InvestMacro Forex News

Source: ForexYard

The euro was able to bounce back from a two-year low against the US dollar on Friday, as Chinese economic indicators led to a moderate amount of risk taking in the marketplace. That being said, analysts were quick to warn that given the current economic state of the euro-zone, the common-currency may not be able to hold onto its recent gains. Today, traders will want to pay attention to the US Retail and Core Retail Sales figures, both scheduled to be released at 12:30 GMT. Analysts are forecasting today’s news will show improvement in the US retail sector, which if true, could result in the dollar recouping its losses vs. the euro from Friday.

Economic News

USD – USD Turns Bearish to Close Out Week

The US dollar turned bearish against most of its main currency rivals on Friday, as the combination of moderate risk taking in the marketplace due to Chinese news, combined with a worse than expected American consumer sentiment figure, caused investors to shift their funds away from the greenback. The AUD/USD advanced more than 100 pips over the course of the day, and eventually closed out the week at 1.0227. Against the Swiss franc, the dollar fell close to 70 pips during afternoon trading and ended up finishing out the week at 0.9804.

Today, the dollar may be able to recover some of its recent losses when the US Retail Sales and Core Retail Sales figures are released at 12:30 GMT. With analysts forecasting today’s news to show improvements in the American retail sector, investors may revert their funds back to the greenback during afternoon trading. Later in the week, traders will want to pay attention to speeches from Fed Chairman Bernanke on Tuesday and Wednesday. Should the Fed Chairman voice any optimism regarding the US economic recovery, the dollar could see gains as a result.

EUR – Euro May See Additional Losses

The euro bounced back against several of its main currency rivals on Friday, as a moderate level of risk taking returned to the marketplace following the release of Chinese economic indicators. After falling as low as 1.2161 during the first half of the day, the EUR/USD was able to advance close to 90 pips and ended up finishing out the week at 1.2248. The EUR/JPY gained close to 60 pips during the afternoon session. After trading as low as 96.42, the pair was able to stage a recovery and eventually closed out the week at 96.98.

This week, euro traders should be warned that given the current state of the euro-zone debt crisis, any gains the common-currency makes may turn out to be temporary. On Tuesday, traders will want to pay close attention to the German ZEW Economic Sentiment figure, scheduled to be released at 9:00 GMT. There are concerns among investors that the debt crisis may be spreading to the EU’s biggest economy. Should Tuesday’s indicator come in below expectations, the euro could resume its bearish trend.

Gold – Gold Gains Close to $20 Following Chinese GDP Data

Risk taking in the marketplace following the release of the Chinese GDP figure on Friday, resulted in the price of gold gaining close to $20 an ounce for the day. Investor confidence in the global economic recovery was boosted following the Chinese news, which came in close to its expected level. The precious metal ended up finishing the week at $1589.26.

This week, analysts are warning that gold may not be able to extend Friday’s gains. While the Chinese GDP figure was viewed as positive by many investors, it still did not signal any expansion in the global economy. Given the current state of the euro-zone, as well as fears that the region’s debt crisis could spread further, gold may reverse some of its gains in the coming days.

Crude Oil – Iran Sanctions Lead to Gains for Crude Oil

The price of crude oil climbed will over $1 a barrel on Friday, as new American sanctions on Iran led to supply side fears among investors. Typically any escalation in the ongoing dispute over Iran’s nuclear program causes oil prices to go up, as the country has the third largest oil reserves in the world. Crude finished out the week at $87.05 a barrel.

Turning to this week, traders will want to continue monitoring the situation in Iran. Any additional escalation in the conflict between the country and Western powers could lead to substantial gains in the price of crude oil. At the same time, if tensions calm down, oil could reverse some of its recent gains.

Technical News

EUR/USD

The weekly chart’s Williams Percent Range has dropped into oversold territory, signaling that an upward correction could occur in the coming days. This theory is supported by the Slow Stochastic on the daily chart, which has formed a bullish cross. Going long may be the correct strategy for this pair.

GBP/USD

A bullish cross on the daily chart’s MACD/OsMA indicates that this pair may see upward movement in the near future. In addition, the Williams Percent Range on the weekly chart is currently angling downward, and may soon cross into oversold territory. Traders will want to keep an eye on this indicator, as it may signal possible bullish movement in the near future.

