Wednesday, November 10, 2010

Faber: Emerging Markets Should Thank Bernanke

The Federal Reserve is taking a lot of heat overseas for its latest round of quantitative easing, with countries including Brazil, Germany and China worried that it will push the dollar lower against their currencies.

But market guru Marc Faber says those countries should be thanking the Fed and chairman Ben Bernanke rather than criticizing it. Fed policy has helped emerging markets grow, he says.

"U.S. monetary policies have been very good for Asia, specifically for China because it fostered industrial-production growth in China, employment growth, wage increases, domestic consumption, increased demand for raw materials," Faber tells CNBC.

"That then lifted commodities prices. For that, actually the developing world, the emerging economies including China, Vietnam, Brazil and so forth should all send a 'Thank You' note to Mr. Bernanke."

To be sure, the Fed’s coming securities purchases spell trouble down the road, Faber says. (more)

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What A Climax Run Looks Like

Does everyone know what a capitulation sell off looks like? That’s where you get those wicked spikes down AFTER you’ve been falling for a period of time. Know what the flip side to that is? CLIMAX RUNS. We bring this up because if you look at SLV and SLW that is exactly what you are seeing. (more)

CME Group Announces Money and Margin Requirement Increases

CME Group today announced a hike in the amount of money or margin needed to control a full-sized (5,000 ounces) silver contract. Margin for silver jumped to $6,500 from $5,000 or 30%.

Several things to know about this:

First, it is quite common to see this occur in markets that are undergoing sharp upmoves in price. The increasing price range can easily wipe out the entire margin amount in a single day with ease and this is designed to protect the integrity of the clearing houses and the brokerage firms. Customers who lose big cannot oftentimes meet margin calls and end up sticking the brokerage firm with losses. The idea is that the firms protect themselves by having more money at the clearing houses sufficient to cover potential losses.

Second – members of the exchange generally tend to be on the short side of a market moving higher and once they get trapped, they begin to squeak, and quite loudly at that. Squeaky wheels get the grease and since the exchange membership brings with it voting rights, they generally get what they want.

Thirdly – Small specs whose accounts are generally underfunded to begin with and who chase the markets higher based on the hype end up buying at relatively high levels. Once the margins get raised, these weak hands get forced out since they generally cannot meet margin calls and their exodus precipitates a wave of selling. That engenders more paper losses which then engenders more margin calls and the snowball effect occurs. (more)

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BNN: Top Picks

Norman Levine, managing director, Portfolio Management Corp shares his top picks.

click here for audio

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Chart of the Day : Real Unemployment

China downgrades U.S. debt

A publicity-minded Chinese rating agency has added its two renminbi to the cacophonous debate over the Fed's latest tilt at money-printing.

The state-backed Dagong Global Credit Rating Co. on Tuesday downgraded its rating on the United States to A-plus from double-A, maintaining its negative outlook.

It warned that the Federal Reserve's plan to buy $600 billion of Treasury securities over eight months in its second go at so-called quantitative easing could trigger a creditor crisis.

"The new round of quantitative easing monetary policy adopted by the Federal Reserve has brought about an obvious trend of depreciation of the U.S. dollar, and the continuation and deepening of credit crisis in the U.S.," Dagong writes in its latest report on its U.S. rating. "Such a move entirely encroaches on the interests of the creditors, indicating the decline of the U.S. government's intention of debt repayment."

This is a salient point because China is America's biggest foreign creditor, with official Treasury holdings creeping up on the $1 trillion mark and unofficial holdings expanding rapidly as well.

The United States and its trading partners have had a disagreement or two in recent days over Fed chief Ben Bernanke's decision to expand his holdings of Treasurys in a bid to further bring down interest rates. Lower rates tend to equal a lower dollar, which tragically enough mucks up everyone else's plans to export their way to prosperity. (more)

Jay Taylor: Turning Hard Times Into Good times

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Bruno del Ama: Powered by Lithium

The Energy Report: Bruno, your firm recently launched the Global X Lithium ETF (NYSE:LIT). Why lithium? Why now?

Bruno del Ama: Lithium is of huge interest today for a number of reasons. The primary reason is that demand for lithium is growing by about 10% a year. Most of that growth is fueled by lithium-based batteries used in small consumer appliances, cell phones and laptops, as well as other portable electronic devices.

What really hasn't been factored into that growth is lithium-ion batteries used in electric vehicles. Lithium-ion batteries are the best technology and all new hybrid and electric vehicles are adopting it. The amount of lithium that's required for electric vehicles is much, much larger than what is needed for a laptop, for example.

That growth hasn't been factored into a market that's already growing very quickly. We expect the electric vehicle and hybrid market to grow very significantly from where it is today, which is basically non-existent. That should have a tremendous impact on the demand for lithium.

TER: But why form an ETF for lithium?

BDA: It's basically impossible to invest in lithium today. There's no futures market for lithium. There are no other investable products for lithium. The only way to invest in lithium today, or until these products are available, is to buy individual stocks in lithium mining or processing companies. What this ETF does is provide an easy package for investors to get access to the full lithium market.

TER: What type of investor is investing in the Lithium ETF? (more)

Setting Up for a Year-End Rally

THIS METRONOMIC RALLY—averaging a daily gain of 0.3% since Aug. 31 without even a 2% setback, the cadence conditioning traders to buy every noontime dip for a four-hour lift into the close–has finally lulled enough folks into a state of ease that to be bullish at today's prices and over the very short term is to be in copious, if not entirely trustworthy, company.

