Wednesday, February 16, 2011

An Agriculture Stock to Love AGCO pulled back finding support at its 50-day moving average

AGCO Corporation (NYSE: AGCO) — This worldwide manufacturer and distributor of agricultural equipment and parts is one of my top stock picks in the ag sector. The company operates in more than 140 countries and could benefit from higher agricultural prices and increasing demand for grain and food products.

Fourth-quarter earnings of 88 cents were more than double the earnings from the prior year-ago quarter, and beat analysts’ estimates by a wide margin. The company recently decided to build more tractors in the Unites States and raise its profile in North America, which accounts for 20% of its sales.

The stock broke from a bear market in March 2009, and since then has tripled. It recently pulled back from a high at $56, finding support at its 50-day moving average. S&P has a “four-star buy” on AGCO with a 12-month target of $66. The trading target for AGCO is $60, but long-term buyers may reap a much greater reward.

Trade of the Day - AGCO

"Dr. Doom" Roubini: Forget the financial crisis... This crisis could topple world governments

From Bloomberg:

Forget Egypt for a moment. Skip the water crisis in China. Look past angst on the streets of Bangladesh. If you want to see how extreme the effects of surging food prices are becoming, look to wealthy Japan.

So big are the increases that economists are buzzing about them pushing deflationary Japan toward inflation. Yes, rising costs for commodities such as wheat, corn and coffee might do what trillions of dollars of central-bank liquidity couldn't.

Yet the economic consequences of food prices pale in comparison with the social ones. Nowhere could the fallout be greater than Asia, where a critical mass of those living on less than $2 a day reside. It might have major implications for Asia's debt outlook. It may have even bigger ones for leaders hoping to keep the peace and avoid mass protests.

What a difference a few months can make. Back in, say, October, the chatter was about Asia's invulnerability to Wall Street's woes. Now, governments in Jakarta, Manila and New Delhi are grappling with their own subprime crisis of sorts. This one reflects a toxic mix of suboptimal food stocks, exploding demand, wacky weather and zero interest rates around the globe.

It's not hyperbole when Nouriel Roubini, the New York University economist who predicted the U.S. financial crisis, says surging food and energy costs are stoking emerging-market inflation that's serious enough to topple governments. Hosni Mubarak over in Egypt can attest to that.

Side Effects

It's important to begin considering the side effects. The United Nations reckons countries spent at least $1 trillion on food imports in 2010, with the poorest paying as much as 20 percent more than in 2009. These increases are just getting started. In January, world food prices rose to another record on higher dairy, sugar and grain costs.

This crisis might lead to another: debt. Expect Asian leaders to increase subsidies sharply and cut import taxes. The fiscal implications of these steps aren't getting the attention they deserve. The same is true of social-instability risks. Events in Egypt are a graphic example of how people living close to the edge can get motivated in a hurry to demand change. Keeping that rage bottled in the age of Twitter, YouTube and Facebook won't be easy. Hence Roubini's concerns about geopolitical crises.

There's an extreme irony in the timing of all this. It's coming as the world is becoming a heavier place. Obesity rates have almost doubled since 1980 and almost 10 percent of humanity was seriously overweight in 2008, according to the medical journal The Lancet. People have never been fatter at the same time when food prices have never been so high.

Fat World

The Westernization of Asia's diet is partly behind the rise in food costs. Rapid growth, rising incomes, growing populations and urbanization are conspiring to shift eating habits away from the staples of old toward livestock and dairy products.

The growing pains inherent in shifting consumption patterns will be especially acute in this region. Unlike the food-price spike of 2008, this one may be more secular than cyclical. Asia alone, for example, will have another 140 million mouths to feed over the next four years. Add that to almost 3 billion people in the fast-growing region and you have a recipe for booming demand.

China's size and scope means it will be buying up ever- growing chunks of the world's food supply. As the yuan rises, so will China's ability to outbid everyone else. Increased trade tensions are inevitable and it will show the futility of food subsidies. Prices will rise as long as consumption does, so it's really a matter of pouring money down the drain.

Weather's Wrath

China also shows how changing weather will bump up against rising living standards. Severe droughts are imperiling wheat crops in the world's largest producer. It's creating shortages of drinking water both for China's 1.3 billion people and livestock. It's a reminder that water is the next oil. Governments will be scouring the globe for it before long.

Rising food prices will complicate things for China's central bank. That goes, too, for India, Indonesia, the Philippines and even less developed economies from Pakistan to Vietnam.

This will be an inconvenient reality check for Asia bulls. Take Indonesia, the fourth-most populous nation and home to the biggest Muslim population. Food prices make it harder to deliver higher living standards and narrow the gap between rich and poor. The same goes for other countries in which population growth often outpaces gross domestic product, like the Philippines.

What's killing households surviving on a few dollars a day is price volatility. If you spend almost half of your income to fill bellies, a 10 percent surge in cooking oil, wheat or chili peppers is devastating. It's hard enough to pay rent and handle health-care costs today, never mind investing in education.

Governments need to get busy softening the blow, even at the expense of rattling the folks at Standard & Poor's and Moody's Investors Service. Otherwise, they will have a bigger crisis on their hands than voters or investors alike can stomach.

