet to see a correction of 10% or more during this four-year bull market, which began in March 2009. This makes me nervous.

Robert Shiller, who was one of three Americans who just won the 2013 Nobel prize for economics, believes there is a bubble in the U.S. stock market, especially given the run-up in stocks in spite of what has been a fragile economic recovery. (Source: Clinch, M., “Nobel Prize winner warns of US stock market bubble,” CNBC, December 2, 2013.)

While I have also been nervous, saying the stock market is vulnerable to a correction, I continue to advise investors ride the gains but take some profits off the table.

The reality is that the climate of easy money pushed by the Federal Reserve has created this stock market bubble. The Fed should be looking at reining in its monthly bond buying. For instance, the Fed should shave $5.0–$10.0 billion off the top in December to begin, to see how the stock market reacts. This would be a way of cutting the stimulus and avoiding the continued build-up of debt. It would also allow the economy to fend for itself a little more, rather than relying on the overblown stimulus. I hope the exiting Chairman Ben Bernanke or incoming Chairwoman Janet Yellen will start the process.

In the meantime, all eyes will be on the November jobs market report to be released on Friday, which will be the most important economic reading for the Fed to look at prior to its mid-December Federal Open Market Committee (FOMC) meeting. There’s a sense that a reading of more than 200,000 jobs created, like we saw in October, could be enough to drive the Fed to begin tapering in December, but I’m not convinced, since the Fed has created a stock market that feels entitled to cheap money—meaning it’s onward ho with quantitative easing (and market gains) for now.

This article Nobel Prize Winner Confirms My Concerns of Stock Market Vulnerability is originally publish at Profitconfidential

By CentralBankNews.info
    Egypt’s central bank cut its benchmark overnight deposit rate by another 50 basis points to 8.25 percent, its third rate cut in a row.
    The Central Bank of Egypt (CBE) also cut its other main rates, the overnight lending rate, the rate on its main operation and the discount rate by 50 basis points to 9.25 percent, 8.75 percent and 8.75 percent, respectively.
    A statement by the CBE’s monetary policy committee would be issued later, the bank said.
    The CBE has now cut its rates by 100 basis points this year. In March the CBE raised rates due to inflationary pressures but then reversed course and cut rates in August and September.
    Economists had expected the central bank to keep rates steady this month in light of a rise in inflation in October to 10.44 percent from 10.15 percent the previous month.

    The central bank has also been under pressure to keep rates high in order to attract capital and not deplete its foreign currency reserves which the central bank on Wednesday said fell slightly in November from $18.59 billion at the end of October.
   The reserves have also been under pressure since the uprising in 2011 that toppled President Hosni Mubarak. At that point reserves were $36 billion.
    Political instability since then has led to a drop in tourism and made investors nervous.
    Egypt’s Gross Domestic Product rose by an annual 1.5 percent in the second quarter, down from 2.2 percent in the first quarter.

    www.CentralBankNews.info 

By John Whitefoot for Daily Gains Letter

The holiday shopping season officially kicked off this year…in the American living room. Tired of being shoved, pushed, stomped on, and punched in the quest for the best deals, many consumers turned their attention to their laptops, smartphones, and tablets and clicked their way to record sales.

After reporting record online sales on Thanksgiving day and Black Friday, online shoppers continued the trend, making this past Cyber Monday the most lucrative online shopping day in U.S. history.

On Black Friday, mobile shopping accounted for almost 40% of all online traffic, a 34% increase over last year’s Black Friday numbers. Overall, Black Friday e-commerce sales climbed 18.9% year-over-year and the average order value increased 2.2% to $135.27. Black Friday online purchases at Amazon.com, Inc. (NASDAQ/AMZN) were up 34.7% year-over-year, while sales at eBay Inc. (NASDAQ/EBAY) soared 38.7%. (Source: “Holiday 2013 – Cyber Monday and Cyber Five FINAL,” eBay Strategies Blog, December 3, 2013.)