The American Association of Individual Investors weekly survey showed the greatest number of bullish respondents since early 2007 and the fewest bears in three years. The Ned Davis "crowd sentiment poll" hit the excessive bullish zone.

The persistent overanticipation of turmoil to come, as gauged by the premium in Volatility Index (VIX) futures, has at last succumbed to the calm market uptrend. New 52-week highs have ebbed, even as the indexes have levitated. And, for the second week in a row, the ratio of corporate insiders' dollar-weighted stock sales to purchases (see "Insider Transactions.") remained at or above the elevated 30 level.

This mix of bullish feeling and smart-money caution comes as we enter a week with three intuitive sell-on-the-news excuses: the midterm elections Tuesday, the Fed's expected detailing of another asset-purchase plan Wednesday and the monthly employment numbers Friday. A look at the news clippings from the lead-up to prior midterm balloting shows far less chatter about how market-friendly this quadrennial ritual would be. (more)

10 Market Bubbles That Could Soon Burst

The president of the Minneapolis Federal Reserve, Navayana Kocherlakota, recently published a paper in which he argues that government guarantees helped fuel the bubble in real estate. While his paper was largely aimed at prescribing solutions to this problem, it raises the question: What other bubbles are lurking out there in the global economy? We asked several experts and to our surprise, they had a long list:

1. Gold. The price of gold bullion has risen from $294 an ounce in 1998 to $1,404 today, an increase of 377%. "It's the biggest, baddest bubble of them all," says Robert Wiedemer, author of Aftershock: Protect Yourself and Profit in the Next Global Financial Meltdown. Gold has no intrinsic value. A telltale indicator that gold is a bubble: incessant cocktail party chatter about buying gold and endless TV commercials offering to buy gold jewelry. The SPDR Gold Trust ETF (GLD) is up 28% since the beginning of the year.

2. Real estate in China. Chinese real estate prices are up only 9.1% this year, which may seem more frothy than bubbly. But rising prices are generating rising demand, which is a clear sign of a bubble, says Vikram Mansharamani, whose book, Boombustology: Spotting Financial Bubbles Before They Burst, will be published early next year. The participation of amateur investors like waiters and maids in the property boom is a clear sign of a property bubble in China. The fact that developers are building more apartments than there are buyers is another giveaway. (more)

Roubini Tweets: US Banks at Risk of Insolvency

Nouriel Roubini, the star economist whose gloomy forecasts have earned him the nickname of Dr. Doom, is at it again.

This time he has taken to Twitter to predict pain. The New York University professor was reacting to a report by Laurie Goodman, senior managing director at Amherst Securities, who says one in five distressed homeowners in the U.S. faces, or may face, foreclosure, Housing Wire reports.

She says 11.5 million home loans are non-performing or highly distressed at present.

And Roubini says that spells trouble. “Amherst Securities Goodman estimates that 11.5 million households could default on their mortgages, not the 4 million priced in by markets,” he tweets.

“If 11.5 million more households default on their mortgages, most U.S. banks would be insolvent again. That's why Goodman's estimates are scary.”

Last week, Roubini used Twitter to forecast failure for the Federal Reserve’s latest easing effort. “QE2 will be followed by QE3 and QE4, as QE2 will fail to revive the real economy and to prevent deflationary pressures,” he tweeted. (more)

Stocks To Watch wednesday

(MarketWatch) -- Among the companies whose shares are expected to see active trade in Wednesday’s session are Cisco Systems Inc., Macy’s Inc. and Polo Ralph Lauren Corp.

Cisco (NASDAQ:CSCO) is expected to report fiscal first-quarter earnings of 40 cents a share, according to analysts surveyed by FactSet Research.

Macy’s (NYSE:M) is forecast to post earnings of 3 cents a share in the third quarter.

Polo (NYSE:RL) is estimated to report a profit of $1.67 a share in the fiscal second quarter.

Computer Sciences Corp. (NYSE:CSC) is expected to report earnings of $1.18 a share in the fiscal second quarter.

After Tuesday’s closing bell, International Game Technology (NYSE:IGT) reported it swung to a fiscal fourth quarter profit but not enough to satisfy Wall Street estimates. More on IGT earnings.

Watch list

Allstate Corp. (NYSE:ALL) announced a $1 billion share buyback program. More on Allstate.

General Growth Properties Inc. (NYSE:GGP) said it emerged from bankruptcy and will launch an initial public offering. Read more on General Growth.

Invesco Ltd. (NYSE:IVZ) said that it was launching a secondary offering of shares owned by a Morgan Stanley (NYSE:MS) affiliate. More on Invesco.

Lions Gate Entertainment Corp. (NYSE:LGF) swung to a second-quarter loss of 22 cents a share on debt charges. More on Lions Gate.

MBIA Inc. (NYSE:MBI) said it narrowed its third-quarter loss as it paid off claims on mortgage-backed securities. More on MBIA’s results.

Prudential Financial Inc. (NYSE:PRU) said it restored its annual dividend to 2007 levels. More on Prudential’s dividend.

Tesla Motors Inc. (NASDAQ:TSLA) said its third-quarter loss widened, but narrowed on a per-share basis since the electric car maker went public, as sales slipped.

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