InvestMacro Forex News

By Profit Confidential

Red Lobster and Olive Garden are popular restaurants, but that doesn’t seem to be enough for Darden Restaurants (DRI). The parent company just can’t seem to grow its earnings from these brands.

Darden actually reported decent revenue growth in its fourth fiscal quarter of 2013, based largely on the strengths of its less well-known brands, but earnings continued to disappoint.

Darden also owns LongHorn Steakhouse, The Capital Grille, Eddie V’s Prime Seafood, Seasons 52, Yard House, and Bahama Breeze. It’s the largest full-service restaurant business in the world with more than 2,100 locations.

Total sales from continuing operations grew 11.3% to $2.3 billion. U.S. same-restaurant sales grew 3.5% for LongHorn Steakhouse, 3.2% for Red Lobster, and 1.1% for Olive Garden.

Fourth-quarter diluted net earnings per share from continuing operations were $1.01, a decrease of 12% from $1.15 per diluted share in the fourth quarter of 2012. Net earnings from continuing operations were $133.3 million, down from $151.6 million.

For fiscal year 2014, the company expects total sales growth to be between six and eight percent. Earnings will be affected by the acquisition of 40 Yard House restaurants, with diluted net earnings per share forecast to be down three to five percent compared to fiscal 2013.

Overall, the company’s top-line growth is still good, and its stock market valuation is fair.

Darden’s company stock chart is featured below:

Chart courtesy of www.StockCharts.com

Darden actually increased its quarterly dividend by 10% in an attempt to keep shareholders happy with minimal earnings growth. The stock is now yielding close to four percent, which is attractive.

Before Darden’s recent earnings release, Wall Street analysts were boosting their estimates. Still, the earnings growth outlook isn’t particularly strong enough to make the stock a buy right now. It’s likely the position will be a valuation play for the next couple of quarters.

Restaurant stocks have been generally stronger over the last several years. Even established brands with less health-conscious menus have done well, and those offering dividends have been reliable.

For most equity market portfolios, it makes sense to consider restaurant stocks. For some investors, more than one restaurant stock could be considered; like pairing a mature dividend-paying chain firm and an up-and-coming company.

As I have said before, restaurants are susceptible to the business cycle, but they are among the first to make a comeback when consumer spending improves. (See “How Peter Lynch Got It Right 20 Years Ago.”)

With meaningful revenue growth, investors will reward a growing restaurant company with a high valuation. Wall Street forgives operating losses in this group if the concept has proven to be successful and a company is expanding into new markets.

I wouldn’t say that Darden is struggling; its brands have real staying power. However, the problem for this mature chain is earnings growth and consistency.

Article by profitconfidential.com

By Profit Confidential

Ben Bernanke has spoken, but we all knew the news was coming, so why was there subsequent selling in the stock market?

Yes, the Federal Reserve has set its timeline to begin to cut its bond-buying program by the year’s end, as long as the economy continues to strengthen. By 2014, the bond stimulus may be over, and we will subsequently see an upward move in bond yields and mortgage rates.

But in spite of all of the doom and gloom, there is some optimism. The end of the bond tapering means that the economy is fine and expanding. Moreover, interest rates will continue to be at record lows until perhaps late 2014 or 2015 depending on improvement of the jobs market, economy, and inflation. Isn’t that good?

Maybe not. The rapid rise in stocks that we have seen will likely come to an end, but I still don’t see a market crash. As long as interest rates continue to hold near their record lows, stocks should be fine. But of course, the easy gains that we have seen are likely a thing of the past.

As long as the economy improves, stocks will likely ratchet higher in spite of the rising yields. But if the yields double from the current level, stocks could take a big hit.

For instance, the yield on a five-year U.S. government bond is 1.29%, up 46 basis points in just a month. The 10-year yield is now at 2.40%. I think it’s going to take much higher yields to convince investors to switch from stocks, specifically the high-yielding dividend stocks, to bonds.

I’m not saying it won’t happen, but I just don’t see it until after 2015, when interest rates will begin to ratchet higher. And like I said, it will take a major jump in bond yields to drive any asset shift.

In fact, the current selling is exactly what the market needs given what was an extremely rapid rise that was clearly not sustainable. This may actually be the correction we’ve been hoping for and expecting. (Read more in “Bull Market Not Over, but a Correction May Be on the Horizon.”)

The S&P 500 is down 4.8% since last Thursday. If the selling continues and the index retrenches to closer to 10%, I would definitely be looking to accumulate shares.

For now, investors should stay on the sidelines and perhaps even take some money off the table, as a bigger discount may soon be on the horizon.

Article by profitconfidential.com

By Chris Vermeulen – TheGoldAndOilGuy.com

The life cycle of most things not matter what it is (living, product, service, ideas etc…) go through four stages and the stock market is no different. Those who recently gave in and bought gold, silver, mining stocks, coins will be enter this stage of the market in complete denial. They still think this is a pullback and a recover should be just around the corner.