USD/JPY

Most long-term technical indicators show this pair trading in neutral territory, meaning that no defined trend can be predicted at this time. Traders may want to take a wait and see approach, as a clearer picture may present itself in the near future.

USD/CHF

The daily chart’s Relative Strength Index has crossed into overbought territory, indicating that this pair could see a downward correction in the near future. Furthermore, the weekly chart’s Williams Percent Range is currently at the -10 level. Traders may want to go short ahead of possible bearish movement.

The Wild Card

Hang Seng Index

A bearish cross appears to be forming on the daily chart’s Slow Stochastic, signaling that this pair could see an upward correction in the near future. Furthermore, the Williams Percent Range on the same chart has crossed over into oversold territory. This may be a good time for forex traders to open long positions ahead of possible upward movement.

Forex Market Analysis provided by ForexYard.

© 2006 by FxYard Ltd

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

By TraderVox.com

Tradervox.com (Dublin) – The pair has fallen further to weaker levels last seen more than two years ago. The euro zone is expected to remain at the spotlight this week with investors keenly following events in the region. Key event in this region will be the German ZEW economic sentiment report. Despite efforts by the region’s Finance Ministers to provide aid to Spanish banks, nation’s benchmark yields remained high and forced the sovereign to establish a huge austerity program. The cross was pushed further down by positive reports from the US. Here are some of the events that will affect this pair this week.

The Euro-zone Consumer Price Index report will be released at 0900hrs on Monday. Previous reports have shown that the pace of price rises has fallen close to the ECB target of 2 percent. The market expects the CPI this time to be at 2.4 percent while the Core CPI is projected to be at 1.6 percent. Other reports to be released at the same time with the CPI data include the Trade Balance and the German ZEW Economic Sentiments. Germany has continued to hold the economic status of other countries in the euro zone with its huge surplus. Previous data showed a huge surplus of 6.2 billion Euros and the same figure is expected this time round. Economic Sentiment in Germany is another report that has a great effect on the euro. The euro felt the pinch when the figure turned negative last month registering -16.9 points. The figure is expected to increase to -14.5; however, there is also a greater possibility that the figure might remain close to -20.0 points.

Another event that will be tracked by investors is the Finnish Parliament discussion on Spanish bailout. The result of such discussion will add to the issues surrounding Spanish bailout with Germany having to deal with some legal issues concerning the bailout. This discussion will be held on Thursday and the market is expected to be rocked. Another event on this day will be the Current account figure announcement for the euro zone. The report is expected to show a surplus of 4.6 billion Euros. On Friday, the German PPI will be the major event. May result showed a decline to -0.3 percent and further drop is expected this time.

These events and reports will most probably result to weaker euro; hence the outlook for the EUR/USD remains bearish for this week.

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

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

Article by Investment U

Uunless you simply don’t invest in stocks, you should seriously consider piling up on some solid high-yield dividend stocks today.

As I glanced over financial headlines this week, I noticed that BusinessWeek reported BlackRock (NYSE: BLK) and Morgan Stanley (NYSE: MS) now favor corporate bonds.

Gregory Peters, chief cross-strategist at Morgan Stanley, said, “Corporate credit is the place to be. That’s what we’re telling investors.”

And BlackRock managing director, James Keenan, raved, “Corporates, even high-yield corporates, are in pretty good shape.”

I agree. Corporate bonds are attractive. And many do present a decent opportunity to make money. Ask Steve McDonald, who has been banging the table on bonds for years.

But the truth is, right now, there may be an even better alternative. And it doesn’t matter if you’re retired, looking to, or you’re a fifth-grader.

I’m talking about owning shares of quality dividend-paying companies.

You may have heard us talking about them lately here at Investment U. After all, Associate Investment Director Marc Lichtenfeld’s just released his “already-a-bestseller” Get Rich with Dividends: A Proven System for Earning Double-Digit Returns.

If you haven’t yet, go pick up a copy of this book. Because what’s going on with dividends could make them the safest, best way to earn income over the next 10 years and beyond.

A Unique Opportunity for Income Investors

Looking back on the past 10 years, it has certainly been a decade for the bondholder.

In fact, SmartMoney says, “Since 1962, top quality bonds in the U.S. have carried an average yield of 8%, while stocks have yielded an average of 3%.”

