InvestMacro FX

Select investors within the United States have grown hungry for a worthwhile investment that will give a return quickly. In this new market Chinese stocks have proven to be a very tempting investment to those who are promised quick returns. Unfortunately many of the Chinese stocks offered in the US have proven to be fraudulent, and as a result many Americans are losing money in stock scams. The chance to strike it big with a small investment has been a tool used by scam artists for hundreds of years, and in an ailing economy it is more effective than ever.

The best scams are those veiled in the possibility of making money legitimately, and those who are not especially well versed in stocks can be taken advantage of. This is why many criminals are now using backdoor methods to dump Chinese stocks onto the US market in an effort to inflate the value, and then dump the stock prior to being caught. Such scams are becoming more and more commonplace as Americans get wind of a prosperous China and want to cash in on it. This feeding frenzy of American desperation has incited many con artists to take up new strategies of coming between investors and their money.

The continued assault upon investors will likely result in more trouble for the USD on the online forex exchange. There has to be a measure of confidence in the marketplace where investors expect a certain measure of honesty where their money is concerned. There is enough risk present in the financial world without there being those who want to rig the system, and such rigging undermines the stability of the US economy and the USD. When there is no confidence or trust in the marketplace there can be a really large decrease in the amount of money invested.

The regulations placed upon the investment market are there to prevent any sinister deceit to be carried out by those who wish to earn money dishonestly. While there will always be risks where investments are concerned they are absolutely necessary to fuel growth in the economy. The honest and level playing field where investment is concerned must be maintained, without this attention to fairness the US economy and the USD will suffer greatly. There has to be more vigilance and an active effort to safeguard investors where scams such as these are involved, otherwise no one will want to invest.

By James McKee

About the Author

Author is a Forex trader and financial analyst residing in Denver, Colorado. To stay up to date on all the latest developments in the financial world and beyond be sure to check out the online forex trading regularly.

By James McKee

About the Author

Author is a Forex trader and financial analyst residing in Denver, Colorado. To stay up to date on all the latest developments in the financial world and beyond be sure to check out the online forex trading regularly.

Bloomberg has a new video series out called “China’s Ghost Cities.” (You can watch the first segment here on YouTube).

The reporter, Adam Johnson, describes how the Chinese government is building massive cities that no one lives in yet. The expectation is that China is going to “grow” into these cities.

A remarkable idea, really. The authoritarian planners in Beijing or wherever decide it would be good if, say, a million people or more could relocate to a pre-planned area.

Then they build out the infrastructure — or rather the entire metropolis, skyscrapers, stoplights and all — and wait.

Stop for a moment and ponder how nutty this is. The last time your editor checked, central planning was not a huge success. According to history, bureaucrats wielding directives over long distances tend to allocate resources poorly.

But are ghost cities a recipe for a bust? Some say no. The Bloomberg reporter, for instance, assures us that China’s economics are different — that is to say, “it’s different this time.” (Where have we heard that before…)

It is supposedly OK that these ghost cities, built for millions of inhabitants, have only tens of thousands of people living in them — because all that deserted square footage will eventually be put to good use.

As a bonus, building ghost cities is great for economic growth.

Via running superhighways out to the middle of nowhere, erecting steel and glass towers in the boondocks, China generates new jobs in construction, civil engineering, city planning and the like. All this construction looks fabulous on paper. The ghostly infrastructure gets counted as productive output, and the super-aggressive GDP target is maintained.

But what is wrong with that picture?

For one, there is the central planning problem. Growth and development are free market forces, with signature markings of trial and error. Successful cities are built from the ground up, not decreed by bureaucrat stamp. So how does the government know where a new metropolis should go, or what its optimal size should be?

Then you have the accounting problems. Should the promise of tomorrow be so readily reflected on balance sheets today?

Imagine if a public corporation said, “We are going to grow 20% per year by building idle factories in the middle of nowhere, that no one is going to use for quite some time. Don’t worry though, the demand for these factories will show up. We’ll make a profit on them eventually. Just don’t ask when.”

Such a plan would be brutalized by the market, because public companies are held accountable for profits and return on investment (ROI). (At least most of the time — in bubble times investors will happily suspend their rational faculties.)

The Chinese government, of course, does not have to seek profit in its actions. Or it can measure results in some entirely non-traditional way, via “how many jobs did we create” or “how do the GDP numbers look.”

At the end of the day, the “ghost city” mandate is directly channeling John Maynard Keynes, who once suggested digging holes, then filling them up again as a way to put men to work.

China is being more sophisticated. Rather than digging holes, it is putting up buildings. The effect is the same though. “Some day” the empty skyscrapers will have value — if they are not condemned as worn-out structures first — but until then they are just holes.

(Don’t forget, you can sign up for Taipan Daily to receive all of my and fellow editor Joseph McBrennan’s investment commentary.)

China bulls are not bothered by the ghost cities for at least three reasons.

First, they have convinced themselves (with more than a bit of faith) that the empty metropoli will one day (sooner rather than later) be full.

Second, they figure China has a lot of money to burn even if the ghost cities don’t work out.