Well the good news is a recovery bounce should be nearing, but if technical analysis, market sentiment and the stages theory are correct then a bounce is all it will be followed by years of lower prices and dormancy.

I really do hate to be a mega bear or mega bull on anything long term but the charts have painted a clear picture this year for precious metals and I want to share what I see. Take a look at the chart below which shows a typical investment life cycle using the four stage theory.

The Four Stages Theory

Classic economic theory dissects the economic cycle into four distinct stages: Accumulation, Markup, Distribution, and Decline.  Stock, index or commodities are no different, and proceeds through the following cycle:

• Stage 1 – Accumulation: After a period of decline a stock consolidates at a contracted price range as buyers step into the market and fight for control over the exhausted sellers.  Price action is neutral as sellers exit their positions and buyers begin to accumulate.
• Stage 2 – Markup: Upon gaining control of price movement buyers overwhelm sellers and a stock enters a period of higher highs and higher lows.  A bull market begins and the path of least resistance is higher.  Traders should aggressively trade the long side, taking advantage of any pullback or dips in stock price.
• Stage 3 – Distribution: After a prolonged increase in share price the buyers now become exhausted and the sellers again move in.  This period of consolidation and distribution produces neutral price action and precedes a decline in stock price.
• Stage 4 – Decline: When the lows of Stage 3 are breached a stock enters a decline as sellers overwhelm buyers.  A pattern of lower highs and lower lows emerges as a stock enters a bear market.  A well-positioned trader would be aggressively trading the short side, taking advantage of the often quick decline in share price.

Gold Price Weekly Chart – Stages Overlaid

Silver Price Weekly Chart – Stages Overlaid

Gold Mining Stocks – Monthly Chart

This chart is a longer term picture using the monthly chart. I wanted to show you the 2008 panic selling washout bottom in miners which I think is about to happen again. While physical gold and silver are in a bear market and should be some a long time, gold mining stocks will likely find support and possibly have a strong rally in the coming months.

Many gold stocks pay high dividends and are wanted by large institutions and funds. The lower prices go the higher the yield is making them more attractive. So I figure gold miners will bottom before physical metals do. A bounce is nearing but at this point selling pressure and momentum continue to plague the entire PM sector.

Precious Metals Investing Conclusion:

In short, I feel with Quantitative Easing (QE) likely to be trimmed back later this year, and with economic numbers slowly improving along with solid corporate earnings the need or panic to buy gold or silver is diminishing around the globe.

While there are still major issues and concerns internationally they do not seem to have any affect on precious metals this year. Long terms trends like the weekly and monthly charts shown in this report tends to lead news/growth/lack of growth by several months. So lower precious metals prices may be telling us something very positive.

The precious metals sector is likely to put in a strong bounce this summer but after sellers will likely regain control to pull prices much lower yet.

Get My Daily Analysis and Trade Alerts: www.TheGoldAndOilGuy.com

Chris Vermeulen

London Gold Market Report
from Ben Traynor
BullionVault
Wednesday 26 June 2013, 08:00 EDT

SPOT MARKET gold fell to its lowest level since August 2010 Wednesday, trading as low as $1224 an ounce, as stocks rallied along with the Dollar following better-than-expected US economic data a day earlier.

 By Wednesday lunchtime in London, gold in Dollars was trading around 4% down on where it started yesterday’s London session.

 The Euro gold price also hit a fresh three-year low this morning, dipping below €940 an ounce, as did gold in Sterling which traded as low as £797 an ounce.

 In contrast with April’s price drop, gold’s recent fall has not been met with a surge in demand for physical bullion, Asian dealers report.

 “We have not seen a substantial increase in demand,” agrees Victor Thianpiriya, commodities analyst at ANZ Bank.

 “We are going through a whole bunch of stop losses…the liquidity issue in China is also hurting sentiment,” he adds, referring to the recent spike in short-term interbank borrowing rates in Shanghai, which saw China’s central bank yesterday step in with short-term lending to keep interest rates at a “reasonable level”.

 The world’s largest gold exchange traded fund SPDR Gold Trust (ticker: GLD) saw outflows totaling 16.2 tonnes of bullion yesterday, taking total holdings down to their lowest level since February 2009 at 969.5 tonnes.

 “This is a seriously large daily decrease and shows the general lack of demand for gold as an investment tool at the moment,” says David Govett, head of precious metals at brokerage Marex Spectron.

 “All in all, these are not happy times for the precious metals markets and for the time being I remain happy to sell rallies.”

 “There has been 550 tonnes of gold sold out of ETFs since mid-February,” adds Bernard Dahdah, precious metals analyst at Natixis.

 “That’s the equivalent of saying we’ve added to the gold market an additional 11% on top of 2012’s gold [mining] output.”

 On the currency markets, the Euro fell to a three-week low against the Dollar this morning, with the US currency strengthening following the release of positive economic data yesterday.

