Wednesday, March 16, 2011
China this week reported a $7.3 billion trade deficit for the month of February, its largest trade deficit in seven years, which surprised many global economists. NIA believes China's trade deficit is temporary and that China will quickly return to having a trade surplus. The Federal Reserve's QE2 along with China's destructive monetary policies, which artificially devalue the yuan, have led to a massive rise in China's raw material costs this year. NIA believes that in the upcoming months, Chinese manufacturers will raise the prices of their products that get exported to the U.S., to counteract rising commodity prices. With most products used by Americans today having been manufactured in China, this will mean Americans will soon see massive price inflation in just about all consumer goods they use. NIA projects that by the end of 2011, we will begin to see the U.S. CPI increase by 4.9% or higher on a year-over-year basis, with real U.S. pric e inflation rising north of 10%.
The mainstream media is proclaiming that China's trade deficit will silence calls for the Chinese to allow their currency to strengthen against the U.S. dollar. The fact is, China's government has for long been making the major mistake of printing too many yuan in order to artificially prop up the U.S. dollar. Their fear was, if the U.S. dollar was allowed to decline too rapidly, prices of Chinese goods would rise in terms of U.S. dollars and Americans would no longer afford to import them.
The truth is, if China allowed the yuan to strengthen, the Chinese would have enjoyed a much higher standard of living. Sure, prices would rise in dollars and Americans would import less, but the Chinese would have the ability to consume more of their own products. Now, as a result of China expanding its own money supply in order to keep the yuan pegged to the U.S. dollar, Americans will be forced to pay a much higher price for Chinese goods anyway. The same higher prices Americans were going to pay as a result of exchange rate appreciation, Americans will now pay as a result of inflation. For the Chinese, the exchange rate appreciation route would have been a much better route to take than the inflation route, because now the Chinese will also be forced to pay higher prices. In the very short-term, China might actually suffer more than the U.S. because they lack the social safety nets that have been implemented here in America.
The U.S. government has been successful at temporarily paying off Americans into not rioting in the streets like in Arab nations. It was just announced a few days ago that the number of Americans on food stamps in the month of December of 2010 was a record 44,082,324, up 13.1% from one year earlier and 1.1% from one month earlier. That is more than 14% of the total U.S. population! Combined with President Obama extending unemployment benefits up to 99 weeks, American citizens are too busy and distracted playing with their iPad 2s and gossiping on Twitter about Charlie Sheen, to have any time to protest in Washington, DC.
NIA believes the U.S. government's entitlement spending is currently having the unintended consequence of making Americans dependent on government. It is like when you take wild animals into captivity and you feed them, teach them to do tricks and take care of them for a period of many years; if you just dump them one day back into the wild, it will be very difficult for them to survive. Americans who have become dependent on unemployment checks and food stamps will likely soon abruptly find out that they must begin to fend for themselves without any help from the government. The result will be many Americans turning into wild animals and becoming so desperate that they will have to rob and burglarize their fellow neighbors who were smart enough to prepare, or else they will risk starving to death.
As a result of QE2, the Federal Reserve is now buying 70% of U.S. treasuries, up from previously only buying 10% of treasury bonds. Foreign central banks are now buying just 30% of U.S. treasuries, compared to previously buying 50% of treasury bonds. The U.S. budget deficit in the month of February reached a record $222.5 billion or $2.67 trillion on an annualized basis. With the Federal Reserve now monetizing our debt in full swing, a complete and total loss of confidence in the U.S. dollar could be imminent.
Just like how nobody in the mainstream media was calling for the collapse of Egypt's government a few months ago, almost nobody in the media believes a collapse of the U.S. dollar could possibly take place anytime soon. NIA members are educated enough to see that the writing is on the wall. The Federal Reserve can deny all it wants that the U.S. is experiencing inflation, but with the cost to print a single U.S. dollar paper note rising by 50% since 2008, massive inflation is here right under Federal Reserve Chairman Ben Bernanke's nose. Every day that goes by, China is quietly implementing more and more steps that expand the yuan's use in cross border trade, in order to position the yuan as the world's next reserve currency.