Following record online sales on Black Friday, retailers waited impatiently for Cyber Monday to see if the good times would continue to roll—and roll they did: Cyber Monday was the fifth consecutive day of record-breaking online sales.

Online sales on Cyber Monday were up 16% year-over-year at a record $2.29 billion. On top of that, a record 18.3% of all online sales came from mobile devices, an 80% increase over Cyber Monday 2012.

While Black Friday was all about eBay, on Cyber Monday, the online sales crowd went to Amazon. At Amazon, Cyber Monday sales were up 46.2% year-over-year, while eBay had to contend with sales growth of 32.0%.

How did online retailers fare over the five cyber shopping holidays? Total online sales since Thanksgiving jumped 26% over the same period in 2012 to $7.4 billion. Thanks to the Internet and mobile devices, retailers with an online presence now earn about 10% of their annual sales online over Thanksgiving and Cyber Monday. (Source: “Shopping In A Digital World: Cyber Monday Blows Past $2B In Online Sales,” CMO.com, December 3, 2013.)

While some contend the hype of sales over Black Friday and Cyber Monday are a little overwrought, it’s nice to know some stocks are gaining ground on actual news, not just because overly optimistic investors are looking for justifiable unloved stocks to prop up.

With that said, it’s not as if the Internet or mobile shopping is going anywhere soon. In fact, the Internet has evolved from being a simple research portal to the most profoundly influential marketing tool, bringing the world closer together and opening the door to a global customer base.

While the Internet is still in its infancy, there are a number of online retailers that have a commanding presence—namely Amazon and eBay—and online retailers that have made mobile shopping easier, including Nordstrom, Inc. (NYSE/JWN), Rite Aid Corporation (NYSE/RAD), and Target Corporation (NYSE/TGT).

Companies that process online transactions, such as Visa Inc. (NYSE/V), MasterCard Incorporated (NYSE/MA), and American Express Company (NYSE/AXP), could also be the big winners in the long run.

One mobile payment company to keep an eye on is Square, Inc. The payment startup, which uses a square credit card reader that plugs into both “iOS”- and “Android”-based mobile devices, has been in discussions with banks about an initial public offering (IPO) next year. In 2014, Square expects to report sales of approximately $1.0 billion. (Source: MacMillan. D., “Square Exploring 2014 IPO With Banks,” The Wall Street Journal web site, November 6, 2013.)

It’s not difficult to see that companies with a strong online presence and a user-friendly mobile web site are much more apt at capitalizing on the younger, Internet-savvy generation than those firms that don’t.

Original Article: http://www.dailygainsletter.com/investment-strategy/record-online-cyber-monday-sales-suggest-this-major-shift/2169/

By CentralBankNews.info
    The European Central Bank (ECB), which earlier today left its policy rates unchanged, said economic activity should slowly recover next year and 2015 but expects inflation to remain low for a prolonged period and lowered its forecast.
    In its latest forecast, ECB staff cut its forecast for inflation this year to an average of 1.4 percent, down from its September forecast of 1.5 percent, and its 2014 forecast to 1.1 percent from 1.3 percent. In 2015 inflation is forecast to rise to 1.3 percent, still below the ECB’s aim for inflation that is close to, but below 2 percent.
    ECB President Mario Draghi said the new forecast confirms the ECB council’s decision last month to cut its rate for the second time this year to 0.25 percent. It has cut rates by 50 points this year.
    Reflecting the recent improvement in economic data and confidence indicators up to November that are consistent with growth in the fourth quarter, ECB staff revised upwards their growth forecast.
    While the forecast for 2013 was unchanged for economic contraction of 0.4 percent, slightly less than 2012’s decline of 0.6 percent, the forecast for 2014 was revised up to 1.1 percent from 1.0 percent and for 2015 growth is forecast at 1.5 percent.