 European stock markets meantime extended yesterday’s gains during Wednesday morning’s trading, following gains a day earlier for US markets following better-than-expected data on US durable goods orders, home prices and consumer confidence.

 “The first leg of the correction [in stocks] is close to over and the markets should be more stable going into month end,” says Jean-Paul Jeckelmann, chief investment officer at Banque Bonhote & Cie. in Neuchatel, Switzerland.

 “The Chinese central bank’s liquidity pledge has calmed markets in the short term, but the picture is not that clear in the medium term.”

 Silver meantime dipped below $18.50 an ounce this morning, as with gold its lowest level since August 2010.

 Over in India, the world’s biggest source of private gold demand, jewelry maker Rajesh Exports said Wednesday it expects its sales and earnings to grow 10% during the current financial year. This is below previous expectations, with the dip the result of India’s recently introduced measures aimed at curbing gold imports, such as raising the import duty to 8% and restricting importation on credit.

 Rajesh Exports added however that it does not plan to suspend sales of gold bars and coins, despite a request from the All India Gems & Jewellery Trade Federation.

 “We don’t feel stopping these sales would solve the problem [of India’s high level of gold imports],” the firm’s chairman Rajesh Mehta tells Reuters.

 “If genuine people stop the sale then all other spurious people will come into the market.”

Ben Traynor

BullionVault

Gold value calculator   |   Buy gold online at live prices

Editor of Gold News, the analysis and investment research site from world-leading gold ownership service BullionVault, Ben Traynor was formerly editor of the Fleet Street Letter, the UK’s longest-running investment letter. A Cambridge economics graduate, he is a professional writer and editor with a specialist interest in monetary economics. Ben can be found on Google+

(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.

Source: Zig Lambo of The Energy Report (6/25/13)

http://www.theenergyreport.com/pub/na/15403

Remember when oil shot up to $148 a barrel? Chen Lin does, and he sees potential for Wall Street market manipulation to push the oil price in the opposite direction—as low as $47 a barrel. Plus, he’s bearish on China now. The good news is that Lin, publisher of What Is Chen Buying/Selling?, was willing to share his personal investment strategy in his interview with The Energy Report. Find out where Lin booked profits this year and get the names he’s turning to for protection against oil price downside.

The Energy Report: What have been the most important changes in the oil and gas markets since your last interview in February?

Chen Lin: Yes, there has been a major change: I turned bearish on China, and I warned my subscribers about that in Q1/13. I shorted copper, the Australian dollar and U.S. government bonds and I just booked a nice profit after the Fed decision. I also shorted oil as a hedge. I have short positions in both copper and oil.

TER: Where’s the downside risk?

CL: It’s very hard to say. Commodities, I believe, are highly manipulated by Wall Street. I told my subscribers that there were Wall Street firms that pushed oil all the way to $148 per barrel ($148/bbl) in 2008. These same firms can push oil down to $47/bbl. It’s very hard for individual investors to see what is going to happen and when it will happen. I personally recognize the conditions for a major, potentially sharp decline for the oil price, but I just don’t know if or when it will happen. For example, China is slowing down rapidly and has huge pollution problems. The smog cover is a thousand miles long. So there is a great possibility that the Chinese government will control car registrations and force people to drive smaller and more energy-efficient cars. That will reduce oil demand.

Furthermore, in the U.S., we have a shale oil boom and the dollar is getting stronger. Both of these factors could trigger a price decline in oil. Most energy investors I’ve talked to are quite complacent. They all seem to believe that high oil prices are here to stay. But that actually makes it quite dangerous. I’m not saying oil will crash this year. I just see that the ingredients for a potentially sharp oil decline are here and I personally want to play it safe in my oil portfolio.

TER: What do you think about the natural gas situation?

CL: Right now the U.S. has a lot of natural gas. The only question is how high the price needs to be to get all of it out of the ground. I expect prices to climb gradually as the demand increases, but not by a lot and not quickly.

TER: There’s a lot of talk about exporting liquefied natural gas (LNG), yet the Energy Information Administration’s (EIA) recently published Short-Term Energy Outlook states that the U.S. is exporting a record amount of gas by pipeline to Mexico, which saw its usage rise almost 29% from a year earlier to an average 1.6 billion cubic feet per day in early May. How soon could new LNG terminals realistically have a significant impact on domestic production and gas prices?

CL: I see LNG exports as likely, especially to Europe. Every winter, Europe is living at the mercy of Russian natural gas exports. So if the U.S. could export its natural gas to Europe to help it through the winter, I think it would be a win-win situation. As for the impact on the natural gas price, I believe there are so many reserves in the U.S. that it will have some impact, but not too much.

TER: What are the most attractive investment opportunities in the energy sector today?

CL: Energy exploration companies or energy juniors were hit very hard this year. Investors have really been throwing the baby out with the bathwater. Personally, I would play it safe and choose energy companies that have strong balance sheets and can produce at a very low cost. I also want to emphasize that I try to stay with companies with no leverage. When the oil price goes up, leverage can be very good. But when it goes down, leverage can be ugly. I want to remind people of Oilexco Inc. and ATP Oil & Gas Corp. as two examples of companies that went bankrupt when oil went down because of high leverage.

