Month: December 2011

Mead-Johnson Nutrition (MJN) said today it has conducted a new round of tests on a batch of its Enfamil Newborn powdered formula, and did not detect any presence of Cronobacter bacteria. The company said it can say with confidence that the formula is safe.

Dec. 27 (Bloomberg) — Jane King summarizes the top stories this morning on the Bloomberg Business Report. (Source: Bloomberg)

Written by Sara Nunnally, Editor, Inside Investing Daily, insideinvestingdaily.com

Inside Investing Editor’s Note: It’s happened… We finally see some real pushback against the euro from one of the EU’s newest members: the Czech Republic. On Dec. 15, three months after I first wrote today’s “Best Of” article, the Czech finance minister recommended the country not adopt the euro as its currency.

The debt crisis is scaring the Czech Republic away. It doesn’t want to have to contribute to the bailout fund. I told you this might happen…

Here’s what else I said on Sept. 15, 2011…

It was a very long two weeks… Not only was I watching the value of my dollar slip away, I was drowning my sorrows in Czech beer with a bunch of Canadians.

Needless to say, I woke up on the wrong side of the bed more often than not.

It was September 2008. I was starting my Eastern Europe reconnaissance trip when Lehman Brothers announced its bankruptcy, and the world’s biggest financial institutions fell to their knees under the sudden crushing weight of their poor investment decisions.

I should have run to the money exchange and turned all my dollars into euros. On Sept. 18, 2008, the U.S. dollar traded for 0.7004 euros. By the time it was clear that the government would not hand Lehman Brothers a bailout, the U.S. dollar was in a freefall.

On Sept. 24, one dollar would have only bought 0.6777 euros.

Let me put it to you another way. Excluding fees, if I had exchanged $400 on Sept. 18, I would have gotten €280.16. On Sept. 24, I would have gotten €271.08.

That’s a 3.24% drop in a week! Huge moves for currencies…

It may not seem like much, but when you’re on a travel budget and you’re keeping up with the Canucks at the bar… it hurts.

Lucky for me, I wasn’t in Euroland for long. After a brief night in Austria, I headed to one of my favorite places on the planet: the Czech Republic.

The Czech Republic has been on the verge of adopting the euro for years. But now, it is a good thing it didn’t. Since Jan. 3, 2009, the Czech koruna has climbed 8.2% against the euro. I’m sure Slovakia wishes it were in the same boat. Slovakia was to adopt the euro by January 2009.

The Slovakian currency was already trading much higher than its neighbors just before the transition. But the beer was just as cheap.

The Czechs’ stronger currency means more purchasing power. It is a double-edged sword, however.

The country’s exports are now more expensive, and it exports products mainly to European countries that are seeing the euro lose power.

Indeed, there are several countries with this same deal. They’re all “Union” members, but they aren’t tied to the euro. Countries like Poland, Hungary, Lithuania, Romania, Bulgaria and Latvia. Now, the opposition to adopt the failing currency is growing.

Let me explain why… it’s more than just the obvious idea of a currency that’s losing value.

The majority of Eastern European economies are still far behind the big, Western European nations.

Poland — one of the most promising new EU economies — has a per capita GDP of $18,800. That’s just under 53% of Germany’s GDP per capita figure.

Heck, even Portugal has a higher figure.

If Poland were to adopt the euro, consumer goods prices would shoot up far more quickly than wages.

The economy would flounder.

An interesting idea would be to find out how much further the euro would have to fall to allow Emerging Europe to be able to jump in without adjusting any of their economic factors. Could the euro be headed there?

Or will it die first?

One thing’s for certain… Even developed European economies aren’t going to want another Greece on their hands. That could happen if new EU members adopt the euro before they’re fiscally ready.

But this sets up a unique investment opportunity.

Emerging Europe will outperform Western Europe, and there are now ETFs that will give you a shot at these markets.

You can get access to a basket of Emerging Europe countries through ETFs like the iShares MSCI Emerging Markets Eastern Europe Fund (ESR:NYSEARCA) and SPDR S&P Emerging Europe (GUR:NYSE).

Here’s the thing.

Both of these funds are super heavy on Russia. This might not be a bad thing, but if you’re targeting only Eastern Europe, or if you already have Russia in your portfolio, these ETFs might be both too much and not enough.

As solution is to look at the Market Vectors Poland ETF (PLND:NYSE), which we talked to you about back in October 2010.

This is the only single-country ETF for new Union members.