     “To sum up, the economic analysis indicates that we may experience a prolonged period of low inflation, to be followed by a gradual upward movement towards inflation rates below, but close to 2% later on,” Draghi told a press conference.
    In November the euro area inflation rate rose slightly to 0.9 percent from October’s surprisingly-low 0.7 percent that convinced ECB policymakers of the need to cut rates last month.
    In the third quarter the euro area’s Gross Domestic Product grew by a meagre 0.1 percent from the second quarter for an annual drop of 0.4 percent, the seventh quarter in a row with a shrinking economy on an annual basis.
    “Looking ahead to 2014 and 2015, output is expected to recover at a slow pace, in particular owing to some improvement in domestic demand supported by the accommodative monetary policy stance,” Draghi said.
    In addition to the rate cut last month, the ECB said banks would be provided with as much money as they need at a fixed rate at least until July 2015.
    Draghi also confirmed that the ECB would keep its accommodative policy stance “for as long as necessary” and that key ECB interest rates “would remain at present or lower levels for an extended period of time.”
    This is the same guidance the ECB has given since July when it broke with tradition and introduced the so-called “forward guidance” to help guide future rate expectations.
    Despite signs of a stronger economy, Draghi said risks remain on the downside, with financial market developments having the potential to negatively affect economic conditions, along with the risk of higher commodity prices, weaker-than-expected domestic demand and export growth and slow or insufficient structural reforms.
   
    www.CentralBankNews.info

By Mitchell Clark, B.Comm.

This market is definitely looking tired after such a strong run since mid-October.

The performance of transportation stocks has been noticeable this year. The Dow Jones Transportation Average has actually outperformed the NASDAQ Composite year-to-date. In my mind, when there’s leadership from this group, it’s a compelling, traditional bull market indicator. Countless component companies are pushing record highs.

Equally as impressive is the performance of the Russell 2000 index, which has pretty much mimicked the NASDAQ Composite over the last two years.

A divergence became apparent in the beginning of July, as the Dow Jones Industrial Average began underperforming the other indices. It’s as if investors upped their risk tolerance, willing to bet on more risky equity assets as they felt more comfortable being bullish on a stock market that’s already gone up.

Over the last 12 months, the Dow Jones Transportation Average has been the leading index (excluding biotechnology stocks, which aren’t comparable). While outperforming the Russell 2000 by a slim margin and the Dow Jones Industrial quite significantly, I think the Dow Jones Transportation Average remains the leading index going into 2014 and a great indicator for the broader market.

Among the railroad stocks that are included in the Dow Jones Transportation Average, Union Pacific Corporation (UNP) bounced back nicely higher over the last five weeks after experiencing a lasting price consolidation the past six months. It will be interesting to see if the stock can hold above its all-time record-high of $165.18. Doing so will be meaningful.

CSX Corporation (CSX) is also a component of the Dow Jones Transportation Average, and it, too, seems to have broken out of its price consolidation. Earnings estimates for this railroad company have gone up slightly for this fiscal year and next.

Also breaking out of their price consolidations this year are Norfolk Southern Corporation (NSC), which jumped substantially after it reported very good earnings results, and Kansas City Southern (KSU), rounding out the four big public railroad companies included in the Dow Jones transports.

This kind of stock market performance from old economy companies in the business of freight is a positive signal and an indicator for the broader market. (See “My Favorite Picks for After the Market Corrects.”)

If I had to pick one market sector to watch as a general economic indicator, it would be the railroads. In terms of an index, it would be the Dow Jones Transportation Average.

Perhaps it is old-school to lend such weight to this index; it’s actually older than the Dow Jones Industrial Average, created by Charles Dow in 1884. In its first form, the index comprised nine railroad companies and two non-railroad companies (Pacific Mail Steamship and Western Union).

But I still believe it’s really important how business conditions are at the companies that take what other companies make. With the current strong leadership of the Dow Jones Transportation Average, the positive stock market trend remains intact.

This article Dow Jones Transports Leading the Market? is originally publish at Profitconfidential

By Michael Lombardi, MBA

Can you believe this?

The Bureau of Labor Statistics (BLS) reports the U.S. economy experienced deflation in October. The Consumer Price Index (CPI), a widely followed government measure of inflation, declined 0.1% in October.