TER: Who have been your best performers this year?

CL: I had a very nice run with refiners this year. I discussed it a little bit in our last interview. I invested heavily in refiners at the beginning of this year. The refiners had quite a few home runs. I got a tenbagger out of Valero Energy Corp. (VLO:NYSE) call options; I bought the call options at the beginning of the year. When it came out with a huge earnings report, the stock exploded. Right now, I’m completely out of refiners because I wanted to put that capital in biotech.

TER: Which companies are you still holding?

CL: My favorite is still Mart Resources Inc. (MMT:TSX.V). It’s doing very well and paying about a 14% dividend. We can see production at least triple later this year when the new pipeline is built, which it expects in Q3/13. It could be delayed a month or two, which is normal in Nigeria. My plan is just to hold onto my shares, collect the dividend and wait. It’s one of the few stocks that you’re getting paid on while waiting for it to turn around. The stock has actually declined along with many of the energy stocks. It was over $2 at one point in January. Now it’s $1.50, but the good thing is the dividend rate is going much higher because it’s paying a $0.20/year dividend.

TER: What’s the political situation in Nigeria? Anything positive or negative that might have an influence on the company?

CL: Nigeria is trying to pass a new petroleum law that could actually reduce the tax the company is paying by up to 65%. That’s quite positive. Let’s hope it gets passed and the company continues paying the dividend.

TER: What other stocks are you sitting on?

CL: Pan Orient Energy Corp. (POE:TSX.V) has been hit extremely hard lately. It was over $4/share at the beginning of the year. Now it’s $1.60. That tells us how pessimistic investors are. However, it’s drilling a very high-impact Indonesian well right now. If successful, we’ll be looking at a very different company. The insider buying has been strong. This company really reminds me of one of my biotech stocks,Vanda Pharmaceuticals Inc. (VNDA:NASDAQ). Vanda was trading below cash just three months ago, and it has quadrupled since then. So I’m holding on to the shares and hoping for good news.

TER: Do you have any new energy holdings you’re excited about?

CL: One of my recent major pickups in energy is Coastal Energy Co. (CEN:TSX.V). The stock recently came down a lot, making it quite a bargain. It was way over $20 at the beginning of the year. Right now, it’s trading around $13-14. It was one of the brokers’ top picks in the past year or two, but the stock didn’t really have a lot of success in the past year and a half. It looks as if a lot of people got frustrated. One of its issues is that Thailand has a windfall tax that makes the company not very sensitive to the oil price. That makes it a very good stock to own right now, especially if oil declines. Also, Coastal Energy is a very good takeover target because of its very large oilfield in Thailand, which would be attractive to a Chinese company.

TER: How would you sum up your energy outlook?

CL: I have to say that I’m not extremely positive on the energy sector and believe energy investors need to be extra careful this year and next. I personally would examine every stock I own to see if that company can survive if oil goes to $70 or $80/bbl. Investment-wise, I’m sticking with a strategy of buying low-cost producers with strong balance sheets. I’m also shorting oil as a hedge for any potential decline in the oil price.

TER: Thanks for bringing us up to date on your thinking, Chen.

CL: Yes, thank you.

Chen Lin writes the popular stock newsletter What Is Chen Buying? What Is Chen Selling?, published and distributed by Taylor Hard Money Advisors Inc. While a doctoral candidate in aeronautical engineering at Princeton, Chen found his investment strategies were so profitable that he put his Ph.D. on the back burner. He employs a value-oriented approach and often demonstrates excellent market timing due to his exceptional technical analysis.

Want to read more Energy Report interviews like this? Sign up for our free e-newsletter, and you’ll learn when new articles have been published. To see a list of recent interviews with industry analysts and commentators, visit our Interviews page.

DISCLOSURE:

1) Zig Lambo of The Energy Report conducted this interview and provides services to The Energy Reportas an independent contractor. He or his family own shares of the following companies mentioned in this interview: None.

2) The following companies mentioned in the interview are sponsors of The Energy Report: Mart Energy Resources Inc. and Pan Orient Energy Corp. Streetwise Reports does not accept stock in exchange for its services or as sponsorship payment.

3) Chen Lin: I or my family own shares of the following companies mentioned in this interview: Mart Energy Resources Inc., Coastal Energy Co. and Pan Orient Energy Corp. I personally am or my family is paid by the following companies mentioned in this interview: None. My company has a financial relationship with the following companies mentioned in this interview: None. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview.

4) Interviews are edited for clarity. Streetwise Reports does not make editorial comments or change experts’ statements without their consent.

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6) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned and may make purchases and/or sales of those securities in the open market or otherwise.

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By WallStreetDaily.com

My apologies, but I misspoke earlier in the week.

The most dangerous, wealth-destroying investment in the world right now isn’t cash. It’s leveraged exchange-traded funds (ETFs).

