Tuesday, November 16, 2010

The global debt clock

The clock is ticking. Every second, it seems, someone in the world takes on more debt. The idea of a debt clock for an individual nation is familiar to anyone who has been to Times Square in New York, where the American public shortfall is revealed. Our clock shows the global figure for all (or almost all) government debts in dollar terms.

Does it matter? After all, world governments owe the money to their own citizens, not to the Martians. But the rising total is important for two reasons. First, when debt rises faster than economic output (as it has been doing in recent years), higher government debt implies more state interference in the economy and higher taxes in the future. Second, debt must be rolled over at regular intervals. This creates a recurring popularity test for individual governments, rather as reality TV show contestants face a public phone vote every week. Fail that vote, as the Greek government did in early 2010, and the country can be plunged into imminent crisis. So the higher the global government debt total, the greater the risk of fiscal crisis, and the bigger the economic impact such crises will have. (more)

Dogs of the Dow, Revisited

The Dogs of the Dow (the ten highest yielders) are beating the whole index so far in 2010. This doesn't happen every year. But there are reasons, based on the configuration of the Dow at the end of 2009, that it is happening this year.

To a greater extent than has been the case in the twentieth century, most of the Dogs of the first decade of the twenty-first century have been "perennials" (repeaters). These include the telecom company Verizon (VZ), since it joined the Dow in 2004, and AT&T (T) (the former SBC) which has been on the list for all of the new century; it was last off it in the late 1990s. Chemical maker DuPont (DD) has been a "Dog" every year in the current century, as has Kraft (KFT), and its predecessors Altria (MO) and Philip Morris (PM). Pharmaceuticals Merck (MRK) and Pfizer (PFE) "belong" on the list; the one year that each wasn't was a sign of overvaluation.

Banks such as Citigroup (C) and JP Morgan Chase (JPM) were on the list for most of the decade, until the dividend cuts of 2008-2009, as was the case with General Motors and General Electric (GE), industrial companies with large "captive" finance operations. (more)

Too Late For Metals?

Exchange-traded funds are making it easier for individuals to place sophisticated bets on precious metals, but there are concerns these buyers are hopping on the bandwagon late.

Many investors are by now familiar with SPDR Gold Shares (CONSOLIDATED:GLD) — the second-largest U.S.-listed ETF, holding assets of almost $60 billion.

With almost 1,300 metric tons of bullion in its coffers, the ETF now owns more gold than all but five government central banks, says Nicholas Colas, ConvergEx Group chief market strategist.

One of the most important sources of demand for gold, and to a lesser extent silver, comes from ETFs, Colas wrote in a Nov. 12 research note. “That’s a relatively new source of gold demand as compared to the traditional buyers of the yellow metal.”

There are concerns, though, that investors are piling into gold ETFs just in time for a price correction. Last week’s pullback is a reminder that gold can see wildly volatile swings. (more)

Chart of the Day: Empire State Manufacturing

Why Oil Could Top $100 a Barrel

Oil prices have hovered around $78 a barrel most of the year, providing little excitement as other commodities, including copper, gold, and cotton, have enjoyed record runups. Global economic growth has not been brisk enough to drive up oil demand substantially, U.S. inventories have been ample, and the Saudis have been pumping enough to guarantee a plentiful supply.

A change in the oil markets may now be upon us. Crude may climb past $100 next year as central banks pump cash into their economies to revive growth, predict JPMorgan Chase (JPM) and Bank of America Merrill Lynch (BC). The Federal Reserve's decision to buy $600 billion of Treasuries from commercial banks should lower U.S. interest rates and weaken the dollar further. Investors may turn increasingly to oil and other commodities to get a decent return.

The Federal Reserve's actions are "likely to push prices upwards," says Antoine M. Halff, head of energy research at Newedge USA in New York and former principal administrator at the International Energy Agency. "The past few years have shown that the more cheap money in the system, the more money flows into commodities, in particular energy." Since the start of September, oil prices have climbed 17 percent, to a recent $86.96. (more)

BNN: Top Picks

James Hodgins, Chief Investment Officer, Curvature Hedge Strategies, shares his top picks.

click here for video

Morgan Stanley: Big Bout of Inflation is on the Way

Several indicators point to a huge wave of inflation in coming months, according to a series of charts published by Morgan Stanley and obtained by Business Insider.

The charts show:

• Inflation has surged in emerging markets during the past year – to about 5 percent from about 3 percent. The real problem isn’t China, but India, where inflation has almost reached double digits.

• Inflation also is on the rise in developed western nations, surpassing 3 percent in the United Kingdom, for example.

• The yield curve in the United States has steepened to record levels, with the 10-year Treasury yielding 233 more basis point than two-year Treasurys.

• Consumer expectations of inflation in the U.S. have risen to 3 percent from 2.2 percent in the last two months. (more)

Partied Out: A Recap of Australia's Now Imploding Housing Bubble

Everyone loves a party and Australia threw one of the biggest parties in history.

Australia's wholesale liqueur central distributor (widely known as the "RBA") should have taken away the punch long ago, but as in the US (and everywhere else), the central distributor as well as government officials and street vendors, all love a party, and what a long street party it was!

After years of partying, party goers got more than a bit tipsy, especially after government officials spiked the punch hoping to keep the street party going perpetually. Out of fear of being blamed for a massive hangover, the central distributor hiked the price of punch repeatedly hoping for a quiet end to the party.