But we’re entering a new era today…

Now some companies are actually paying dividends well in excess of their own bond yields. Just see the chart below for some examples of high-yield dividend stocks:

[Note: Chart uses Moody’s ratings.]

It’s certainly not something you’ll see often. And it presents a very unique opportunity for income investors. Because, in addition, corporations are sitting on more cash than they ever have – $2 trillion total.

They’re using these reserves to buy back shares of their own companies and… increase dividend payouts.

For example, Merrill Lynch equity strategists recently reported dividend yields had their best performance in 2011 and continue to skyrocket in 2012.

And these increases are coming from some of the biggest corporations in the world. They’ve paid out dividends for decades and steadily increased their payments, as well. And when you reinvest these dividends, they’re as safe an investment as you can get.

Why? Because even if the price goes down, your reinvested dividends will simply buy more stock and therefore pump out even more dividends…

So unless you simply don’t invest in stocks, you should seriously consider piling up on some solid high-yield dividend stocks today. In 10 years, you’ll be happy you did.

Good Investing,

Mike

Article by Investment U

Article by Investment U

People have always said that my son’s an “old soul.” Perhaps that’s because he’s never been as wild as most boys. He’s contemplative, serious and has a long attention span.

A few years ago, I showed him how to play poker. (I figured someone has to pay for his college education. So it might as well be his fellow students.)

He got into it. And as I was writing my book, Get Rich with Dividends, he was annoyed that I was so busy. My work was eating into his poker time. He finally asked me what the book was about. So I taught him a bit about the stock market.

Once he understood the basic concepts, I explained to him the power of dividends. More specifically, how compounding dividends can triple your money or produce extremely high yields in a matter of years.

Being the practical kid that he is, he asked me how much money he would have for college if he invested his money according to the strategy in my book.

When I calculated it for him, his jaw dropped. “Will I really have that much money in eight years?” he asked. I told him there were no guarantees. There’s always risk in the market. But I felt confident he’d have plenty of cash when he gets to college. That’s because we’d be investing in conservative stocks and using a strategy that makes money over the long term – regardless of whether the market goes up or down.

The key is to buy a stock with a decent dividend – and reinvest that dividend to buy more shares. This generates more dividend cash to buy even more shares, which racks up higher dividend payouts… and so on.

You eventually get to a point where it doesn’t really matter what the stock price is doing. You still make money no matter what. In fact, a dip in share price can work in your favor, since you can reinvest your dividends at a lower cost.

In the end, the results can be mind-boggling.

For example, shares of ConocoPhillips (NYSE: COP) are down 4.5% from 10 years ago. But if you’d purchased $10,000 in shares and reinvested the dividends, your holdings would now be worth $27,923.

Meaning you would have nearly tripled your money, regardless of the 4.5% loss.

Better yet, when you eventually need the income (instead of reinvesting it), the yields will be incredibly strong.

For example, say you invested $10,000 in BHP Billiton (NYSE: BHP) 10 years ago and reinvested the dividends. And today you decided to start taking the dividends in cash instead. Your annual income from the stock would be $2,400, or 24% on your original investment.

But what if you need the income today and can’t wait 10 years? No problem. Just invest in stocks that I call “Perpetual Dividend Raisers.” These are companies that consistently raise dividends each year.

Altria Group (NYSE: MO), for instance, has raised its dividend every year since 1968.

Over the last 10 years, the company increased its dividend an average of 11.6% per year.

Now it yields 4.75% – nearly triple that of 10-Year U.S. Treasuries. And as long as it maintains the same rate of increase, in a decade, shareholders will enjoy a yield of 12.8%.

Ultimately, this allows you to generate a decent amount of income today, while ensuring that you stay ahead of inflation at the same time.

I don’t know of a more potent moneymaking tool.

My 11 year old is already well on his way to financial independence. Not because he has that much money right now, but because he understands how to use basic strategies to make his money grow.

I go over all of these simple dividend strategies – and more – in my new book, Get Rich with Dividends. For more information, including a 35% discount, click here.