By my count, there are at least 174 of these in existence. And on the surface, these ETFs promise to double or triple the movements of the underlying markets they track.

I’m here to tell you that they’ll do anything but.

You see, double- and triple-leveraged ETFs (whether long or short) pack a nasty surprise. It’s almost unbelievable, actually.

And particularly in this volatile market, theses ETFs are hardwired for losses.

Here’s what I mean…

The Nuts and Bolts of Leveraged ETFs

Leveraged ETFs have been around about as long as Hannah Montana (only since 2006).

Given such newness, let’s first make sure we’re all on the same page regarding the general mechanics of how they work…

A normal exchange-traded fund is constructed to mirror the movement of an underlying index. If the index rises 5%, the ETF that’s tracking it is supposed to rise 5% (before expenses). And an inverse ETF simply moves in the opposite direction of the index that it’s tracking. So if the index drops 5%, the inverse ETF should rise 5%.

When you apply leverage, however, these movements are magnified. So if the inverse ETF uses three-times leverage – and the index falls 5% – the ETF should rise 15%.

Sounds simple enough in theory, right?

Too bad the reality doesn’t measure up. Or, as Yogi Berra used to say, “In theory there is no difference between theory and practice. In practice there is.”

Leverage? What Leverage?

Consider this: From January to May 15, 2009, the Russell 1000 Financial Services Index fell by 5.9%.

So a long ETF using three-times leverage should have dropped by 17.7% (-5.9 x 3 = -17.7%). Instead, it plummeted by 65.6%.

And an inverse ETF using three-times leverage should have been up 17.7%. But it sank by 83.4%.

Talk about not getting what you paid for.

Pick any other period, and I promise it will yield similarly confounding results. And the worst offenders will always be the ETFs using three-times leverage.

The question is, why?

Two Fatal Flaws of Leveraged ETFs

Just so we’re clear, I don’t detest all exchange-traded funds.

Regular ETFs provide a low-cost way to achieve instant diversification and access markets that aren’t readily available. And unlike traditional mutual funds, they provide intraday liquidity.

But when it comes to leveraged ETFs, those benefits are completely nullified by two fatal flaws…

~Fatal Flaw #1: Daily Rebalancing

Leveraged ETFs don’t actually buy individual stocks. Instead, they invest in derivatives. And these derivatives require daily rebalancing in order to match the rise or fall in the index. Otherwise, the leverage ratio for the ETF will be off-kilter. That means leveraged ETFs can only be counted on to perform (as promised) for a single day.

In other words, they’re for day traders only – not investors.

But this distinction isn’t being communicated clearly to investors. As a result, the SEC actually felt the need to issue its own warning about the confusion surrounding leveraged ETFs.

~Fatal Flaw #2: The “Dark Magic” of Compounding

For years, we’ve been wooed by the magic of compounding returns. If you’re 18 years old and invest $2,000 per year for three years (and not a penny more after that), they say you’ll end up a millionaire if you simply leave it invested and let compounding work its magic.

But when it comes to leveraged ETFs, compounding often works against us.

For example, consider what would happen if a regular ETF drops by 10% one day, then rises by 10% the next. (And for simplicity’s sake, let’s assume the starting value of the index it tracks is 100.)

• Day 1: The ETF would be down 10% to $90.
• Day 2: It would rise by 10% to reach an ending value of $99.

Total Return: -1%

Now let’s take a look at what happens with an ETF that seeks double the return of the index (i.e. – uses two-times leverage). Again, we’ll assume a starting value of $100…

• Day 1: The ETF would be down 20% to $80.
• Day 2: It would rise by 20% to reach an ending value of $96.

Total Return: -4% (when it should actually be down only 2%)

If we ratchet up the leverage to three-times and extend the holding period, it magnifies the negative impact of compounding. Toss in some market volatility, which we’re experiencing now, and this tracking error gets even worse.

Bottom line: Beneath a simple exterior – and the allure of a novel hedging strategy – there are considerable complexities and risks associated with leveraged ETFs.

Unless you’re a day trader, with an uncanny ability to predict every jot and tittle of the market, avoid leveraged ETFs like the plague. Heck, even if you could pull off such a feat, the transaction costs would eat your portfolio alive.

So the best bet is to simply avoid leveraged ETFs altogether.

Ahead of the tape,

Louis Basenese

The post 174 ETFs You Should NEVER Buy appeared first on  | Wall Street Daily.

Article By WallStreetDaily.com

Original Article: 174 ETFs You Should NEVER Buy

By HY Markets Forex Blog

The Asian market were trading mixed on Wednesday, with the Shanghai Composite index opening at a negative territory, while the Australian and Hong Kong shares climbed overnight after the better-than-expected US data was released .

The Japanese Nikkei 225 closed at 1.04% to 12,834.01, while the Topix index closed down at a low 0.9% to 1,069.28.