So few Americans are presently preparing for hyperinflation that if hyperinflation broke out today, approximately 90% of Americans won't have the means to put food on the table or put fuel in their automobiles. During the upcoming hyperinflationary crisis, food stamps will no longer have any value at all and all U.S. entitlement programs will come to a complete halt. Americans will take to the streets like the world has never seen before.
The biggest question NIA has today is, will the U.S. government resort to firing at its own citizens, if major riots take place in Washington, DC. On Thursday, police in Saudi Arabia shot and wounded three protesters. The price of oil rose by a few dollars per barrel as soon as this news hit the wire, which shows just how nervous the world's financial markets have become in recent weeks. The fact that the Dow Jones has declined significantly in recent days, in our opinion means that the odds of QE3 being launched as soon as QE2 is over, are now much higher than they were several weeks ago.
The other big question NIA has today is, if in the unlikely event there is no QE3, who will fill in for the artificial buying demand currently coming from the Federal Reserve. After all, with no QE3, the Federal Reserve will go from buying 70% of treasury bonds to being a seller of U.S. treasuries. NIA is 100% sure that foreign central banks aren't itching to jump back in to fill the hole. While in the past, the private sector may have picked up the slack, we believe individual investors will now be more reluctant to jump into government bonds, especially with bond king Bill Gross reducing the government bond holdings in his Pimco Total Return Fund down to zero. The bottom line is, no QE3 means interest rates will fly sky high and destroy the phony so-called "economic recovery".
From April to August of 2010, the last time the Federal Reserve allowed its balance sheet to shrink, the Dow Jones fell by over 1,000 points. If Bernanke doesn't soon begin to leak out the strong likelihood of QE3, we could see the stock market decline by 1,000 points or more, which will force Bernanke into launching QE3. If we see a major sell off in stocks, NIA doesn't necessarily think that precious metals prices will follow. In fact, we could see gold and silver rise along with the Dow Jones falling. NIA projects the Dow Jones to gold ratio to decline to 6.5 in 2011. This means even if the Dow Jones fell to below 11,000, we still believe gold is likely to rise to around $1,600 to $1,700 per ounce this year, with silver soaring to around $42 to $44 per ounce. NIA believes the worst decision any American can make is to sell their gold and silver and go long U.S. dollars, hoping to buy their precious metals back at a lower price in the future.
Its time to go dumpster diving for stocks!
Japan's Panasonic Corp (PC) hit a new 12 month low of $10.76 a share today but has sinced recovered to $11.62. Panasonic has suffered damages and halted production due to the earthquake.
NutriSystem (NTRI) hit a new 52-week low of $13.05 today. Thanks to the decline NutriSystem shares are now trading with a P/E Ratio of 11.9 and EPS of 1.13.
Cisco (CSCO) got down to a new low of $17.25 before making it back to $17.38 a share. Cisco Systems Inc (CSCO) shares are a long way from its $27.74 12 month high. Cisco shares are now trading with a P/E Ratio of 13.5 and EPS of 1.32.
Happy safe trading and let's hope these stocks have seen their bottom.
To understand the U.S. economy go no further than the following two charts. In 2009 and 2010, public sector borrowing was more than 100 percent of total net domestic credit flows. Federal government borrowing was 93 percent of these flows. The chart also shows the incredible collapse of U.S. credit bubble.
Private sector deleveraging peaked in Q1 2010 and net consumer credit in Q4 was positive for the first time since Q2 2008. Net mortgage flows remain negative and corporate credit flows are picking up stream.
The first chart illustrates why the U.S. money supply has not exploded even though the Federal Reserve has almost tripled the monetary base. The second chart shows why inflation concerns are increasing, however, as domestic credit markets heal and are primed with a massive arsenal high powered money.
Ambrose Evans-Pritchard, LondonTHE total exposure of foreign banks to the struggling quartet of Greece, Ireland, Portugal and Spain tops $US2.5 trillion once all forms of risk are included, according to the latest data from the Bank for International Settlements.