The Producer Price Index (PPI), which measures the change in prices that producers pay, also declined in October—by 0.2%, continuing its slide from September when it declined 0.1%. (Source: Bureau of Labor Statistics web site, last accessed December 2, 2013.)

But I don’t buy any of this. The government statistics are heavily skewed and do not present the real picture of what’s going on with inflation in the U.S. economy.

Just look at the annual PNC Wealth Management Christmas Prices Index. Every year, the firm tracks the prices of the items of the “12 Days of Christmas” through its Christmas Price Index. It looks at prices compared to last year.

Surprise! This year, the cost of all those items will be 7.7% higher than last year. With its finding, the Managing Executive of Investments for PNC Wealth Management, Jim Dunigan, said, “We were surprised to see such a large increase from a year ago, given the overall benign inflation rate in the U.S.” (Source: “Cost Of Items In ‘12 Days Of Christmas’ Tops $114,000,” The Associated Press, December 2, 2013.)

As I have been writing since the Fed started its second round of quantitative easing (QE2), inflation in the U.S. economy is going to be a huge problem going forward. There is no way the continued printing of $85.0 billion a month in new paper money won’t create inflation problems.

While my readers are likely tired of hearing it, I continue to favor gold-related investments as a hedge against coming inflation, especially with gold prices being so depressed. I believe investors will one day look back at 2013 and say, “I should have bought gold when it was trading at $1,200 an ounce.”

Michael’s Personal Notes:

In the first 11 months of this year, key stock indices like the S&P 500 have gone up 26%. But as this happened, we saw optimism towards stocks increase and fundamentals became weak—two major negatives for stocks going into 2014.

According to the Investment Company Institute (ICI), U.S. long-term stock mutual funds have been witnessing massive inflows. Between the week ended October 23, 2013 and the week ended November 20, 2013, U.S. long-term stock mutual funds saw inflows of $23.95 billion. (Source: Investment Company Institute, November 27, 2013.)

It seems investors are confident key stock indices will continue to go higher. Risk is not a concern anymore. One of the ways this can be seen is via the Chicago Board Options Exchange (CBOE) Market Volatility Index—better known as the “VIX.” This index gauges the amount of fear in the key stock indices. You will see in the chart below how the VIX is breaking down to new lows.

Chart courtesy of www.StockCharts.com

The VIX is saying investors are far from worried about a decline in key stock indices. But the optimism doesn’t end here; I’ve read several analysts say key stock indices will soar higher. One of the most recent examples is Adam Parker from Morgan Stanley (NYSE/MS). He believes that the S&P 500 (currently at 1,800) will reach 2,014 by the end of next year. (Source: Wall Street Journal, December 2, 2013.)

On the fundamental side, the most critical factor for a rally in key stock indices—corporate revenue and earnings growth—just isn’t there. Consider this: as of November 29, almost all of the companies in the S&P 500 have reported their corporate earnings for the third quarter of 2013. We found little more than half of the companies on the S&P 500 were able to beat revenues forecasted by analysts. (Source: FactSet, November 29, 2013.)

Does all this mean we have formed a top in key stock indices? Dear reader, we can say a market is overpriced and due for a correction. We can see the fundamentals behind the market just don’t make sense anymore. But we always have to remember that irrationality can go on for longer than most expect. But in all cases, regression to the mean does follow…and often when it’s least expected.

This article Inflation Running at 7.7%?  is originally publish at Profitconfidential

By George Leong for Investment Contrarians

I pushed the “go” button on China a long time ago now, and I’m certainly not set to press “stop” yet, as I continue to feel the country is one of the top growth areas for investors worldwide. My contentions are contrary to those of many other analysts in the stock market, but I’m holding onto my bullish views.