Shanghai Composite slid 1.02% to 1.02% to 1,931.16 at 6:03am GMT, while in Hong Kong, the climbed 1.12% to 20,079.27 at the same time.

The Australian S&P/ASX 200 gained 1.48% higher, closing at 4,724.70, while in South Korea; the Kospi index increased 0.16% at 1,783.45.

The People’s Bank of China (PBOC) said it would maintain the liquidity in the financial markets in order to stabilize the system where required, in a statement released on Tuesday.

“We’ll closely monitor the change of liquidity within the banking system going forward, flexibly adjust liquidity management based on international payments and the liquidity demand-and-supply situation,” deputy head of the PBoC’s Shanghai branch Ling Tao said in a statement.

The rate of the seven-day average repurchase rate closed at 7.44% higher on Tuesday. High borrowing costs in China’s interbank markets is expected to decline by mid-July this year, according to analysts.

Goldman Sachs changed its estimate for the Chinese economic growth for this year from 7.8% to 7.4%.

Meanwhile in the U.S, the consumer confidence index climbed to 8.14 in June from its previous record of 76.2 in May, according to the Conference Board statement released on Tuesday.

Durable goods booking in the US rose 3.6% in May to $231 billion, while the house markets made a 1.3% gain to 460,000 sold homes

The post Asian market varies after US data appeared first on | HY Markets Official blog.

Article provided by HY Markets Forex Blog

By HY Markets Forex Blog

The European market opened green on Wednesday, while investors are still concerned and focused on China over the credit crunch.

European Euro Stoxx 50 rose 0.46% at 2,555.47 as of 7:29am GMT, while in Germany; the DAX index gained 0.44% to 7,846.15 at the same time. The French CAC 40 gained 0.13% to 3,645.68 and the British FTSE 100 added 0.14% to 6,110.50.

Jonathan Sudria, trader at Capital Spreads Jonathan said “The vicious moves lower on fears of Fed tapering and a Chinese credit crunch seem to have abated for now and tentative buyers are feeling a little confidence about dipping their toes back into the market.”

The US Consumer Confidence Index advanced to 81.4 in June, from previous month of 76.2, while durable goods booking in the US rose 3.6% in May to $231 billion, according to reports released from the department of commerce.

Earlier, the central bank said it would put in cash into the economy to support growth, however changing its tune; the People’s Bank of China (PBOC) stated in a statement released on Tuesday, that it would the support liquidity in the financial markets in order to keep the system stable where necessary.

The French final gross domestic product (GDP) fell by 0.2% in the first quarter, while the year-on-year dropped 0.4%, according to the National Institute for Statistics and Economic studies.

Germany’s consumer climate increased by 6.8 points in July from previous record of 6.5 in June, GFK reported. While in Italy, the roman government will auction Treasury bills with maturity in 186 days, the country’s target is eight billion euros.

The post European market climbs with China still in focus appeared first on | HY Markets Official blog.

Article provided by HY Markets Forex Blog

By MoneyMorning.com.au

Q: How can you spot a vegan at a dinner party?

A: Don’t worry, they’ll tell you…

Markets like this require a dose of humour to get through! Because stocks, bonds, currencies, commodities…the current rout is taking no prisoners.

As central bankers make moves to remove the stabilisers from the market, the mood is turning sour as quickly as asset prices are falling.

The consensus mood is almost universally bearish. The question is: will consensus be proven wrong?

With many asset prices at multi-year lows, will this be looked back on as a massive contrarian buying opportunity…or is buying this market today an investing death wish?

The well-worn contrarian quote from that 18th century financier Baron Rothschild goes, ‘The time to buy is when there’s blood in the streets.‘

In his case it was quite literal: he bulked up the substantial Rothschild family fortune by betting big after the carnage and confusion of the Battle of Waterloo.

However, the full quote was in fact, ‘Buy when there’s blood in the streets, even if the blood is your own.‘

Well, there are plenty of investors out there that could relate to that today.

Is it Time to Get Bullish Again?

It’s tough to imagine. Junior resource companies have been falling for two and a half years now, and have lost over 70% on average.

Small Resources Index – a World of Pain

Source: Bell Potter

The worry now is that in the last month the small resources index has crashed through the level set in the GFC. This means it’s now at nine year lows.

Right now it’s hard to think we have seen the worst of it. Until recently, I’ve been pretty bullish. The thing is even just talk of the Federal Reserve dialling back on the current $85 billion buying program caused the market to crash – even while the Fed is merrily still buying $85 billion each month.

If global markets are falling simply in anticipation of tapering, what will happen when tapering actually happens?

In yesterday’s Money Morning I explained how the Bank of International Settlements (BIS) is pressuring all central banks to step off the gas and tighten up monetary policy.

They may be getting their way. It’s not just the Federal Reserve talking about it, but China seems to be actually tightening already. This could have a major effect on commodities and resources in particular. Marc Faber reckons commodities look ‘horrible‘.