On an ''ultimate risk'' basis that includes the potential loss on derivatives and credit guarantees of different kinds, the figure rises to $US2.51 trillion as of last September, well above the headline figure of $US1.76 trillion in cross-border loans. The sheer scale highlights the systemic dangers if the European Union fails to stabilise the debt crisis.
Euro-zone leaders agreed to boost the lending power of the European Union bailout fund on Friday, but Germany vetoed proposals for a debt buyback scheme or an activist policy of bond purchases.
The BIS, the central bank of central banks, said in its quarterly report that Germany had $US569 billion of exposure to the quartet, France $US380 billion and Britain $US431 billion.
A chunk of British exposure is on behalf of Middle East and Asian clients banking through London. Italy has just $US81 billion at risk and seems uniquely insulated from the crisis.
The geography of risk varies greatly. British-based banks and subsidiaries have $US225 billion at stake in Ireland, and $US152 billion in Spain, but little in Portugal or Greece. France is up to its neck in Greece with $US92 billion; a Benelux-led group has $US180 billion in Spain, and Spain itself has exposure of $US109 billion to Portugal.
The complex web of lending shows how hard it is to contain the problem to one country at a time.
American lenders capitulated in the third quarter, slashing exposure to the four countries by 8.7 per cent. It is likely that US players took advantage of bond purchases by the European Central Bank to sell bonds and cut their losses.
The BIS said global cross-border lending rebounded by $US650 billion in the third quarter to $US31 trillion, but is still far below the $US36 trillion peak in the heady days before the ''great recession''. British-based banks are still leaders with $US5.69 trillion, followed by the US at $US2.92 trillion.
The BIS said Western central banks still enjoyed the benefit of the doubt on pledges to contain inflation, but swap rates have begun to flash warning signals, especially in Britain where two-year inflation swap rates have risen well above the Bank of England's inflation estimates.
The BIS study said the VAT rise accounted for part of the inflation dynamic, but there was also an ''investor wariness of a persistent overshoot''.
While the risk of ''policy mistakes'' by central banks is rising, this is a double-edged threat. US core inflation has fallen to 0.6 per cent. ''In many mature economies, any premature tightening could jeopardise the economic recovery and risk sparking expectations of deflation,'' it said.
Separately, the BIS has recently cracked down on derivative trading. It has demanded higher costs for banks and other participants trading derivatives, equities and bonds.
March 15, 2011
The cost of uranium is a barometer of the popularity of the nuclear power industry. And as the esteem in atomic energy now plunges, so it is the price of the commodity.
In 2007-08, as oil prices soared towards an all-time high, the nuclear industry saw a renaissance that lifted the price of uranium to a record of $136 a pound.
Uranium prices fell sharply afterwards on the back of fresh supplies and the drop in oil prices during the global financial crisis. But even so, prices were at historically high levels. The most commonly traded form of uranium rose last month to a 35-month high of $73 a pound, sharply higher than the $20 of the early 2000s.
But as the popularity of the nuclear industry comes into question following Japan’s atomic crisis, prices have moved sharply lower. In the thinly traded spot market, uranium plunged on Monday by 10 per cent to $61.49 a pound, according to MF Global, a broker. Some analysts see prices falling a further 20 per cent in the next few weeks and months, dragging down miners such as Cameco of Canada – whose shares fell 12.7 per cent in Toronto on Monday – and Areva of France – down 9.6 per cent in Paris. Shares in Uranium One, Canada’s second-largest producer, tumbled almost 28 per cent on Monday. Rio Tinto and BHP Billiton, two of the world’s largest miners by market capitalisation, are also big uranium producers.
Is the drop justified? For sure, demand is going to be lower this year and potentially next year. Japan accounts for almost 10 per cent of global uranium consumption and a fifth of the country’s nuclear power plants are down. Some of the reactors are unlikely to restart after suffering significant damage. Worse, Tokyo is likely to order stoppages at unaffected plants this year for security checks, further reducing consumption.