Good Investing,

Marc

Article by Investment U

Source: ForexYard

The euro remained near a two-year low against the USD in overnight trading, following a downgrade of Italy’s credit rating. The EUR/USD is currently trading at 1.2185. The Australian dollar saw upward movement last night after the Chinese GDP figure came in at its expected level of 7.6%. China is Australia’s biggest trading partner and the aussie typically benefits from positive Chinese news.

Main News for Today

Italian 10-Year Bond Auction
• Following Italy’s credit rating downgrade yesterday, investors will be closely watching the bond auction to see if Italy’s borrowing costs will go up further
• Should demand for Italian bonds come in low, the euro could extend its losses against the USD and JPY

US PPI- 12:30 GMT
• The Producer Price Index (PPI) is forecasted to come in at -0.5%, well above last month’s -1.0%
• If today’s news comes in as forecasted the dollar could see upward movement against the JPY before markets close for the week

Read more forex news on our forex blog

Forex Market Analysis provided by ForexYard.

© 2006 by FxYard Ltd

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

By TraderVox.com

Tradervox.com (Dublin) – The US dollar has been performing strongly in the market as jobless claims came in lower than the market expected. Most analysts are taking this as an outlier and the market did not react strongly. However, there are some important events this week that will shape the market. Here are some major events this week.

Monday 16

The US retail sales data will be released at 1230hrs on this day. May data showed a drop for the second month of 0.2 percent equaling the April result. The economist had predicted a 0.1 gain on this data. The core sales excluding cars also showed a decrease by 0.4 percent extending previous month’s decline of 0.3 percent; economists had predicted an increase of 0.1 percent. The data in May was attributed to low wage gain and the joblessness exceeding 8 percent. The data for June is expected o show a gain of 0.2 percent in Retail sales while Core Sales is expected to increase by 0.1 percent.

Tuesday 17

On this day the UK Inflation data and German ZEW Economic Sentiment will be the main events from the European Union region. The UK inflation data will be released at 0830hrs GMT where a drop to 2.7 percent is expected. If this figure is confirmed, this will be a continuation of dropping inflation data from the previous months where the annual rate declined by 2.8 percent from a previous reading of 3.0 percent. The economic sentiment from Germany will be released at 0900 hrs, where a small increase to -14.5 is estimated. Investor sentiment dropped to -16.9 in June from a high of 10.8 in May.

In the Americas, the market will be looking at the US inflation data and the Canadian rate decision which will be released at 1230 and 1300 hrs respectively. The Core CPI for the US is expected to show a 0.2 percent increment after a drop was registered in the previous reading. The Bank of Canada is expected to leave the interest rate unchanged at 0.1 percent. The Ben Bernanke testimony before the US senate will also be another important event in the US. Bernanke will speak at 1400hrs in Washington DC.

Wednesday 18

On this day, investors will be interested I the UK Claimant count change and the US building permits reports which will be released at 0830 hrs and 1230 hrs respectively. Economists are expecting the data from the UK to show a increase to 9,700 while US building permits are expected to drop to 770k.

Thursday 19

Three events will be of importance on this day; the US unemployment claims at 1230 hrs, and US existing Home sales and the US Philly Fed Manufacturing Index at 1400hrs. The US Unemployment Claims report is expected to show a rise back to the normal range of 375k. The US Existing Home Sales data is expected to show a rise to 4.65 million while the US Philly Fed Manufacturing Index is also expected to show an improvement to -7.8.

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

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

Source: ForexYard

At FOREXYARD, we believe in keeping our clients prepared for potentially significant news events. As such, traders will want to carefully monitor the US Retail and Core Retail Sales figures, scheduled to be released today at 12:30 GMT. As can be seen in the chart below, the Dow Jones took significant losses after last month’s indicators came in below their forecasted levels.

Don’t miss out on another opportunity to capitalize on market volatility!

Both the Retail Sales and Core Retail Sales have fallen for the last two months straight. As a result, confidence in the US economic recovery has eroded which has caused indices like the Dow Jones to turn bearish. If today’s indicators show that the US retail sector has gotten even worse over the last month, further bearish movement may occur. This is an excellent opportunity for forex traders to take advantage of potentially significant news, so don’t miss out!

Read more forex news on our forex blog

Forex Market Analysis provided by ForexYard.