A mining exec I was in touch with recently said, ‘It will be interesting to see how the next 12 months plays out. I think there will be a lot of blood on the floor.‘

This strain is showing up in more than just stock prices. Brokers are leaving the industry each month in large numbers. The Australian financial services sector has now shrunk by around 10% from its recent peak.

Everyone is having a tough time. As a measure of retail investor activity, the web-traffic for the stock forums has more than halved in the last six months.

You can understand why. Even last year’s hot trotters are turning into this year’s dog food. Sirius (SIR), the rags-to-riches nickel explorer with the dream project, has fallen 70% in a few months from $5.00 to as low as $1.56 yesterday. Another recent market darling, Linc Energy (LNC), has crashed from $3.00 to $0.78 as of yesterday. There are many more with similar charts.

Sirius and Linc – Sharp Falls in Last Three Months

Source: Bigcharts

In recent days I’ve taken profit on some of the winners in the Diggers and Drillers tips, and cut some losers in anticipation of prices falling further. In all, I’ve halved the number of stocks in the portfolio.

But just as this all unfolds, some people in the market are getting very bullish, with talk of this being an outstanding opportunity. We’ve heard that the whole way down of course, but ultimately they may be right. Patience will be the key, as things may well get worse before they get better.

Just as some high profile resource funds are being forced to sell to meet investors’ redemptions, there are other funds out there that are starting to see value and buy ‘quality’ on the cheap. They admit that they will have to be patient.

Others, like mining legend Owen Hegarty, made the case for the current squeeze in mining to make the next bull market ‘stronger for longer‘.

History to Repeat?

Your regular editor, Kris Sayce, is certainly getting more excited by the day. The market reminds him of the collapse in 2008. Back then, when everyone was running for the hills, he tipped a raft of beaten up stocks which went on to put in big triple-digit returns, including gains of 242%, 338% and 458%.

The trigger that Kris saw back in 2008 (along with the torrent of central bank money printing) is happening today – the collapse of the yen.

The yen slumped from late 2012 through to the early part of this year, before rallying in recent weeks. But that rally looks to be over. If Kris is right, he believes that could be the catalyst for another Aussie stock rally.

It’s a risky strategy, but I don’t think I’ve ever seen him so confident.

Dr Alex Cowie
Editor, Diggers & Drillers
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From the Port Phillip Publishing Library

Special Report: The Sixth Revolution Has Just Begun

Daily Reckoning: Think and Invest Like a Venture Capitalist

Money Morning: How Central Bank Zombies Control the Stock Market

Pursuit of Happiness: Don’t Blame Progress, Blame the Governments

Diggers and Drillers:
Why You Should Invest in Junior Mining Stocks Now

By MoneyMorning.com.au

The Chinese model of economic growth is flawed. It has wasted resources on an unprecedented scale. Empty cities, excess industrial capacity and sour construction loans litter the country. New lending yields less and less incremental growth. And the very worst construction projects aren’t producing enough cash to service debts.

The Chinese economy, like most others, rests on a shaky foundation of credit. The country has completed the largest building boom in history – a boom dependant on unsustainable growth in the supply of money and credit.

It’s important to understand that there are effectively two governmental factions in China: one that’s interested in power, control and stability and one that’s interested in getting rich no matter the consequences.

With China’s late 2008 surge in bank lending, the second faction’s priorities – construction and industrial activity of all kinds – won out. But ever since inflation heated up, threatening social stability, the first faction grew more concerned about its hold on power.

Because of concerns about social stability, China’s central bank, the People’s Bank of China (PBOC), started tightening liquidity to the official banking system. Such tightening had the potential to spark a panic in real estate and banking a few years ago.

No panic ensued…

No Panic in China…Yet

Instead, overstretched borrowers and local governments migrated to off-balance sheet structures within the ‘shadow’ banking system. The loans that funded busted projects were, in many cases, not rolled over during China’s credit tightening phase of 2010-11.

Shunned from the banking system, stressed borrowers were desperate to find new sources of funding. They found high-interest, short-term funding from ‘trust’ companies. As part of the shadow banking system, trust companies match savers looking to earn high interest rates with desperate borrowers.

At the end of 2012, borrowers scrambled to secure loans from trust companies. According to the PBOC, trust loans rose 679% in the year ending December 2012, to 264 billion yuan ($42 billion). High-interest rate trust loans now make up 16% of China’s entire pool of financing. Trust loans, like payday loans in the U.S., have short maturities. Short-term trust loans amount to an estimated 50% of Chinese GDP, so liquidity crises can quickly spiral into solvency crises.

Local governments are big trust loan borrowers. They’ve reverted to bad, old infrastructure spending habits. The late 2012 revival in infrastructure spending may have been cut off when liquidity to fund trust companies dried up. Some trusts could be on the verge of defaulting…

Trusts rely on funding from the official banking sector, and in recent weeks, the PBOC has directed the banks to ration credit to shadow banks. ‘The [PBOC] has made it clear that it intends to penalize those aggressive lenders and crack down on the potential for moral hazard,’ writes Credit Suisse analyst Dong Tao in a June 20 note. ‘Some small-medium-sized banks have deployed an excessive amount of liquidity into high-yield/high-risk assets [like trust loans]… counting on the central bank’s rescue in case that liquidity gets tightened.’