Analyst: Oil Will Hit $300 in a Decade, Regardless of Egypt

Weeden & Co. oil analyst Charles Maxwell says oil prices are bound to move steadily higher during the next decade, eventually hitting $300 a barrel, regardless of whatever happens in Egypt.

Oil now trades around $85 a barrel, only a few dollars higher than a year ago. It has ranged between $50 and nearly $150 during the past five years.

An oilfield near Los Angeles.
Demand will inevitably outpace the ability of oil companies to create supply, Maxwell tells Barron’s in an interview. Most people get that without an expert telling them so, he said.

“In three or four years, will the ability to produce the extra barrels needed be met? The answer is increasingly a question mark, and that pushes higher and higher the present values of the oil in the ground and the desire of holders of oil to add to their supplies,” Maxwell said.

Maxwell notes that current production is 88 million barrels a day, to which he adds global capacity of another 5 million barrels a day. He predicts that capacity will peak in five years at 95 million barrels.

“It will be a little bumpy in 2015, 2016, 2017 and 2018. But by 2020, the first signs will become very evident that we can't go any higher than that in production. So we will begin to settle very slowly and gradually in a world in which we need more oil each year, but we can't get more,” Maxwell said.

Even so, don’t expect high oil to crimp growth, Maxwell said. It might pull down eventual global GDP by up to four-tenths of a percent at most, he predicted.

UAE Minister of Energy Mohammed Al Hamli made the case on Monday at an OPEC event that the oil cartel is unfairly characterized in the press.

Rather, the group — now 50 years old — is a force for price stability, reported news site Arabian Business.

"It is a myth that OPEC just wants to reduce production in order to raise prices. Often, members step in to shield the market from the impact of global emergencies or geopolitical tensions such as the two Gulf wars and the strike that paralyzed oil production in Venezuela in late 2002," he said in a speech in Abu Dhabi.

London Source - Asians Buying SLV to Take Delivery of Silver

With gold up over $10 and silver attacking multi-decade highs, the London Source has given King World News major news on the activities of the Asian buyers, “Not only have the the Asian buyers been purchasing large numbers of shares of the ETF GLD in order to take delivery of gold, but they have now in fact decided to buy SLV with the intention to take physical delivery of silver directly from that ETF.”

The London Source continues:

“You have to remember that BlackRock sponsors SLV and I don’t believe they will let anything happen to tarnish their good name. It would reflect badly on BlackRock if in fact SLV did not contain the physical silver to back up the shares, so the Asians will be successful in draining physical silver directly from SLV. The bottom line is they are comfortable with BlackRock being involved in the ETF SLV.

In the end, BlackRock will have to ensure that the silver ETF makes good on redemptions from SLV.

Another complicating factor is that there are currently 16.12 million shares short on SLV. This is an increase of almost 2 million ounces over the prior reading. In other words BlackRock will also have to make sure that this silver which has been borrowed will be returned.

We have serious backwardation, a supply shortage, short interest growing on SLV and now we have the Chinese waking up to the fact that there is metal in SLV and saying, ‘let’s go get it.’ Let’s not forget the paltry inventories on the Comex. Any short would have to be frightened by that data.

There are two options left for the shorts, one is to naked short the heck out of this market in an attempt to drive the price down. But if they decide take this option it will worsen their position longer-term. The other option is to capitulate and let the price of silver rise in an attempt to let the silver market get into equilibrium.”

It will be very interesting to see which option the shorts take here, but for now the wind is in their face and we will look to see if silver can clear $31 on good volume. The London Source closed with this question, “If you were a for-profit trader yourself and you were short here, what would you do?”

Eric King

Merrill Finds That Money Manager Confidence In Stocks At All Time Record High

And the latest confirmation that nothing will ever go wrong again, since if it does it will mean everyone will be TBTF, being on the same side of the sinking ship, comes courtesy of the formerly insolvent bank known as Merrill (and now as taxpayer bailed out Bank of Countrywide Lynch), whose survey of money managers has just found that more are bullish on global stocks than at any time in the history of the survey. As in "ever." "A net 67 percent of respondents, who together manage $569 billion, had an “overweight” position on global equities, the highest level since the survey first asked the question in April 2001. That compares with 55 percent in January and 40 percent in December. Meanwhile, a net 9 percent is “underweight” cash, the lowest allocation since January 2002." Translation: everyone is long stocks. Every "balls to the wall" one. The Bernanke Put has succeeded in eliminating every last drop of risk from the stock market.

From Bloomberg:

The February survey “is one of the most bullish in years,” Gary Baker and Michael Hartnett, equity strategists at BofA Merrill Lynch, wrote in a report today. “Surging inflation expectations show we are no longer in a Goldilocks environment and a meaningful tactical correction in risk assets could be caused by a jump in interest rates or weaker U.S. growth.”

A net 34 percent of survey respondents are now “overweight” U.S. equities, up from 27 percent in January.
Appetite for euro-area stocks has also risen, to net 11 percent “overweight” from 9 percent “underweight” in January.