© 2006 by FxYard Ltd

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

Source: ForexYard

Trading was relatively quiet during the overnight session, as Japanese markets are closed for a bank holiday. That being said, the EUR did give up some of last Friday’s gains against the USD, but still managed to stay above the 1.2200 level. The EUR/USD is currently trading at 1.2227. Gold and crude oil also saw moderate losses during the overnight session, and are currently trading at $1586 and $87, respectively.

Main News for Today

US Retail Sales and Core Retail Sales- 12:30 GMT
• Both indicators have come in below expectations for the last two months
• That being said, analysts are predicting today’s news to show growth in the US retail sector
• If true, the USD could see moderate gains against the JPY during afternoon trading

Read more forex news on our forex blog

Forex Market Analysis provided by ForexYard.

© 2006 by FxYard Ltd

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

By MoneyMorning.com.au

There’s an old joke that goes something like this…

Q: What’s the difference between gold stock investors… and a pigeon?

A: The pigeon is able to put a deposit on a BMW.

But are long-suffering gold stock investors about to have the last laugh?

After 12 months of steep falls, gold stocks are now ludicrously cheap. And the best cure for a low price…is a low price.

Gold prices and gold stock prices have gone in opposite directions for a while now. In the last 12 months gold has crept up slightly, while the gold stocks that make up the index GDXJ have HALVED.

Right now the gold equity market looks more like a warzone. But the best time to buy is when there is blood on the streets…

This chart shows 40 years of the world goldmining index, benchmarked against the gold price.

It gives some idea of just how cheap gold stocks now are. On this metric, gold stocks are as cheap now as they were at the height of the GFC.

And prior to that, the last time they spent any amount of time at these levels was 1989!

World Gold Mining Index — Back to 1989 Levels

The red line in the chart shows the average level over the last 40 years. This gold index would have to rally 43% just to get back to this level.

One of the main reasons that gold stocks are falling is not so much a flat gold price, but higher production costs. Miners everywhere are facing the same nightmare: the costs of labour, fuel, equipment — and paying the government’s pound of flesh — are rising everywhere. Gold mining is an expensive business.

Without a rising gold price, the miners’ profit margins are therefore getting smaller.

So can we expect a rising gold price any time soon to turn this situation around?

If you take historic patterns as any guidance, then gold is well overdue for a rally in the second half of this year.

In the last 11 years, gold has risen each year. Over this period, its median annual gain has been 18.9%.

We have a little under half a year to go for 2012, and so far gold has done very little. Just to match its historic performance, gold would need to rally to around $1850 by year’s end.

If we saw that, the miners profit margins would explode, and we would see gold mining stocks soar in response.

Going back to the chart above, if we saw a recovery around this level, it would create a ‘double bottom’. This is a technical charting pattern that can signal the start of the next leg up. For example, we saw a double bottom form between 1999 and 2001, prior to the index doubling in value.

I asked our technical trading expert, Murray Dawes, for his take on the index:

‘It’s quite clear from the chart of the goldmining index divided by the gold price that gold stocks have copped an absolute beating over the past year. The ratio is back to levels reached during the extreme lows after the crash in 2008. That’s quite amazing when you consider the gold price is more than double where it was in 2008.

‘The extreme bearishness on gold stocks can be explained by the rising costs they face and the lack of any real dividend from most of the stocks in the index, but when you consider that there will definitely be more money printing by central banks over the next few years it’s hard not to come to the conclusion that the uptrend in gold will continue and many gold stocks should start to rake in some big profits.

‘The ratio appears to be back at a major support level so I would expect to see a bounce from here.’

That would be very welcome, and well overdue, news for gold stock investors’ ears.
But what could cause gold to rally in the second half of this year, to trigger this?

In a word: Europe.

Unstoppable Europe

The European debt fiasco is unstoppable now. The chaos has graduated to Spain, and now Italy. The ECB couldn’t stop Greece from exploding, so I don’t fancy its chances of stopping the disease now that it has infected some of the bloc’s biggest economies.

When you want to get a feel for what the market really thinks, then you need to look past the stock market, and listen to the bond markets.

And I’m not talking about Spain’s or Italy’s bonds. Instead, you want to see what is happening to the world’s biggest bond market — the US bond market.

It is the biggest and most liquid market in the world. When institutional investors want to store a few billion somewhere, the US bond market is often their first choice. It’s not my idea of a fun time, but each to their own.