The central bank told banks to look elsewhere for liquidity. ‘To us, this is a sign of brinkmanship,’ Tao concludes.

When the Chinese banks looked for liquidity outside the cozy confines of the PBOC, they found it scarce and expensive. The banks demanded higher interest rates to lend to each other.

When one bank fears another bank might have exposure to dodgy trust companies, it now demands a high interest rate to compensate for risk. The Shanghai Interbank Offered Rate (SHIBOR) – the rate banks charge each other for loans – spiked dramatically.

SHIBOR rates have fallen a bit since the PBOC injected some liquidity into the system. But the PBOC issued a terse memo on liquidity management practices to the banks on June 24. Credit Suisse’s Tao explains:

‘We take this as a gesture from the central bank that ‘teaching a lesson’ is probably over, but it could tighten the liquidity again should it feel banks are misbehaving.’

The PBOC, in other words, will ensure liquidity is sufficient to allow for an orderly deleveraging of unviable shadow banking entities. But the deleveraging (credit contraction) process will not be stopped.

A state-sponsored contraction of China’s shadow banking system is bad news for property developers. The second Chinese government faction – the faction of speculators and crony politicians making money from the bubble – has no interest in ending the status quo: It financed projects through entities called local government financing vehicles (LGFVs). These are joint ventures between local governments and property developers.

Local governments own the land. There are no real property taxes in China, so local governments earn tax revenue by selling land into these joint ventures. Then, they get a piece of the proceeds from development.

Loans to these LGFVs are in a sort of netherworld. The Chinese banks think they are going to be ‘money good’ because they are quasi-government entities. But a study of LGFVs conducted by banking regulators a few years ago discovered that a staggeringly high number of these LGFVs couldn’t generate enough cash to service their debts. Some estimate that up to half of these loans could go bad.

Everyone expects that the government will bail out LGFVs when they default, after losing funding from the trust loan market. But the central government may not ride to the rescue. Political leaders concerned with stability and inflation seem determined to purge excesses. The will to reform and restructure will be tested, because the bubble’s excesses were staggering…

Short selling legend Jim Chanos is a vocal bear on China. He famously described the country as stuck on a ‘treadmill to hell.’

In other words, Chinese leaders feel the need to sustain frantic levels of construction and infrastructure activity for fear that the economy would crash without it; yet more and more construction results in lower and lower incremental returns on investment.

Chanos illustrated the scale of China’s new office and residential apartment construction; it’s so enormous that it’s hard to grasp: 31-32 billion square feet of new office space was constructed in just 18 months after China’s 2008 bank-funded wave of stimulus. To put the number into perspective, it’s equivalent to a 5-by-5 office cubicle for every man, woman and child in China.

The Biggest Myth of Them All

Chanos thinks the biggest myth of all about the China investment story is the myth of limitless urban migration. This myth involves 15-20 million people per year moving from rural areas to urban areas. But the migrants into cities are among the lowest-wage workers, and, ironically, many have migrated simply to construct the very condos that they can’t afford.

Another myth Chanos busted is the idea that most Chinese real estate investors are all-cash buyers – or at the very least invest with hefty down payments. But much of this ‘all-cash’ buying is funded by loans sourced elsewhere, such as loans drawn from corporate credit lines.

Whatever the source of down payments for real estate, the bottom line is that Chinese banking system assets grew at 25% per year and the shadow banking system grew at 10% per year. Thirty-five percent credit growth never ends well, but it’s fun while it lasts.

Everything in China is about making the GDP number. Politicians are fixated on the result, rather than how they get there. But GDP – adjusted for wasteful, uneconomic projects – will ultimately be much lower. We’ll see how much lower when the government recapitalises the Chinese banking system – both official and shadow banks.

By the end of the banking system restructuring, China’s reputation will have taken a big hit…

The biggest construction project in history will have ended; the supply of newly printed yuan, printed to fund the banking system restructuring, will have ballooned; the savings of a hardworking population will have been wasted on boondoggles; and China’s growth story, as its population follows Japan into an aging demographic cycle, will end with a whimper.

Dan Amoss
Contributing Editor, Money Morning

Publisher’s Note: This article first appeared in The Daily Reckoning USA.

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From the Archives…

The 12 Most Important Rules Every Investor Must Know
21-06-2013 – Vern Gowdie

The US Economy Butterfly Effect
20-06-2013 – Murray Dawes

Beware The Federal Reserve’s Deadly Game of Poker
19-06-2013 – Dr Alex Cowie

Why Thursday Could Be a Key Day for Silver…
18-06-2013 – Dr Alex Cowie

The Single Biggest Mistake a Technology Investor Can Make
17-06-2013 – Sam Volkering