More broadly, blanket coverage of the nuclear crisis in the west is set to catalyse public opposition against the extension of the life of old plants – some of them about 40 years old – and the building of new reactors. The rosy forecasts of dozens of new reactors in Europe in the next two decades are unlikely to come to fruition. Popular opposition does not derail the plans for new reactors, but construction is likely to be delayed, in some cases significantly, as policymakers demand more safety.
As such, the uranium market is unlikely to move into a deficit over the next five years, as some in the industry had expected even before the Japan crisis. Supplies could be more plentiful and prices much lower. Talk about a return to $100 a pound, common before the earthquake in Japan, now appears unlikely to materialise as the renaissance of the nuclear industry in western industrialised countries fades away.
The key for the price of uranium is not in Europe or the US, however. As in many other commodities markets, developing countries such as China will be far more important. Beijing plans to construct as many as 187 reactors to add to its exisiting 13, according to the World Nuclear Association. CRU, a leading commodities consultancy, said in a comprehensive report published before the Japanese earthquake that Chinese demand for uranium would quadruple in the next decade. By 2030, China will surpass the US as the world’s largest consumer. Traditionally, uranium demand has been concentrated in the US, France and Japan.
Jerry Grandey, Cameco chief executive, tried to convey that sentiment on a hastily arranged conference call late on Monday as the share price of his company plunged. “Some people have questioned whether the nuclear renaissance will survive this natural disaster,” he said. “Growth in nuclear capacity in China, India, Korea and elsewhere … adds tremendous momentum and we expect it will continue.”
He may be right over the long term, but in the short term, investors are likely to vote with their feet and continue selling uranium – and the miners that produce it.
It seems like such a short time ago that an overbought condition was what we were looking at.
Tom McClellan ( a recent guest on the TDI PODCAST ) has some very interesting models that provide a good deal of insight into the markets. One of my favorites to reference is the good ole’ McClellan Oscillator.
Whatever you may think about market conditions right now, it is showing a classic oversold condition. Each time in the past couple of year that it got down this low, there was a quick turn and stocks were bid higher. Of course there is the thought that the trend may continue to move in the same direction for some time. Even so, this is a good indicator to watch as it does provide for a nice way of looking at the market action and condition.
As always, there is more than one indicator to consider before making any investment decision….
At the open of U.S. trading, the Standard & Poor's dropped almost 3 percent led by weakness in insurance and technology stocks along with a 7 percent plunge in industrial giant General Electric Co, which designed the troubled Japanese plant's reactors.
But shares moved off the lows as investors put their money to work and the Federal Reserve Board made encouraging statements about the U.S. economy. The S&P and other broad indexes closed down a little over 1 percent.
"We're looking to spend more in Japan," Alex Motola, co-manager of the Thornburg International Growth Fund, said on Tuesday. "You can't easily set aside the human element in a tragedy like this but as an investor you've got to find the best place for your capital."
KASS AND SASS AND OAKMARK, TOO
Other investors, including prominent money managers Doug Kass and Martin Sass, are looking for buying opportunities.
Among mutual fund companies, Oakmark Funds has "been active in the market," said Rob Taylor, co-manager of international and global portfolios. The $3.7 billion Invesco International Growth Fund has also been buying. Neither firm disclosed the specific stocks it bought.
Stocks in Japan finished 10.6 percent lower on Tuesday after falling 6.2 percent on Monday as the troubled situation at the Fukushima reactor developed. The crisis escalated when operators of the facility said one of two blasts had blown a hole in the building housing a reactor, releasing spent nuclear fuel into the atmosphere.
The nuclear issues come as Japanese officials are still assessing the full extent of destruction from Japan's earthquake and tsunami, with at least 10,000 people feared dead.
Few U.S. investors saw a long-term problem for world markets in the Japanese maelstrom.
U.S. stocks, down about 5 percent since February 18, have already priced in many risks such as the weak economic recovery, according to Ken Taubes, chief investment officer of Pioneer Investments in Boston.