And third, as the old saying goes, “a rolling loan gathers no loss.” As long as the speculative music is playing, the property developers can keep dancing.

The trouble, as always, comes when the music stops. If China turns out to have built, say, 20 years of excess capacity by the time that happens, then hundreds of billions’ worth of stagnant projects will have to be written off.

Tougher still is the idea that China’s “economic miracle” is actually a heavily leveraged bet on mercantilism… propped up by runaway construction… with the tail end of the boom pulled recklessly from pie-in-the-sky projections for future growth.

That is another favorite tactic of investment manias: Along with the embrace of forever skyward growth curves, mortgaging tomorrow (and borrowing against it) for the sake of today.

Even if China can write checks to cover the write-off costs of all those cities, there is a big multiple built in to the global economy right now on the assumption that China growth is the real deal. When it sinks in that much of that growth is actually “ghost” or “phantom” growth — in keeping with these empty monuments to nowhere — the collapse of that multiple could hurt.

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The twentieth trading week of the year comes to a close as investors fret about signs that US consumer demand may be weakening, as well as the Greek debt crisis.

May 20 (Bloomberg) — Axel Merk, president and chief investment officer at Merk Investments LLC, discusses the Greek fiscal crisis, the outlook for the euro and Portugal’s bailout from the International Monetary fund. He speaks with Matt Miller on Bloomberg Television’s “Street Smart.” (Source: Bloomberg)

Danny Riley’s Mr Top Step – Today’s negative tone was set by headlines that Goldman expects subpoena’s due to the mortgage crisis and Fitch’s gowngrade of Greece. These actions took the SPM from a daily high of 1339.50 to a early morning low of 1328.70 as crude oil went from being up .50 cents in early trading to down $2.50.

It’s not the “bad news” from Europe that has been pushing the euro lower

By Elliott Wave International

From the May 4 top near $1.4950, the EUR/USD (the euro-dollar exchange rate and the most actively-traded forex pair) has fallen as low as $1.4050 on May 16.

In other words, the dollar has gained 9 full cents on the euro in less than two weeks. That’s a huge move, and people want explanations. And what the media offers boils down to “risk aversion,” in light of “the bad news from Greece.” And that sounds good — until you check the timeline.

The latest wave of trouble in Europe started on May 3, when Portugal asked for a bailout. If you think that event is what pushed forex traders towards “risk aversion” — think again. The euro happily gained against the U.S. dollar the following day, May 4, pushing the exchange rate to that high near $1.50.

And if you think the trouble in Greece pushed the EUR/USD lower — again, please reconsider. Greece made a splash in the news on May 9, when its credit rating was downgraded. But by then the EUR/USD had already fallen some 700 pips, to the mid $1.42 range.

So, as good and logical as all the mainstream stories sound about “risk aversion” and “bad news from Europe,” the timing of events doesn’t fit. What then gave the dollar the strength — and at a time when almost everyone expected it to only fall further?

Believe it or not (and it’s easy to believe it, because, as this example shows, there’s no better explanation) the news doesn’t set broad trends in forex. Collective emotions of forex traders do. In early May, the majority was betting against the dollar. When everyone places their bets and there is no new money left to push the price further, it has no choice but to reverse.

That’s why it pays to be extra cautious in the financial markets when everyone takes the same side of a trade. True, markets can stay overbought or oversold for a while, but the reversal inevitably comes — and the stronger the one-sided conviction, the bigger the reversal.

The advantage Elliott wave analysis gives you is this: Wave patterns in forex charts track the collective mindset of the market players. By anticipating the price points where the Elliott wave pattern should end, you get a pretty good idea of where the trend should stop and reverse.
See for yourself how it works — FREE — during EWI’s Forex FreeWeek now through May 26. Learn more >>

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When gold prices were pushing through $1,000 an ounce back in 2009, some folks were looking at other precious metals to see if they could get a better bang for their buck.

Lots of eyes turned to platinum. I wrote a report on platinum back after my trip to South Africa.

“White gold” is extremely rare, and yet it’s used in a lot of key industries. In fact, the Department of Defense lists platinum as a strategic precious metal.

South Africa is one of only a handful of countries in the world that produce large amounts of platinum. Indeed, the country holds 88% of the world’s reserves.

In my report, I talked about a supply disruption. South Africa had been seeing huge mining strikes. Workers were demanding higher pay and companies were slashing employees by tens of thousands. The last time something this drastic had happened to the mining industry in South Africa, platinum production dropped by 6%.

That sent share prices of platinum mining companies through the roof… and not only for the companies doing business in South Africa. Platinum producers around the world had big price jumps.

Now, mining strikes and supply disruptions aside, precious metal prices have been red hot over the past two years.

Let’s take a look at what that’s meant for platinum producers and other platinum investments.

There are a couple ways to invest in platinum. We’ll look at one of each.

Three Platinum Investments

You can buy shares of a big mining company that goes after all kinds of precious metals. You can also find a couple platinum-specific mining companies. And there are things called exchange-traded notes, similar to ETFs. There are a couple that track the price of platinum.