However, the central distributor's rate hike message was ignored for over a year, primarily because the punch distributor kept insisting "there is no bubble in partying". New party goers heard the message and came rushing in chanting the slogan "better party before it's too late". (more)

Stop Claiming That The Euro Is Falling Due To Ireland -- That's Wrong

At several points in the last two weeks, you've probably read something like this from Reuters:

"The euro fell below $1.36 and is set to remain under pressure in the near term as investors focused on fiscal troubles in Ireland and Portugal and await meetings of European finance ministers on Tuesday and Wednesday," said Greg Farinella, managing director and head of Treasury and trading at Espirito Santo Investment S.A. in New York.

"The issues in Europe have been very focal the last couple of days and that's lending itself to euro weakness."

It's popular to claim that the euro is getting hit by the PIIGS, but there's just no evidence for this.

Sure, the currency is down sharply against the dollar (4.4%) since peaking at $1.42 on November 4 but if this were really a euro problem, you'd expect it to have fallen similarly against the yen, it hasn't. Instead it's only down 1.6% in the same time frame. As we noted earlier, this isn't about Ireland or Portugal, this is about higher yields in the US, and a firming dollar.

Okay, you say, but the euro is still down 1.6% against the yen, so isn't THAT due to sovereign debt woes? It's possible, but even then we've had evidence lately of a firming Japanese economy (see: last night's GDP) and a weakening European economy. (more)

This Trade Could Help You Avoid the Coming Correction

We are now only two weeks away from what my systems are telling me should be a major market correction. My advice to you is to raise stops and consider taking profits. That is of course, if you happen to not believe that the Federal Reserve can simply overwhelm a market that is experiencing a struggling economy and an ever growing mountain of debt.

As I discuss in far more detail in my premium service, Mastering the Markets, stock prices do not move higher or lower because of fundamentals, technicals, geo-political events or global economies. Share prices fluctuate because of one thing and one thing only: investor demand.

So, let me ask you a question... Let's say you gaze into one of my time-cycle forecast charts and see that the market is getting prepared to plummet. You know these forecasts are right about 80% of the time, so you are thinking, "Maybe I should get back to cash, just in case Mike Turner and his time-cycle charts are right." And you might be thinking, "The risk is just too high to stay fully invested."

But, let's say you happen to have $100 billion and you need to get it invested this month -- and another $100 billion next month. You know that whatever equity you buy, you will be driving the price higher. And, it takes a LOT of work to get that much money into the market. Now you have another set of risks -- the risk of not investing the money that you are required to put into the market. (more)

Closing Grain Commentary 11/15/10

Grains rebounded sharply today from Friday's limit down move. December corn finished up 21 ½ cents, January soybeans finished up 17 ½ cents, and December wheat finished up 3 ½.

Overnight the corn market gapped higher opening at $5.41 ¾. Funds were heavy sellers on Friday, but flipped and were once again heavy buyers today. The market was unable to fill the previous gap in Dec corn set at $5.28 ¼. Today's general commodity rally was impressive considering the US dollar was sharply higher.

Export inspections this morning were below last week's numbers for corn, wheat, and soybeans but were not a major factor. Since we had a limit move Friday, limits were expanded to 45 cents allowing corn to move up and over 30 cents higher at one point in the day. Tomorrow we will go back to standard limits in the grains.

There were rumors that China is entering an agreement with Argentina to import between 4 and 8 million MT's of corn. From what we know and have heard this process should take up to 6 months to a year to complete, since currently Argentina is not approved by China as an exporter of corn. Maybe they are trying to speed the process along but as it stands right now we think it could be over-assumptions by the market. Another reason why the market was higher was the lack of a Chinese rate hike over the weekend. (more)

Stock rally bites the dust

(CNNMoney.com) -- After posting gains nearly all day, U.S. stocks tumbled at the session's close Monday, as investors remain jittery during a week with a full economic calendar.

At the closing bell, the Dow Jones industrial average (INDU) only gained 9 points, or 0.1%, after climbing as much as 88 points earlier in the session. The S&P 500 (SPX) fell 1 point, or 0.1% and the tech heavy Nasdaq (COMP) fell 4 points, or 0.2%.

Early in the session, investors welcomed news from Caterpillar (CAT, Fortune 500) that it planned to acquire mining equipment company Bucyrus International (BUCY). A strong retail sales report also gave stocks a boost at the get-go.

But stocks struggled to hold on to those gains toward the closing bell, as investors gear up for more economic data due out later this week. Tuesday brings reports on industrial production and the latest Producer Price Index, an important reading on the price of goods at the wholesale level. (more)

6 Energy Funds for Inflation Protection

There’s no faster way to stimulate inflation fears than pouring new money into the economy. After the Fed announced it would do just that, via a $600 billion bond repurchase program, the price of gold spiked, the dollar dropped, and energy funds, beaten down through the summer, suddenly started to look a lot more attractive.

Along with metals and other commodities, energy stocks have, over time, been an effective counterbalance to inflation. For most companies, inflation drives up costs faster than they can raise their prices, which cuts into profits. But for oil and gas producers like ExxonMobil (XOM: 70.48, -0.51, -0.71%) and EOG Resources (EOG: 92.43, +0.38, +0.41%), inflation actually boosts their bottom line: Because energy supplies are limited, demand is relatively constant, and prices fluctuate daily, these firms can pass price increases along quickly.

And, unlike gold – which at $1,400 per ounce is now 28% more expensive than it was a year ago – energy is still a relative bargain. After the Deepwater Horizon oil spill in April, BP (BP: 43.04, +0.05, +0.11%) shares lost 55%, and the Philadelphia Oil Service Sector Index dropped 30%. The end of an offshore drilling ban in mid-October helped the sector recover a little of that lost ground: The index climbed 9.3%, and BP is down just 28% for the year. Year-to-date, energy stocks in the S&P 500 are up only 8.6%, lagging the index’s 11.6% total return. (more)