The Goldman Sachs Group, Inc. (NYSE/GS) is now telling the market that next year (2014) will not only be the “Year of the Horse” in the Chinese Zodiac, but it will also be a buying opportunity in Chinese stocks. Goldman Sachs is predicting that the Hong Kong-based Hang Seng China Enterprises Index, which is available for investment by foreign investors, will surge 19% in 2014. (Source: He, L., “Goldman Sachs sees 19% gain for Chinese stocks in Hong Kong during 2014,” MarketWatch, December 3, 2013.) The index tracks the performance of Hong Kong-listed Chinese companies.

Goldman Sachs also predicts that the Chinese economy will advance by 7.8% in 2014, while the Organization for Economic Co-operation and Development (OECD) is even more optimistic, estimating 8.2% growth next year. (Source: Organization for Economic Co-operation and Development web site, last accessed December 3, 2013.) The OECD’s optimism is based on the rise in domestic consumer spending in China, which remains a clear focus in the mandate of the Chinese government.

Of course, there will continue to be some hesitancy due to the numerous frauds found in Chinese reporting in U.S.-listed companies a few years back. However, many of these issues have already been, or are currently being, dealt with by the U.S. Securities Exchange Commission (SEC). The new and stringent requirements for listing on major U.S. indices will help to reduce fraud risk. Chinese companies that cannot meet the SEC’s requirements will be allowed to list on the over-the-counter (OTC) market. (If investing in an OTC index, be sure you practice due diligence when considering any China-based U.S.-listed stocks.)

And given that only one Chinese initial public offering (IPO) listed on a U.S. exchange this year, I speculate that this is a trend that will continue, as Chinese companies prefer to list on the Hong Kong exchange.

Given this, it may make sense for investors to look at Chinese stocks listed on the Hong Kong exchange, and this is likely the reason why Goldman Sachs is so positive on the Hang Seng China Enterprises Index.

Plus, making the situation in Hong Kong even more attractive is the long line of Chinese companies looking to list in 2014. (This build-up is likely a result of China’s reforms to the listing process in light of the fraud that was occurring.) There are about 700 Chinese IPOs waiting to debut, but most are heading to Chinese exchanges. (Source: “IPOs can’t happen too soon,” China Daily, December 3, 2013.)

So how can you, an American investor, get in on the action? A U.S.-listed Chinese-focused exchange-traded fund (ETF) investors may want to take a look at is the PowerShares Golden Dragon China (NYSEArca/PGJ). This ETF tracks the NASDAQ Golden Dragon China Index and focuses on companies that derive the majority of their revenues from China.

Chart courtesy of www.StockCharts.com

The assets are allocated about 69% to large-cap stocks, 19% to mid-cap, and 12% to small-cap stocks. The top sector is Internet software and services with about 40% of holdings as of September 30, 2013. (Source: Invesco PowerShares web site, last accessed December 3, 2013.)

So while the positive action in China may be occurring halfway across the world, American investors can still safely get in on the action, possibly benefiting from the 700 Chinese IPOs set to list in 2014.

Originally published here: http://www.investmentcontrarians.com/chinese-economy/a-safe-way-to-profit-from-chinas-700-ipos-to-list-in-2014/3390/

By Sasha Cekerevac for Investment Contrarians

One of the most interesting ideas that came out of the last Federal Reserve meeting at the end of October is a serious issue for everyone, including the Federal Reserve and the eventual impact of monetary policy. And that idea is that slow productivity growth might actually be the new norm. (Source: “Minutes of the Federal Open Market Committee,” FederalReserve.gov, November 20, 2013.)

Since the Great Recession, worker productivity has been running at roughly half the rate that the U.S. experienced over the 25 years prior. The problem is that potential gross domestic product (GDP) growth comes from a combination of productivity and the labor force.

If productivity stalls and the Federal Reserve continues with its monetary policy, at some point, this excess cash will begin to seep into the economy and cause inflation.

The reason we aren’t seeing inflation in the official data despite record levels of monetary policy is that the velocity of money has been low. This basically means that money is sitting in bank reserves or is being funneled into assets, such as stocks, instead of being channeled into the actual U.S. economy. There is asset inflation, but the official measures don’t track items like the stock market.