One ETN is the E-TRACS UBS Long Platinum ETN (PTM:NYSE). Here’s a look at how this ETN has performed since mid-2009.

View Larger Chart

PTM was trading at just about $15.50 when I wrote my report. Now it’s up to $20.81, a gain of 34.5%.

Anglo American (AAL:London) (AAUKY.PK) is a well-known mining company with a lot of different operations around the world. Most of them are in South Africa. The company has 14 platinum projects in that country.

Anglo American is the world’s largest producer of platinum, with a 39% market share.

Here’s the company’s performance.

View Larger Chart

Over the past two years, Anglo American has climbed about 87.5%!

So how about a pure platinum mining company? Let’s look at Stillwater Mining Company (SWC:NYSE). This company is the only platinum and palladium producer in the U.S. SWC had ties to General Motors, too, as platinum is used in catalytic convertors and other industrial applications.

SWC has certainly been the winner over the past two years.

View Larger Chart

Since writing my report, share prices for SWC have climbed more than 144%. Not bad!

But what about now? Are these companies still good investments? And if you bought in January, should you be holding them even at a loss?

(Sign up for Smart Investing Daily and let me and fellow editor Jared Levy simplify the market for you with our easy-to-understand articles.)

What About Now?

Here’s the platinum situation. Things are starting to get tight. In 2009 and 2010, when precious metal prices were really on fire, platinum producers put their nose to the grindstone. By the end of 2009, there was a surplus of 635,000 ounces.

In 2010, though, demand started to pick up. By the end of 2010, we only had a surplus of 20,000 ounces.

What’s really interesting, though, is that miners produced only 0.6% more platinum in 2010 than they did in 2009. Demand jumped by 16%!

This demand will keep growing, and there are fears that supplies could dry up.

Walter de Wet, head of commodities research at Standard Bank in South Africa, told the Financial Times, “There’s a massive underinvestment in mines: it’s not biting yet, but we think it will in 2012 and 2013.”

He should know. Standard Bank is the largest lender in the natural resources industry in South Africa.

Problems for Production

And get this… Johnson Matthey (JMAT:London), a major platinum refiner who publishes a key industry report on platinum supply and demand, said the platinum prices will be higher in 2011 than in 2010.

In 2010, platinum prices climbed from $1,500 an ounce to $1,755. That’s a gain of only 17%, which is why the E-TRACS UBS Long Platinum ETN (PTM:NYSE) only gained 34.5% compared to the other two companies.

Since then, prices have reached $1,858, but have fallen back to $1,753 an ounce.

Johnson Matthey says platinum prices could average $1,870 an ounce over the next six months. That should push share prices of platinum producers higher.

How high? That will depend on how serious the mining situation is in South Africa. Keep an eye on Zimbabwe, too. Mining companies have been struggling with production, and the country is trying to grab a hold on mining rights from foreign mining companies.

Basically, they are trying to nationalize their platinum reserves. This could weigh down production even more.

Buy, Hold or Sell

For investors holding a loss? I can only say work your plan. As Jared said yesterday, having a clear time horizon is important for any investment. That included specific points — price, gains or losses, and time frames.

Someone who might have invested in Stillwater Mining Company two years ago might have a different timeline from someone who invested only in January 2011.

They also might have different stop-losses now that they’re looking at a gain.

In my opinion, Stillwater still has a ton of potential. Of the three, I like that it’s based in the U.S. That gets you away from all those mining issues in South Africa and Zimbabwe. That said, the recovery in the U.S. will have to keep building in order for demand to stay strong.

A weaker economy could dampen the short-term outlook for SWC.

In the end this could be a good thing. SWC might be a little overvalued. Look for a rocky couple of months, though, before we find out how strong demand is.

Another thing… The earthquakes in Japan have slammed production of a lot of things that use platinum — cars and electronics come to mind. This could mean a drop in industrial demand for the time being. But once Japan starts rolling again, we could see a quick and major boost in demand.

Editor’s Note: One top silver company is poised to make a major announcement about their newest mine any day now. If you own stock on the day results come out, it could make 81% in a matter of hours. Learn how to profit from silver now.

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Weekend risk is back on the table as Spain returns to the headlines.

Traders worry Socialists in Spain will be defeated in both local and regional elections and has created unease for euro bulls. A new government in Spain might be more inclined to reveal government financial inconsistencies and previous shortfalls in the Spanish budgets.

European regulators had previously built a wall around Spain while focusing on the indebted nations of Greece, Portugal, and Ireland. This could thrust Spain back into the limelight should a new local government expose excessive debts. A new government may also feel the need to enact new austerity measures in order to counter the higher debts in an attempt to win back market confidence for Spanish public finances.

Both Spanish and Greek bond spreads over their German counterparts have ballooned today and the euro has come off of its weekly highs at a significant technical level. Media reports this week have focused on the confrontation between Greece and the ECB following the declaration by the central bank to not accept Greek sovereign debt in return for liquidity measures should a restructuring take place.

A resumption of the European debt crisis should favor the rebound in the dollar going forward as many forex macro traders would view contagion into Spain as a new chapter in the saga.

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