If you take a look at PLND’s chart, you might think I’m crazy… We’ve seen a bearish crossover in the moving averages. But I see real value here. PLND’s price has really come down out of the clouds.

View larger chart

We are seeing the bottom for this ETF. The last time we saw a bearish crossover, the 50-day moving average fell sharp and quick. When it got too far away from the 200-day moving average, PLND suddenly found support.

We’re looking at just that scenario again.

Market Vectors Poland ETF (PLND:NYSE) is a buy at current levels. We could see a quick bounce back up to $24 for a gain of more than 20%.

But this could be just the beginning…

Use a 10% trailing stop for this one. It will be a rocky ride at first.

Publisher’s Note: If you want to learn more about the situation in Europe — get the inside scoop — you need to listen what I have been telling my Macro Trader subscribers.

I recently detailed 7 Mega-Trades that are about to unfold. It’s all thanks to a “super-bubble” of debt that is about to go bust. If you’re not opposed to getting rich while others are going broke, here’s your link.

Written by Sara Nunnally, Editor, Inside Investing Daily, insideinvestingdaily.com

Video courtesy of ForexCT – A leading Australian forex broker, liscensed by the Australian Securities & Investments Commission, offers the MetaTrader4 and PROfit Platform to retail traders. Other services include Segregated Accounts, Trading workshops, Tutorials, and Commodities trading.

Source: ForexYard

Investors have long been pricing in additional QE from the Fed and the BoE. Now it appear the ECB is managing expectations for a looser monetary policy.

Economic News

USD – US Data and Europe Drive Markets to the Year End Close

During this shortened week liquidity may remain tight as many market players stay on the sidelines. However, US data releases and events in Europe may keep volatility higher than normal. Today we get releases of US consumer confidence and housing prices. On Thursday the Chicago PMI and pending home sales will be the final US data release of 2011. Last week equity markets rallied into the weekend and strong US data may help to continue that trend, though the S&P 500 is running into technical resistance near the 1,260 level from the October and November highs. The USD would likely weaken in the face of additional equity gains.

Events in Europe may support a risk-on finish to the year. A lack of European sovereign debt auctions may help though the threat of a credit downgrade of France continues to loom. While this may already be priced into bond markets the loss of France’s AAA credit rating might be the straw that pushes the EUR/USD below the 1.30 level.

EUR – Increasing Expectations for Weaker ECB Monetary Policy

In an interview over the long weekend European Central Bank Governing Council Member and governor of the bank of Italy Ignazio Visco said European monetary policy will be “attentive to the economic cycle.” The comments hint that the ECB is prepared to loosen monetary policy further should the European economy require support. Visco’s remarks also build on last week’s comments from ECB member Lorenzo Bini Smaghi who struck out at inflationary hawks who dismiss the value of quantitative easing (QE) as a tool to support an economy.

In all fairness Mario Draghi has hit the ground running. Since taking over at the helm of the ECB he has reversed this year’s 50 bp interest rate hikes by his predecessor Jean-Claude Trichet, offering significant liquidity provisions for European banks. Last week’s 3-year EUR 489 Bn loans to 523 banks are a staggering number. While the liquidity operations support European banks the reversal of the rate increases will only have a limited effect on the real economy given the lower levels of market sentiment due to the debt crisis.

With rates now at their lowest levels since the 2008 at 1.00%, the ECB may look to further loosen monetary policy below this rate. Given the willingness of Mario Draghi to act decisively as he has done in his first 2-months as ECB President, if the threat of deflation begins to creep into ECB inflation forecasts then the central bank may look to further rate cuts and possibly QE as a way to stave off the damaging effects of deflation.

What does this mean for the EUR? While QE does not always translate into a weaker currency (please see GBP/USD since October 6th) the EUR would likely suffer further declines if EU interest rates were to fall further. Today’s FOREXYARD technical analysis offers some price levels for this very situation.

AUD – AUD Gets a Lift

The AUD got a lift this past week as a pickup in market sentiment has helped the high yielding currency. Moody’s also reaffirmed Australia’s AAA credit rating, noting the government’s fiscal policy, financial strength, and low levels of debt. The top credit rating should not be overlooked these days as S&P is likely to downgrade some of Europe’s largest nations in the month of January. France is the most likely candidate for a reduction.

While the AUD may receive a boost due to additional real money inflows from the country’s AAA credit rating, the AUD will ultimately be driven by an improvement in the risk on trade. This will likely come from a solution to the European debt crisis which appears none too close. The AUD/USD has resistance at the November 30th high of 1.0330, while support is found at the mid-December low of 0.9860.