However, at some point, this begins to shift, especially when worker productivity remains low. The last time productivity hit such low levels was during the 1970s, and we all know what happened to the U.S. economy during that time.

Clearly, the monetary policy program run by the Federal Reserve is not having a positive impact on the real economy, as unemployment remains stubbornly high.

While the Federal Reserve continues to pump billions of dollars into the economy each month through the most aggressive monetary policy in its history, the U.S. economy is barely growing at all.

But let’s get to the more important question: how does this impact your investments?

The biggest problem for investors is that we, as humans, tend to have a short memory span. Most people only look back over the past year or two and make their investment decisions based on what worked then.

If we consider the weakness of the economy, the high levels of unemployment, a lack of growth in worker productivity, and the most aggressive monetary policy ever by the Federal Reserve, there are several possible risks that I think are quite likely to crop up.

The first is that holding long-term U.S. bonds is a very risky and poor investment. Even though the official data show no signs of inflation, considering the amount of money the Federal Reserve is pumping out through its monetary policy program, there’s no doubt in my mind that it will have negative implications over the next decade for bondholders.

The second is that market complacency is very dangerous. People seem extremely confident that stocks will keep going up and precious metals, like gold, will keep going down in price. While stocks might continue to benefit from the monetary policy program initiated by the Federal Reserve, I believe precious metals like gold and silver are looking more attractive.

Can anyone truly predict what will happen over the next decade? No one has a crystal ball, but when I see the Federal Reserve still pumping out money through an aggressive monetary policy that’s just not working, this worries me.

I would certainly feel far more comfortable over the next decade to have some gold and silver as a hedge against any side effects that could come as a result of this unprecedented level of monetary policy by the Federal Reserve.

If the Federal Reserve can’t predict what will happen next year, can you really trust that they’re able to keep printing money and not negatively impact your wealth?

This is why having some insurance in the form of precious metals can help, since it wouldn’t be the first time that monetary policy has caused more problems than benefits.

See original article: http://www.investmentcontrarians.com/recession/fed-showing-signs-of-worry-should-you-be-too/3392/

By CentralBankNews.info
    The European Central Bank (ECB) held its benchmark refinancing rate steady at 0.25 percent, as expected, along with its other policy rates and said ECB President Mario Draghi would comment on the reason for this decision at a press conference later today.

By HY Markets Forex Blog

Stocks in the European market opened lower on Thursday as investors focus on the upcoming European Central Bank decision. European shares have been in the red territory for four straight days.

The pan-European Euro Stoxx 50 edged 0.37% lower at 2,983.50, while the German DAX declined 0.31% to 9,105.30. At the same time, the UK benchmark FTSE 100 dropped 0.28% lower to 6,491.50 and the French CAC 40 opened 0.28% lower at 4,136.00.

Stocks – ECB

The European Central Banks (ECB) is expected to announce its benchmark interest rates at 12:45pm GMT, with predictions of borrowing costs to remain at its current rate of 0.25%, according to analysts.

The ECB rate decision will be followed by a press conference, which will start by 1:30pm GMT.

Stocks – Market data

According to reports from the National Institute of Statistics and Economic Studies (INSEE), the unemployment rate in France remained unchanged at 10.9% in the third quarter this year.

Meanwhile in Spain, the industrial output dropped 0.7%, compared with forecasts of a slight fall of 0.1%. The government of Spain will hold an auction of bonds maturing in 2017 & 2018 on Thursday morning, with an aim to raise an estimated €3.5 billion.

The Competition Commissioner for the European Union (EU) Joaquin Almunia will be giving a speech on the EU competition law and other EU plans at the Institute of the International and European Affairs in Dubai at 12:15pm GMT later today.

Stocks – US jobs data

The ADP employment report showed a 215,000 rise in November, advancing from the previously recorded 184,000 rise seen in October.

The US Department of Labour is expected to post its initial jobless claims data by 1:30pm GMT, with forecast of an increase to 321,000 people, a slight rise from 316,000 registered in the week before.

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