What has happened here is breath-taking. There is now so much money looking for a safe place to hide, that investors in these bonds are taking a historically low yield. In fact it’s now within a whisker of a 200-year low of just 1.48%. Even more remarkable is that this is below the US inflation rate — so investors are actually taking a negative real yield.

They’re effectively paying to store their money in US-bonds. Given this, it is hard to imagine many more investors taking them up.

To put it another way — like a car-park, the bond market is nearly ‘full’.

But what’s all this got to do with gold?

Simply this: the ship (financial system) is sinking, and the lifeboats (US bonds) are now full.

However, there are some other lifeboats (gold) that most of the passengers (the market) are yet to notice.

Gold is no one else’s liability, for one thing. It also offers a market which is as liquid, and as big as some of the larger bond markets.

At some point soon, the institutional investors will have to pay attention, and understand that gold actually offers the best lifeboat around.

Once this happens, we could see a huge flow of funds into gold, and get that well overdue leg-up in the gold price.

And gold stocks are the place to be when this happens — because they magnify any move gold makes.

At the rate that central banks are printing money, you won’t have long to wait to laugh at anyone who joked about comparing gold stock investors to pigeons!

Dr. Alex Cowie
Editor, Money Morning

Related Articles

Market Pullback Exposes Five Stocks to Buy

The Credit Market Debt Bubble and the Role of Gold

This Gold Price Cycle Shows We’re Headed for a Rise

How Gold Stocks Could Become Your Gilded Lifeboat

By MoneyMorning.com.au

By Kris Sayce and Dr. Alex Cowie, Editors, Money Morning

[Publisher’s Note: the following is an interview between Money Morning editors, Kris Sayce and Dr. Alex Cowie. The interview took place six weeks ago, but is still timely for those investors looking to make profits in mining stocks this year.]

Kris Sayce: I think the big issue for resources investors is the big picture view of the economy. Do you think China will continue to have the same influence over commodity prices in the future as it did between 2003 and 2008?

Dr. Alex Cowie: China is now the world’s second largest economy. Only the United States economy is bigger. But China’s growth has been 3-4 times faster than America’s, as it builds infrastructure. That has made China the biggest commodity user. And it has been the biggest price driver of key commodities like coal, copper and iron ore for years.

But China’s engines have started misfiring this year.

China was already slowly coming off the three year sugar-rush after a four trillion Yuan stimulus program. But the government also deliberately stepped in to slow down the runaway property sector. And this looks like it may have worked too well.

The tell-tale signs are falling electricity production growth, bank lending all but ceasing, and very dodgy real estate figures. Each point to a big fall in Chinese growth rates.

The knock-on effect (and why this is important to Aussie investors) is that it could lead to a big drop in demand for some commodities. This would take China out of the driving seat for commodity prices.

Kris Sayce: That doesn’t sound good for commodity prices. Are you saying they could fall further?

Dr. Alex Cowie: Some commodities could get smashed if China’s growth slows down.

China is the biggest buyer of iron ore, coal and copper. So these commodities could fall much further unless the Chinese government steps in with further stimulus – which is always possible.

To make things worse for thermal coal, which is used in power stations, it has another big problem to deal with: the competition from all the cheap shale gas in the United States. Power stations are switching from coal powered to gas powered, sending the global coal price down even further.

Kris Sayce: So, can we put all commodities and all resources stocks in the same bag? Or is there a group of commodities and stocks that could do better than others over the next few years?

Dr. Alex Cowie: The world of resource investing is changing. The industrial commodities that built China have already HAD their bull run. The copper price is up SIX-fold in the last ten years. I’m not saying you won’t make money from iron ore, coal or copper stocks in the future – but it’s getting harder. Most of the easy money has been made already.

But there is good news. There are always opportunities if you know where to look. Not all commodities are used for Chinese construction or manufacturing.

Take gold for example; this monetary metal has risen each year for the past 11 years. Every time central banks print more money, the gold price goes up. Right now it’s holding up relatively well at a time other commodities are getting smashed. This is probably because of the prospect of the US Federal Reserve, and the European Central Bank (ECB) printing more money before the end of the year.

