Month: November 2011

AUD/JPY – Daily outlook 04 November

Earlier in the week our analysis suggested we could see the pair rejecting the 83.00 area as the market was showing strong resistance. The pair did infact reject this area and fell towards our initial target of 80.00.

We can see from the daily charts that the bullish momentum seen since the start of October could be set to continue back up to at least the 83 area.

The market has just completed a Hikkake pattern with yesterdays candle rejecting the strong S&R level of 80.

Zooming into the chart we can see the Hikkake in more detail. The Hikkake is strengthened due to it being formed at a strong S&R level and being inline with the current short term trend.

We will be looking to buy into this market with an initial target at the 83.00 area. Should we see a break and close above this area we could potentially see the market continuing to the 85 area. A suggested way to enter this trade could be to place a limit order at the 50% retracement of yesterdays (Thursdays) pin bar, with a stop just below yesterday’s lows.

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Nov. 3 (Bloomberg) — Virgin Australia Chief Executive Officer John Borghetti talks about the airline’s business strategy. Borghetti said Virgin Australia, the nation’s econd-largest airline, expects to double its share of corporate assengers faster than planned after Qantas Airways Ltd. spended flights for about 48 hours because of labor disputes. He spoke with Bloomberg’s Shraysi Tandon in Sydney yesterday. (Source: Bloomberg)

Once again all eyes are on Greece this morning as we are running the gamut of Greek theater.  First we saw the drama unfold during the painstaking debt crisis resolution and now we’re watching the comedy of errors that is taking place with misstep after misstep.  Will we eventually see the tragedy?  And whom would it end up being tragic for: the Euro zone or Greece itself.

The G-20 meeting now taking place has essentially been hijacked by the recent events taking place in Greece and now a series of additional hurdles must be navigated in order for the Euro zone to survive in its current form.   The first hurdle is tomorrow’s confidence vote which may end up seeing the current regime ousted, including the Prime minister Papandreou.  This could prove disastrous as they scramble to form a new coalition and to determine who is actually in charge.  Rumors and false headlines are now hitting the wires saying everything from Papandreou resigning to the referendum may be canceled.

This brings us to the second hurdle, should they survive the confidence vote tomorrow, which is the idea of the referendum on the bailout.  While Greece may have been intending for this vote to decide on just the bailout, EU leaders have now made it perfectly clear that this referendum would be over whether or not Greece wants to remain in the Euro zone.  All aid money that Greece was supposed to receive is now being withheld until this vote.

So there is a much greater possibility that Greece will not be a member of the euro zone by year- end.   Who this hurts more remains to be seen.  The problem of contagion though is starting to rear its head again as yields in Italy are increasing as they rush to cut deficits.

This all comes ahead of this morning’s ECB rate decision, the first under new chief Draghi from Italy.  There is some speculation that he could issue some sort of statement to the effect that the ECB will be the lender of last resort for the EU or that he could even go so far as to reduce interest rates.  As I mentioned yesterday, there is a distinct possibility he could do the latter.

**Edit for breaking news** Draghi cuts interest rates by 25bp!

However, yesterday’s FOMC statement was quite different with Bernanke lowering the Fed’s economic forecast yet again as they have been miserably behind the curve.  Later in the day in his speech, he said that QE3 was a potential option which gave the market hope of the free-money trade being able to continue.  Europe has continued to run with this theme as US dollar weakness is driving the forex markets this morning, despite all of the risk emanating for the Euro zone.

On the data front, there isn’t a whole heck of a lot going on, with the US initial jobless claims expected to show another 400K unemployed.  Later this morning ISM Non-Manufacturing figures are due to be released.  Tomorrow’s NFP report is the big one to watch.

Last night, New Zealand’s unemployment rate ticked higher to 6.6% from an expected 6.4% showing signs that economy is potentially cooling.

Other than these reports, the focus of the markets will be on what happens in Greece and how the Euro zone and the world reacts.  Pressure on the Greek PM to withdraw the referendum has to be immense and whether or not he is even in power next week remains a mystery.

In the meantime, the anonymous rumors will dominate the internet so take them with a grain of salt.  This could produce very choppy market action over the course of the next few days, which is a short-term trader’s dream, but a long-term investor’s nightmare.

So remember to take what the market gives you and to cut losses quickly and move on to the next opportunity.  With uncertain markets conditions, one small error could turn into a huge mistake in not dealt with swiftly!

By Mike Conlon, ForexNews.com

How does one get invited to that ultra-ritzy resort town of Cannes, France? Apparently by upsetting G-20 leaders as you potentially re-neg on a deal that may be the most important economic event of the past year. Yet that’s where Greek PM Papandreou will be as he has been “summoned” to the G-20 meeting to explain what the heck is going on in Greece.