"There is no clear reason that the U.S. ought to be weak in the face of what's happening in Japan," Taubes said. "It's an industrialized, sophisticated country that is going to rebuild quickly once they get their nuclear installations under control."
Rebuilding might even spur some new business for U.S. firms, he added.
Such sentiments helped shares of GE rebound from steep losses earlier Tuesday, as investors determined the company had little potential legal liability and nuclear-related revenues comprise a tiny portion of its business.
Once the crisis passes, Japan will need to add power capacity and GE's gas-driven turbines could benefit from increased investment, some advisers said.
Greg Ghodsi, a financial adviser at Raymond James Financial in Tampa, Florida, said he's still holding GE shares accumulated last year because of its nearly 3 percent dividend yield.
"It was hit because people don't know if there will be some kind of liability," he said. "I'm still comfortable with it because of the income."
VIX FOR THE NERVOUS
Still, some investors moved to hedge against further turmoil.
Independent financial adviser John Fiege in Onancock, Virginia, said he bought the iPath S&P 500 VIX Short-term Futures exchange-traded note for some clients. It benefits from an increase in the VIX volatility index, which tends to spike when the stock market drops quickly.
"I do not want to hold this position long-term as I expect rising markets over time," Fiege said. But in the short-term, the position will "capture some up if stocks go down."
In a sign of investor anxiety, the CBOE VIX volatility index was up 13.7 percent on Tuesday.
Stock involved in the nuclear industry were, not surprisingly, hit hard in early trading trading Tuesday, while alternative energy companies soared. The iShares S&P Global Nuclear Index Fund lost 4.7 percent while the Market Vectors Solar Energy ETF jumped 5.8 percent.
Thornburg manager Motola said he was skeptical about the solar bounce.
"Solar has relied on subsidies but a lot of countries have been cutting back," he said. "Japan isn't going to be loaded with money for them."
Motola said he's buying beaten-up shares of some Japanese technology companies with strong sales outside of Japan. He declined to name them but the fund has owned Sony in the past.
I wanted to follow up a post from last year about EWJ. Back in December ’10, I mentioned 10 Reasons I Am Thinking About Japan. Regardless of your views going forward, if you owned or traded this, you should have had a plan in place, and executed your strategy on it.
I wrote than “Note how many times EWJ got turned back at $11. What would get me really excited was a high volume breakout over $10.90-11.”
EWJ did manage to get over $11, kissing $11.60 — but on rather mediocre volume. If you were thinking about a big position, the lack of volume should have kept you small (or out altogether).
Regardless, you should have followed your discipline. It could have included such rules as:
• Buy the stock on a high volume breakout over $11 (1st chart here)
• Sell the stock when the uptrend is decisively broken (Red circle)
• Buy the stock when it falls back to support at $9 -9.50 (Green circle)
You will never know when an event(s) such as an Earthquake/Tsunami/Nuclear accident will occur, but you certainly can have a trading plan in place way before hand. Having a plan, and having the discipline to execute that plan is crucial to success as an investor or trader . . . .
Commodities fell for a fourth day, led by a 3.3 percent slide in crude oil, as Japan’s biggest earthquake and nuclear crisis spurred concern that demand for raw materials, including some energy products, will shrink.
The Standard & Poor’s GSCI spot index of 24 commodities dropped 2.4 percent, capping the longest losing streak since Aug. 24, to 683.12 at 10:57 a.m. in London as crude futures in New York slid below $100 a barrel and U.S. gasoline lost as much as 4.2 percent. Gold, copper and corn also declined.
“What you’re seeing in Japan is a demand-destructive event,” said Stephen Wood, New York-based chief market strategist for Russell Investment Group. “We saw the supply side to the equation with what’s going on Libya and Egypt and to some extent Bahrain, and now you’re seeing the other side.”