After precious metals, oil is the next commodity still giving investors plenty of profit opportunity in these tricky markets. Even with shale oil adding slowly to supplies, global oil supply just can’t keep up with increased demand. Oil is pumped from some of the most unstable places in the world. So this commodity has a big ‘geopolitical cost risk’ involved in first extracting it from these places, and then transporting it to you.

On top of this, the easy oil has mostly been found and extracted. So now producers have to spend more money getting the ‘harder-to-reach’ oil. Analysts now reckon it costs as much as $80 per barrel to produce oil in Saudi Arabia. With such high production costs, the price of a barrel of oil isn’t likely to fall any time soon.

The opportunities are still there with gold and oil. But they get a lot of attention, and the best opportunities are hard to find. When the market is this crowded, you have to look in less obvious places to find the big money-spinners of tomorrow. And the best place to look right now is with strategic minerals.

Kris Sayce: Sorry, before you go on, for the benefit of our readers, can you explain strategic minerals in more detail?

Dr. Alex Cowie: Sure. Strategic minerals are a varied group of commodities with a few common features.

Strategic minerals are generally integral to the national defence, aerospace or energy industries in some way. They also all face supply restrictions, typically because production is dominated by one country. This is what we saw with the Chinese rare earths supply a few years ago. This list shows the minerals that the Royal Geological Society deems most at risk of supply shocks.

Take graphite for example. You’d never think the main ingredient in pencils could be so critical! But nearly all of the world’s graphite comes from China. It’s also of growing importance as the chief component of modern batteries, which are growing in use in electric vehicles, laptops and mobile phones.

Kris Sayce: I notice tungsten is high on the list. What’s so special about tungsten?
Dr. Alex Cowie: Tungsten is another commodity that I think has a bigger future than anyone expects. Again, China controls production, but it’s needed worldwide. The important thing about tungsten is that it’s essential for military applications such as the production of bullets. Say a war breaks out between Iran and the US, and China backs its ally, Iran – what happens if China decides to stop selling the US the tungsten its military needs?

The tungsten price has doubled in the last few years, and no one has noticed yet. In the next year or two, I think the market will suddenly notice this investment opportunity. And the best time to invest is well before that happens!

Kris Sayce: OK. So if you could only choose one commodity to invest in, which would you choose?

Dr. Alex Cowie: It would have to be gold. It has outperformed anything else in the long run, and is set to keep doing so. Gold is money, so you can buy other commodities with it anyway!

Kris Sayce: That’s interesting. So you wouldn’t go for the big bulk miners. You prefer gold, energy and strategic minerals. But I still read a lot of people in the mainstream press saying they’re backing the big miners like BHP Billiton [ASX: BHP] and Fortescue Mining [ASX: FMG]. Why have you avoided the big mining stocks?

Dr. Alex Cowie: I’d rather eat a bag of gravel than invest in those stocks. They’re so big it’s hard to get significant profits. For example, in the first four months of this year, BHP went up just 4%. FMG did much better, but still gained just 33%. But then take Western Desert Resources [ASX: WDR]. Maybe you’ve never heard of it, but this small-cap iron ore stock gained 115% in the same time. This is the type of leverage the smaller stocks can give investors.

I’ll leave the boring ASX200 stocks to the fund managers, thanks!

Kris Sayce: Speaking of the ASX200, I’ve still got a feeling this market could fall further. But are you saying the stocks you’re looking at are cheap today? If so, what do you look for to determine whether a stock is cheap or expensive?

Dr. Alex Cowie: The truth is that the truly important things can’t be quantified. You could have the best spreadsheet in the world that factors in future cash-flows, tax liabilities and the rest of it. But this approach totally overlooks the real drivers of value like the quality of the management, how safe the country is the company is exploring or producing in, or whether the largest shareholder needs to sell his or her 15% holding to pay for a messy divorce. So although I use spreadsheets and valuations, they are more as a rough guide than anything.

But the most important factor that’s not in most analysts’ spreadsheets is whether the company has access to funding. The market’s purse-strings are tightening up. Junior explorers are finding it hard to raise capital for exploration, and even harder to raise the large amounts needed to actually build a mine. Without funding, you can forget it.

Obviously you want stocks that have beaten-down prices, and there it’s not hard to find that in this market. But it’s important to look at the technical charts as well, to time the best entry point. I frequently ask [our in house technical trading expert, Slipstream Trader] Murray Dawes whether his technical view matches my fundamental view. It often improves the success rate.