Meanwhile, February saw the biggest decline in emerging-market exposure in the survey’s history, with net 5 percent of managers now “overweight” global emerging-markets equities, down from January’s 43 percent.

“Unusually, higher risk appetite has been accompanied by a dramatic downsizing in asset allocation to emerging markets, as surging global growth expectations have increased the value attractions of developed-market alternatives,” London-based Baker, head of European equities strategy at BofA Merrill Lynch, said in a statement.

The survey was conducted between Feb. 4 and Feb. 10.

Simply said, there hasn't been a greater allocation of people on the same side of a sinking cruise ship since the Titanic. Too bad Chairsatan Generalissimo Vissarionvich von Bernankestein wasn't alive back then to prevent that particaular disaster.

Full "Merrill" report:

BofA Raging bulls

BACKWARDATION and the fall of the bankers

The Silver is in BACKWARDATION and the fall of the bankers It's happening right now, and it will change everything.
It's still winter but things are getting hot, hot, hot. Barclays reports solar panel usage is expected to jump up to use 7% of production; mines are borrowing metal for their hedge programs, high grade silver is getting swooped before it reaches the street, coin sales are at record levels, Comex is at four year low (Reuters)
Money had been leaving SLV. Lots and lots of hard data to back up this one beyond a doubt.

Jay Taylor: Turning Hard Times Into Good times

David Morgan and John Rubino will help us understand why a collapse of the dollar as the world’s reserve currency is inevitable and why current policies not only ensure its collapse but guarantee the depression, whether of a hyper inflationary or deflationary variety, will be all the worse because of current policies. We will review John’s book, The Coming Collapse of the Dollar and How to Profit From It.” That book, which was co-authored with James Turk in 2004, illustrates how using an Austrian economic model, all the horrors of 2008-2009 could have been and indeed were predicted. We will also explore ways to profit from a predictable future. Part of the solution is in owning gold and silver. But which of those two metals might profit you more? Dave Morgan, who is definitely one of the most knowledge people in the world when it comes to the silver markets, will opine.
click here for hour #1

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Federal Budget Deficit / Surplus

Silver to Gold Ratio 1883 to Present - Bullion

Silver Gold ratio - presented through yearly averages of the silver:gold relationship , today the ratio is between 46-47. I think it's going to drop significantly. It's not too late to buy silver and take advantage of the upcoming favorable During the time of Tiberius (time of Christ) 200 denarius was about 21.5 troy ounces of silver by weight, the price to buy 5,000 loaves of bread to feed 5,000 men with their families (Mark 6:37). Average price of a loaf of bread in Canada today is $3.00. To feed 5,000 at one loaf per family would cost $3 x 5,000 or $15,000. Thus an ounce of silver during the time of Tiberius priced in today’s dollars is $15,000 /21.5 troy ounces (200 denarius) = $697 per ounce.

S&P 500 Index Above The 50 Day SMA Since September 2

"The S&P 500 continues to hold above its 50-day moving average. We've been above it every day since September 2, 2010. This is the 11th longest streak since 1932" - in Stock Twits

BNN: Top Picks

Martin Hubbes, Executive Vice-President and CIO, AGF Investments Inc., shares his top picks.

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Rich Valuations and Poor Market Returns

Last week, the S&P 500 Index ascended to a Shiller P/E in excess of 24 (this "cyclically-adjusted P/E" or CAPE represents the ratio of the S&P 500 to 10-year average earnings, adjusted for inflation). Prior to the mid-1990's market bubble, a multiple in excess of 24 for the CAPE was briefly seen only once, between August and early-October 1929. Of course, we observed richer multiples at the heights of the late-1990's bubble, when investors got ahead of themselves in response to the introduction of transformative technologies such as the internet. After a market slide of more than 50%, investors again pushed the Shiller multiple beyond 24 during the housing bubble and cash-out financing free-for-all that ended in the recent mortgage collapse.

And here we are again. This is not to say that we can rule out yet higher valuations, but with no transformative technologies driving the economy, little expansion in capital investment, and ongoing retrenchment in consumer balance sheets, I can't help but think that the "virtuous cycle" rhetoric of Ben Bernanke is an awfully thin gruel by comparison. We should not deserve to be called "investors" if we fail to recognize that valuations are richer today than at any point in history, save for the few months before the 1929 crash, and a bubble period that has been rewarded by zero total return for the S&P 500 since 2000. Indeed, the stock market has lagged the return on low-yielding Treasury bills since August 1998. I am not sure that even members of my own profession have learned anything from this.

Based on our standard methodology (elaborated in numerous prior weekly comments), we presently estimate that the S&P 500 is priced to achieve an average total return over the coming decade of just 3.15% annually. Again, we've seen weaker projected returns over the past decade. But then again, the S&P 500 lost about 5% annually in the decade following the 2000 peak, and even including the recent advance, has achieved an annual total return since 2000 of almost exactly zero. So despite periodic speculative runs, rich valuations have an annoying way of ruining the fun. Equally important, even during extended speculative periods as we observed in the late-1990's, those advances have tended to suffer deep and abrupt intermediate-term corrections once elevated valuations are joined by overbought conditions, overbullish sentiment, and rising interest rates, as we observe today. (more)