Commodities are retreating after a sixth monthly gain in February as Japan, the world’s third-biggest economy, grapples with the aftermath of the quake, the magnitude of which was revised upward to 9 yesterday from 8.9. A third blast occurred today at the Fukushima Dai-Ichi nuclear plant, and Prime Minister Naoto Kan said the risk of further radiation leaks is rising. The March 11 temblor caused an estimated 10,000 deaths, shutting down factories, power plants and oil refineries.
Crude oil for April delivery dropped as much as $3.38 to $97.81 a barrel in electronic trading on the New York Mercantile Exchange and was at $98.23 at 11:01 a.m. in London. European benchmark Brent crude futures traded 2.9 percent lower at $110.39 on London’s ICE Futures Europe exchange.
The earthquake has shut or disrupted production at refineries accounting for at least 29 percent of Japan’s processing ability, cutting demand for crude supplies. The country is the world’s third-largest oil consumer.
U.S. crude futures surged to a 29-month high of $106.95 a barrel in intraday trading March 7 as violence in Libya cut crude production and threatened to spill into the Middle East.
Gasoline futures on Nymex declined as much as 12.4 cents to $2.8361 a gallon, the lowest in more than two weeks.
The production halt at some of Japan’s nuclear plants may boost demand in the country for other fuels, including liquefied natural gas and diesel fuel, which many power stations burn to produce electricity.
Japan will need as much as 10 million metric tons of additional LNG as a result of the quake and its aftermath, said Jonathan Stern, director of gas research at the Oxford Institute for Energy Studies. A “dramatic” increase in LNG demand was possible if damage to Japanese nuclear facilities proves more severe than he currently expects, Stern told reporters today at a conference in Doha, Qatar. Natural gas futures in the U.S. and U.K. rallied.
Immediate-delivery gold bullion fell as much as 1.5 percent to $1,404.95 an ounce. Palladium for immediate delivery dropped as much as 3.8 percent to $718 an ounce after losing 1.8 percent yesterday, while platinum decreased as much as 2.2 percent to $1,715.18 an ounce. Cash silver fell as much as 3.8 percent to $34.56 an ounce.
“Gold and other precious metals are coming under pressure as commodities decline across the board,” said Chae Un Soo, a Seoul-based trader at KEB Futures Co. “The decline in commodities also coincided with the need for gold to take a breather after a recent rally to a record.”
Demand for palladium and platinum has been hurt by shutdowns in auto plants in Japan, Hussein Allidina, head of commodity research at Morgan Stanley, wrote in a report. The metals are used to make pollution-control devices.
Carmakers Hit Brakes
Toyota Motor Corp., the world’s biggest carmaker, will suspend output at 12 Japanese factories today and tomorrow, spokeswoman Shiori Hashimoto said yesterday. Isuzu Motors Ltd., a Toyota affiliate, will halt production at its two Japanese plants until March 18, spokesman Koichi Ito said. Honda Motor Co. and Nissan Motor Co. also shut facilities in northern Japan.
Copper for three-month delivery dropped as much as 2.6 percent to $8,950 a ton on the London Metal Exchange.
Agricultural commodities also fell. Zen-Noh, Japan’s largest corn buyer, yesterday said operations to unload U.S. corn at Kashima and other northern ports were suspended because of power outages. The country is the biggest buyer of U.S. corn and ranks second for American wheat and third for soybeans.
Corn for May delivery lost as much as 2 percent to $6.53 a bushel on the Chicago Board of Trade, while wheat fell as much as 2.8 percent to $7.0025 a bushel.
As we mentioned earlier, this month we are going to be looking at the stocks that make up the DJIA. . Next up: Home Depot (HD).
This is a name that has been showing a great trend. While many have long ago predicted the demise of retail – especially anything related to housing, Home Depot has been able to put in some impressive growth. Shares are riding right along its long-term trend line and above both the 20- and 50-day moving averages.
On average, analysts have a target price on this name of $40, close to 10% above where shares are currently trading.
Notice that the up/down volume ratio has retreated in this latest sell-off. That is often a good sign. Also, EPS growth estimates are healthy. Our combined technical and fundamental score of 2.9 will quickly increase if shares move above $37.50.HD 20110314