For the record, Greece is not part of the G-20 so his presence is unwelcome to say the least. Both European and G-20 leaders have been blind-sided by the referendum vote in Greece and it has the potential to derail all of the wheeling and dealing that has taken place over the last month as the Euro debt resolution was announced. Picture this—say you owe a lot of money and your creditor agrees to reduce the amount you owe by 50%. What to you do? You take it of course and say ‘thank you’. What you don’t do is say let me get back to you.

Yet that’s exactly what Greece has done, which is essentially a slap in the face to Euro zone leaders and by proxy, the rest of the world. If Greece does not back away from this action or mitigate its impact, then the rest of the world may suffer. Don’t be surprised if this referendum turns into an “opinion poll” which has little consequence. Yet this may go down as one of the biggest idiotic blunders in the history of geo-politics.

Despite this SNAFU, the markets are up-beat to start the day as anticipation of today’s FOMC meeting may give markets hope that there is more free money on the horizon. It is unlikely to produce any change to policy, as the last change dubbed “Operation Twist” hasn’t had enough time to work. But, Bernanke may officially open the door for QE3 if he deems the economic environment to be worsening. So far, the Fed has been way behind the curve and their economic forecasts and estimates have largely missed the mark. This can be problematic when you consider that they use these estimates to make policy.

In the meantime, economic data is trickling in and is mixed. In Germany, PMI manufacturing figures came in better than expected, but the unemployment rate ticked higher to 7% from an expected 6.9%. Italian PMI figures were a lot worse than expected.

Tomorrow the ECB is having its first rate policy meeting with their new chief Draghi at the helm. Will this produce a change of policy? Market expectations are that there will be no change, but if they fear a weakening they could be prompted to cut rates. This is one of those times that a rate cut might make sense, so I’m a bit surprised more people aren’t talking about it. A rate reduction in Australia just took place, so we could begin to see the start of some ratcheting down.

But the most important data to round out the rest of the week is on unemployment figures, with New Zealand reporting later tonight and Canada reporting on Friday. Today marks the first day of the US employment reports with Friday’s Non-Farm Payrolls report being the most important of the bunch.

This morning, the Challenger jobs cuts figures came in better than expected, as did the ADP employment change figures. The ADP report shows private payrolls changes and today’s report of 110K net new jobs was better than the expected 100K.

However, one cannot make a direct correlation between today’s ADP number and Friday’s NFP. Friday’s figure is the official government report and takes into account both government and private payrolls. So it will be interesting to see what that figure is, as it is one of the most significant economic barometers we have. Expectations are for a gain of 95K with unemployment rate to remain stubbornly high at 9.1%.

For now, the markets are content to drift higher and hope for some Fed love later today and are also hopeful that the G-20 summons for the Greek PM will remove the uncertainty surrounding the deal. Should Bernanke fail to produce or should the G-20 fail to change Greece’s intended course of action, then we could slip back into risk aversion mode in a heartbeat.

As a result of these uncertain prospects, I am content to keep the trading to short-term and am not looking for the home-run trade

By Mike Conlon, ForexNews.com

By Ulli G. Niemann

What are you thinking when it comes to your no load mutual fund selections? Are you saving pennies and sacrificing dollars?

Are you spending your time looking at expense ratios, analyzing Morningstar ratings and searching for funds with low fees and no 12b1 charges? If you are like most people, you know these things in and out. You’ve spent hours evaluating them, and your chosen mutual funds cost little to purchase and maintain. But they still don’t perform to your hopes and expectations.

So, why is this happening? Because this kind of investing focuses on cost as opposed to value.

Investors with this philosophy have usually interviewed numerous advisors. But instead of trying to find someone suitable with a sensible approach, they only want to know who has the lowest fees. That’s like going to the cheapest auto repair shop and getting the best price, but your car still doesn’t run well.

Then there are the investors who call or email me wanting a recommendation on a no load mutual fund. They want one with no 12b1 charge, but they completely ignore the issue of how the fund might perform.

Both these kinds of investors spend their time trying to save pennies and in the process they are losing dollars. Instead of falling into the penny wise, dollar foolish trap, here are some ideas that will assist you in evaluating the end profit rather than just the short term saving.

1. Shift your focus from penny pinching to looking at the big picture: What can a mutual fund or an advisor do for you, not how much does it cost? Why? If you buy a given no load mutual fund at the right time and it gains a tidy 15% for you over a 6 week period, would you really care about the costs? If a mutual fund-or an advisor for that matter-can give you superior performance and an increase of several percentage points over your bargain price pick wouldn’t you pay an extra 0.25%?