Oil – Iranian Tensions Translate into $100 Oil

Oil prices have jumped on increased talk of an attack on Iranian nuclear facilities. Additionally Iranian war games in the Strait of Hormuz have increased market tensions as the world’s 3rd largest exporter threatens to close the strait should the nation be attacked. As such, spot crude oil prices are now testing the $100 level. Spot crude is trading in a channel pattern from the October high and is encroaching on its upper boundary at $101.50. The next resistance is found at $103.30, while support comes in at $92.00.

Technical News

EUR/USD

The weekly chart is telling. After a break of the support line from the January and October lows the pair rose back to this line where it turned into resistance at 1.3200 as often occurs with previously broken trend lines. Weekly stochastics are oversold though the monthlies may still have room to run. 1.2670 will be an important support level as the triangle pattern from the 2008 and 2010 lows on the monthly chart is found here. Below this support there is the 2008 low of 1.2520. Resistance is located back at the 20-day moving average of 1.3215, and the December 9th high of 1.3430, which coincides with the 38% Fibonacci retracement from the October high to the December low.

GBP/USD

In a similar fashion cable has weekly stochastics which are oversold while the monthlies continue to decline. Over the course of December sterling has failed multiple times to establish a beachhead above the 1.5770 resistance. The October low of 1.5270 is the initial support though market participants will likely eye the rising trend line from 2009 which is found at 1.5110. A break of the 1.5770 resistance could spur a bout of short covering where the bears may regroup near the November 18th high of 1.5890. This level coincides with the 61% retracement of the October to December move. Only a break of the October high at 1.6165 would turn the technical sentiment from bearish to bullish.

USD/JPY

The USD/JPY is testing the downward sloping trend line from the 2007 high which comes in this week at 78.30. A break here and the USD/JPY would most likely encounter selling pressure at the October high of 79.50 and the July high of 81.50. The 100-week moving average at 83.30 is an additional level that long-term players will be watching for confirmation of a bullish technical move. That being said the long term trend remains to the downside and the pair has support at the December low of 77.15, and the November low of 76.50, before the pair’s all-time low.

USD/CHF

A monthly close above the 20-month moving average at 0.9385 would confirm USD strength. This will put in play the 2011 yearly high of 0.9780, and the December 2010 high of 1.0065. The technical level that stands out the most is 1.1140, off of the long-term downtrend line from the 2003 high. Initial support is back at 0.9065, with the potential for a deeper move back to the pivot from October at 0.8565.

The Wild Card

EUR/CAD

The EUR/CAD has breached the significant support level at 1.3400 which has served as support multiple times this year. Forex traders should note only the February low of 1.3265 stands in the way of 1.2775 from the January low.

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.

MasterCard Benefits From the Global Shift in Commerce

by Jason Jenkins, Investment U Research
Tuesday, December 27, 2011

‘Tis the season not only for gift giving, but also reflection.

I’m not talking about the sentimental stuff that we should all be thankful for in our lives, but the quintessential year in review. Everybody does it – from radio stations to cable television – we look back at the best and the worst of the past year. The financial world does it, too.

So I thought it would be interesting to go through some of these lists of 2011 best performers by financial publications and see what not only looked good now, but also has the chops to be good down the road. The first equity to catch my attention was Fortune 500′s No. 3 top-performing stock of 2011: MasterCard (NYSE: MA).

MasterCard is benefiting from a fundamental shift in the way the world conducts business. The world is shifting to electronic forms of payment, and business is becoming increasingly global. MasterCard is well positioned to benefit from both these trends.

The Numbers Are Strong

MasterCard not only has strong fundamentals, but strong financials, as well. Its operating margin for the first nine months of 2011 was 54.6 percent, up from 53.2 percent a year ago, and the company has publicly stated that it will keep margins above 50 percent, despite heavy investments across all of its divisions, as well as acquisition expenses.

The company requires very little capital to grow. Free cash flow is almost equal to operating cash flow. In 2010 the operating cash flow was $1.697 billion, while free cash flow was $1.636 billion. A lot of cash is available to return to shareholders or can be used for growth opportunities.

Two Misconceptions About MasterCard

It’s not a financial company anymore. MasterCard has shifted into more of a technology company, giving us better ways to do global business. MasterCard has also been aggressively investing in technology and expanding partnerships to boost its presence on mobile platforms. Its PayPass technology works with Google’s Android Wallet application – where you can make payments with your mobile phone.