Kris Sayce: We both know Murray is bearish on the market, so what impact will a falling market have on Aussie resources stocks? I clearly remember the 2008 bear market. Prices ratcheted down gradually, but then suddenly stock prices collapsed. The big mining stocks fell more than 50%, and some small-cap mining stocks fell more than 80-90%. Can you see that happening again?

Dr. Alex Cowie: This is already happening! Small mining stocks have had a terrible 12 months. The ASX300 Metals and Mining index has already fallen 40%, small gold stocks have halved, some uranium stocks are down 80%.

Stocks could fall further of course. Just when you think they’re cheap, the market will show you what ‘cheap’ really looks like. But pretty soon, we’ll be looking at the point when the smart investor gets the trolley out and starts shopping.

Kris Sayce: Getting back to resources stocks, one of the things I’ve looked at – and I know you have too – is shale gas. This has revolutionised the energy market in the United States where shale gas now accounts for 25% of U.S. gas consumption. And according to energy giant, BP, domestic shale gas production will make the U.S. energy independent by 2030 and soon after a net exporter. I know you saw an interesting presentation by BHP Petroleum at the Australian Petroleum Production Energy Association (APPEA) conference this year. What’s your take on the shale gas story?

Dr. Alex Cowie: It’s going to be huge. It already IS in the States. Shale gas will increase from 25% to 50% of the US gas supply by 2020. In some ways it has been TOO successful – there is so much of the stuff, the price has fallen like a stone. This is great for consumers, industry and the economy. But gas producers are having a tough time covering costs! BHP bought into the industry just last year, and the fall in gas prices could mean they are facing a huge loss.

So I’m probably more excited about shale oil. The oil price should hold up better due to a much tighter global market, and the fact it’s easier to export by ship.

The US shale sector is quite mature now, and a lot of the easy money has already been made. The Aussie shale sector now looks like the US sector did about 5-10 years ago. Thing have only really just started. There is a lot of potential. If Aussie shale formations prove to be viable … then some MASSIVE profits could be made, and this could be a huge win for the Aussie economy.

But be warned. There are far more challenges than investors appreciate. There are many shale ‘basins’ in Australia, but we don’t know much about how commercially viable they are yet. Many of them are stranded without the infrastructure needed to get the oil or gas to a port.

At this stage it’s a big punt still. But many of the international oil majors are already joining forces with small Aussie juniors. For example New Standard Energy [ASX:NSE], which has a market cap of $150 million, has joint ventured with $65 billion stock, Conoco Phillips [NYSE:COP]. Like I say, it’s early days – but if these guys are investing, they must see some potential here.

Kris Sayce: Finally, I know from reading Diggers & Drillers that up to now, a lot of your focus has been on hard rock mining (tin, copper, gold, etc.). So is there any difference between valuing an energy stock compared to a hard rock miner?

Dr. Alex Cowie: You need to look at a lot of the same things: location, management, funding; as well as all the oil exploration or production parameters. For explorers its things like how much acreage (land) do they have, and how many wells. You need to see how much geological potential they have from seismic data, and also what success neighbouring miners have had. Some areas are more ‘gassy’, while some are more ‘liquids rich’. I prefer oil over gas, as I expect the oil price to do better long-term.

Kris Sayce: That’s great Alex, thanks a bunch for your time.

Dr. Alex Cowie: I hope I’ve been helpful.

Kris Sayce and Dr. Alex Cowie
Editors, Money Morning

P.S. You can find out more about which resource stocks Alex believes will perform best in 2012, including the five stocks set to soar thanks to the 500-year Dutch Anomaly…)

From the Archives…

The Credit Market Debt Bubble and the Role of Gold
13-07-2012 – Greg Canavan

How to Survive and Thrive from China’s Bust
12-07-2012 – Kris Sayce

Payday Loans: Why This Lender of Last Resort Isn’t the Bad Guy
11-07-2012 – Kris Sayce

What A Slowing Chinese Economy Means For Pork Chops
10-07-2012 – Dr. Alex Cowie

Late News: Bankers Rig Interest Rates, No-One Fired
09-07-2012 – Dr. Alex Cowie

Your Insider’s Guide to Mining Stock Profits in 2012