2. Consider finding a fee-based investment advisor who uses a facts-based methodology and has a track record indicating those kinds of returns. For example, in my own practice I used a trend tracking approach to get my clients into the market on April 29, 2003. Plus, our research and homework led us to recommending funds that gained anywhere from 11.50% to 22.00% over the following 6 week period. How did you do during that time? Do you think any of my clients care whether one of these funds has a small 12b 1 charge? Or whether they have the lowest expense ratios in the industry? I know they don’t.

The bottom line is to look at costs as balanced by performance and that’s where you find value. Then seek true value not simple savings, enjoy healthy dollar-level returns and don’t sweat the pennies.

© Ulli G. Niemann

The Banca Nationala a Romaniei cut its key monetary policy interest rate by 25 basis points to 6.00% from 6.25%.  The Bank said: “A significant improvement was recorded by the short-term inflation outlook, in line with NBR expectations regarding the end of the cycle of supply-side shock effects following the VAT rate hike that affected the economy and the favourable impact of the domestic agricultural production. However, the balance of medium‑term risks is still asymmetric, as they relate to external developments, investors’ risk aversion and capital flow volatility, as well as the fiscal policy stance and administered price adjustments.”

Previously the Bank held the interest rate unchanged at 6.25%, its last move was a 25 basis point cut in May 2010.  Romania reported annual consumer price inflation of 3.45% in September, down from 4.25% in August, 4.85% in July, 7.9% in June, 8.4% in May and 8.3% in April 2011, and now within the Bank’s inflation target range of 3% plus or minus 1%.  The Bank previously noted it expects energy sector reforms and prices rises to keep inflation elevated this year, however much of the short term effects are dissipating.  

Nov. 3 (Bloomberg) — Lorraine Tan, director of Asia equity research at Standard & Poor’s, talks about the implications of Europe’s debt crisis for Asian stock markets and her investment strategy. Tan also discusses the outlook for China’s economy. She speaks with Rishaad Salamat on Bloomberg Television’s “On the Move Asia.” (Source: Bloomberg)

Nov. 3 (Bloomberg) — Laurent Bilke, head of global inflation strategy at Nomura International Plc, discusses Greece’s euro-zone membership and the outlook for today’s European Central Bank interest-rate decision. He speaks from London with Owen Thomas on Bloomberg Television’s “Countdown.” (Source: Bloomberg)

The European Central Bank (ECB) cut its Main refinancing operations rate by 25 basis points to 1.25% from 1.50%.  The Bank said “Owing to their unfavourable effects on financing conditions and confidence, the ongoing tensions in financial markets are likely to dampen the pace of economic growth in the euro area in the second half of this year and beyond. The economic outlook continues to be subject to particularly high uncertainty and intensified downside risks. Some of these risks have been materialising, which makes a significant downward revision to forecasts and projections for average real GDP growth in 2012 very likely. In such an environment, price, cost and wage pressures in the euro area should also moderate; today’s decision takes this into account.”

The ECB also announced the details of its new covered bond purchase programme (CBPP2).  The program will purchase a nominal EUR 40 billion amount of Euro denominated securities in primary and secondary markets, with an issue volume greater than EUR 300m, minimum credit rating of BBB-, maximum residual maturity of 10.5 years.  The purchases will begin in November and be completed by October 2012 at the latest.

The meeting is the first under new ECB president, Mario Draghi.  The ECB last increased the interest rates by 25 basis points at its July meeting; pausing in May and June, after raising the rate by 25 basis points to 1.25% in April this year.  The Euro Area reported annual HICP inflation of 3% in October and September, 2.5% in August and July, 2.7% in June (same as May) and above the Bank’s inflation target of maintaining inflation below, but close to, 2% over the medium term.  

The Euro Area reported quarterly GDP growth in the June quarter of 0.2%, following a 0.8% increase in the March quarter, and a 0.3% increase in the December quarter of 2010.  The Euro (EUR) has gained about 3% against the US dollar so far this year, while the EURUSD exchange rate last traded around 1.375

The Class Warfare Portfolio

by Carl Delfeld, Investment U Senior Analyst
Thursday, November 3, 2011

There are really two types of politicians in this world: pie bakers and pie slicers.

Pie bakers focus on growing the economic pie while pie slicers are forever wrangling about how the pie gets divided.

I think we all know what type unfortunately dominates Washington today.