Some may say that MasterCard’s stock has been depressed by fears and the numbers that show a reduction in consumer spending. But that misses the point. MasterCard is only concerned with the manner in which the transaction occurs. Future growth potential is monstrous. Cash and checks account for around 85 percent of the world’s $15.7 trillion of total global payment transactions. That’s a tremendous opportunity to convert those transactions into electronic payments.

MasterCard is poised for further success, due to the following:

• Debit card companies got an early Christmas gift when this summer the Fed decided that banks could charge fees of up to $0.45 for a debit card purchase. That’s double the original limits proposed under Dodd-Frank.

• Over 60 percent of its revenue comes from markets other than the United States and those markets are rapidly growing. They saw 20 percent third quarter growth in emerging markets such as Latin America and APMEA (Asia Pacific, Middle East and Australia).

• There’s huge growth overseas and domestically. Last month CEO Ajay Banga stated that, “Volume growth in the United States of almost 14 percent was led by strong debit results aided by the roll on of business wins and double-digit increases in our commercial credit business. Despite persistently high unemployment rates and a weak housing market that has resulted in the low levels of consumer sentiment that we all read about, we are still seeing the consumer spend.”

• As we have previously written, MasterCard has aggressively moved into the e-commerce and mobile payment solutions arena. Cash doesn’t work online.

Good investing,

Jason Jenkins

Article by Investment U

How to Benefit From Higher Gas Prices in 2012

by David Fessler, Investment U Senior Analyst
Tuesday, December 27, 2011: Issue #1673

Yesterday, as I do just about every week, I filled my truck’s gas tank. As I watched the digits tick by on the pump (which finally stopped at $70.04), I winced, and pined for my all-electric vehicle. (I have a Nissan LEAF on order, to be delivered sometime in the spring.)

It turns out I’m not suffering alone. According to an article published by Jonathan Fahey of the Associated Press last week, Americans are spending record amounts of money on gasoline.

When the ball drops in Times Square in a few days, the typical American household will have racked up $4,155 in fill-ups this year. Ouch…

That’s a record, according to Fahey, and it’s a budget-busting 8.4 percent of the average family’s take home pay. That’s the highest it’s been since 1981. Unfortunately, another record was set in 2011, too. The average price we paid for all that gasoline was $3.50 nationwide.

While high gas prices are certainly a problem, we generally overlook them when the economy is strong, because we can afford them. The average bite gasoline took out of the family income was 5.7 percent for the last 10 years.

But those were relatively good times. Now most of the country remains mired in a recession, and even faced with a possible double-dip returning in 2012. High gas prices in times of economic strife are even more damaging to a family’s bank account.

A Look Ahead to Next Year

So what’s in store for next year? Even higher prices…

That will take its toll on consumer confidence, too. They’ll be reluctant to go out and spend money on other things.

There are two reasons gas is going up. The first is that a large percentage of U.S. gasoline is refined from Brent crude, since Gulf coast refineries have had little access to West Texas Intermediate (WTI).

With all the shale oil drilling that continues to ramp up, there’s more oil going into the giant Cushing Oklahoma facility than can leave. That has kept WTI prices depressed compared to Brent.

This lack of WTI supply has forced Gulf coast refineries to buy the higher priced Brent to keep their refineries running full tilt. That will begin to change when the Seaway pipeline reverses starting in 2012.

The second reason can easily be explained using simple math. The bottom line is this: Unless we all of a sudden reach zero global population growth, we’ll be using more energy around the world.

In 2011, the globe added 78 million more mouths to feed. It took all of human history until 1800 for the world’s population to reach one billion people.

But in just the past 50 years, the population jumped from three billion to seven billion. What does it all mean? “Sustainable growth” is an oxymoron… More people equal more food… More food means more energy… And more energy means more oil – lots more.

And it will be very expensive oil. It’s the simple laws of finite, dwindling supply, coupled with rapidly increasing demand. This is completely unsustainable.

We don’t have a Ph.D. in economics, and we don’t need one to understand this. Neither do you. All we need is to be reasonably good at simple math.

Prices will go up, just as they have this past week. WTI’s sitting about where it was two weeks ago: close to $100 a barrel. In 2012, WTI will continue to approach the price of Brent. Both will continue to increase for reasons mentioned above.

Three Great Ways to Ease the Pain At the Pump

It’s good news if you’ve loaded your portfolio with U.S. oil producers and transporters, all who will benefit from higher WTI prices. It all goes right to their bottom line, and to shareholders.

On the production side, a company like Continental Resources, Inc. (NYSE: CLR) is a great play on shale oil. As I said before, domestic companies such as Continental are going to benefit from higher WTI prices.