But class warfare isn’t just alive and kicking in Washington, it’s surging in capitals all over the world. It’s being fueled by the extraordinary success of a group of talented and well-connected entrepreneurs even as the world economy struggles. The most recent Forbes list shows more billionaires in Brazil, Russia, India and China than in all of Europe.

According to a recent report by Merrill Lynch and Capgemini, the number of millionaires in the world grew by more than eight percent to 10.9 million in 2010. The wealth of these individuals is a staggering $40 trillion. On the other end of the spectrum, it’s clear that many in America are struggling and that poverty is still widespread in emerging nations.

Putting politics aside, there are some creative ways for us to go high and low in both our lifestyles and our portfolios.

Take the game of golf. In many parts of the world, it’s seen as a sport of wealth and privilege. Golf Magazine reports that a club near Seoul, Korea received $900,000 to become a member and a round at Pebble Beach runs $495, but there are still many public courses in America where you can play for less than $25. (As a junior golfer, I used to play a municipal course in Milwaukee for only $1!)

A palatial home at the Yellowstone Club in Wyoming will set you back a cool $14 million, but in beaten down Las Vegas, you can get a golf membership and a two-bedroom home for only $73,000 at the Los Prados Golf & Country Club.

Like cigars? Lighting up one pre-embargo Cuban Partagás at the Four Seasons in Scottsdale will be a $455 hit to your pocketbook, but just down the road you can pick up a five-pack of Black & Mild tiparillos for just $3.

Playing the Wealth Divide

Turning to your portfolio, a great place to start on the low end is with the booming dollar store market. I call these $10 stores, because every time my daughter drags me into a dollar store to “pick up one thing I need for school” – it ends up costing $10. The price she pays is hearing on the way home my excellent lecture on the “difference between needs and wants.”

So far this year, the stock of Dollar General Corp. (NYSE: DG), a $13-billion store chain, is up 29 percent. The stock of competitor Dollar Tree, Inc. (Nasdaq: DLTR), a $10-billion chain, has jumped 45 percent while the S&P 500 is in negative territory.

On the high end, there are a few interesting trends going on to make these luxury markets deeper and broader than you might expect.

First, it probably won’t surprise you that emerging nations are juicy targets for these companies. It’s not only the very wealthy but also the emerging middle class that will splurge for a few luxury items as a sign of status. The Economist predicts that by 2030, 93 percent of the world’s middle class will reside in emerging nations controlling $6 trillion in buying power, and a nice chunk of this will go to luxury products.

This trend seems to be happening around the world, including in America.

American Express Business Insights recently released a special report, Global Luxury Fashion Spending, that shows average consumers are doing more luxury spending than traditional high-end shoppers.

For your high-end portfolio, let’s skip over some of the luxury companies usually trotted out: Coach (NYSE: COH), Tiffany & Co. (NYSE: TIF), and Ralph Lauren (NYSE: RL).

I noticed that Movado (NYSE: MOV) was recently on the move. In addition to the namesake Movado line, the company distributes watches under licenses for Hugo Boss, Coach, Lacoste, and Juicy Couture. MOV currently trades at just a bit over net current asset value with a solid balance sheet.

Next up is Hermes International (OTC: HESAY.PK), a French luxury goods maker, partially owned by LVMH. Hermes is known for its premium silk scarves, ties and handbags.

It recently made a big splash by introducing a sari for India. The sari is a silk cloth draped around a woman’s body and is a must for many Indian women for special events and formal evenings. Prices for Hermes saris range from an eye-popping $6,100 to $8,400. Part of this price is due to a 40 percent import duty on foreign luxury goods brought into India. This is also why Harley-Davidson (NYSE: HOG) motorcycles sell for as much as $80,000 in India. Free market anyone?

Finally, there’s a gold mine to be made through products with a “low price luxury” appeal. This is exactly the approach of Taiwan’s 85C Café Bakery coffee shops run by Gourmet Master. The founder, Mr. Wu Cheng-hsueh, came up with the idea of after getting a stiff bill for coffee and pastries at a five-star hotel in Taipei.

85C has a base of 325 stores in Taiwan and it expects to open 100 stores in China this year with the goal of 1,200 by 2016. The company has three stores in the United States, and its highest grossing store is in Irvine, California where it offers 80 varieties of pastries, as well as its famous sea salt coffee.

Last year, 85C’s IPO on the Hong Kong market rocketed 138 percent in one day.

The growing divide between the rich and the poor is expected to continue into the future, particularly in the emerging markets. But as an investor, you need to understand what companies cater to the world in order to capture growth. The best way to do so is to make sure you target both high and low retail in your portfolio.

Good investing,

Carl Delfeld

Article by Investment U