Pipeline companies like Kinder Morgan Energy Partnership LP (NYSE: KMP) with its recent purchase of El Paso Corporation (NYSE: EP) is a great play on oil and natural gas transportation. So is rail carrier Canadian Pacific Railway Limited (NYSE: CP).

Bakken production has outgrown the pipeline capacity for the region, especially with the delay of the Keystone pipeline. Much of the oil is now being shipped out in railroad tanker cars. That will continue to be the case, when and if the Keystone gets built.

You just have to learn to ignore the wild swings in price that seemingly occur on a weekly basis. Just remember: more people, more oil, higher prices. Simple.

Consider picking up and pipeline plays on dips in the market. You’ve certainly had a number of opportunities to do so over the last few months, and you’ll likely have more in the next few.

Good investing,

David Fessler

Article by Investment U

EURUSD stays below a downward trend line on 4-hour chart, and remains in downtrend from 1.4246 (Oct 27 high), the price action from 1.2946 is likely consolidation of the downtrend. As long as the trend line resistance holds, we’d expect downtrend to resume, and another fall towards 1.2500 is still possible. Initial support is at 1.2946, a breakdown below this level could signal resumption of downtrend.

Daily Forex Analysis

The Bank of Israel held its benchmark interest unchanged at 2.75%.  The Bank said the decision is “consistent with the interest rate policy that is intended to entrench the inflation rate within the price stability target of 1–3 percent inflation a year over the next twelve months, and to support growth while maintaining financial stability. The path of the interest rate in the future depends on developments in the inflation environment, growth in Israel, the global economy, the monetary policies of major central banks, and developments in the exchange rate of the shekel.”

Previously the Bank cut its monetary policy interest rate 25 basis points in November and September, after leaving it unchanged at its June, July, and August meetings, and increasing the interest rate by 25 basis points to 3.25% at its May meeting this year.  Israel recorded annual inflation of 2.6% in November, 2.7% in October, 2.9% in September, 3.4% in August and July, 4.2% in June, 4.1% in May, and 4.0% in April and just inside the Bank’s inflation target range of 1-3%.

Israel reported GDP growth of 4.8% (annualised) in the March quarter, and 3.3% in the June quarter.  The Bank expects GDP growth of 4.8% this year, and reduced its 2012 forecast to 2.8 percent from 3.2 percent.  The Israeli Shekel (ILS) has weakened about 7% against the US dollar this year, while the USDILS exchange rate last traded around 3.78

By Chris Vermeulen: www.TheGoldAndOilGuy.com

Typically, the week before Christmas, stocks and commodities drift higher due to the lack of participants.  Light volume favours higher prices, which is why stocks want to rise going into the holiday season.

The big money players, like hedge fund managers, are finished for the year.  They’re sitting on the sidelines enjoying the holiday season while waiting for their year-end bonus checks.

Let’s take a quick look at how the week finished…

Friday was an interesting session as stocks and oil reached some key resistance levels.  Below are my thoughts, charts, and a possible trade idea for next week.

Gold & Silver Thoughts:

Looking at the long term charts of gold and silver, I feel they could head much lower in the first quarter of 2012.  The inverse relationship between the dollar index and gold makes me think this is a high probability scenario.

The weekly dollar index chart remains strong at this point and could start another very strong rally any day. Once the dollar starts heading higher, expect precious metals to move down along with equities.

SP500, Dollar and Volatility Index

Below are three charts stacked on top of each other.  They are marked with my analysis and thoughts for next week.  Personally, I don’t feel shorting stocks is a safe play.  The last week of the year, we can see the volatility index (VIX), and the dollar, rise without putting pressure on stocks.  So be aware of that.

TRADE IDEA – View Chart:

Crude oil looks like a great low risk opportunity (a real “Christmas” present!) from Mr. Market. SCO would be the ETF for US based traders.  HOD, which is listed on the TSX, is good for Canadians.  I favour this setup because I don’t feel that oil will be as affected from the holiday bulge as will American equities.

Pre-Holiday Trading Conclusion:

I was planning on avoiding the market Friday, but the charts were calling my name…  The session ended with what looked to be a short squeeze. The remaining short positions didn’t get their expected drop in price.  Consequently, when the traders all started to cover their shorts (buy) just before the close, it caused a strong surge higher.

I do not recommend shorting stocks next week because of the light volume.  However, oil looks good to me.

Just thought I would share my end of the week thoughts, and wish you a Merry Christmas!

Cheers!

Chris Vermeulen