Thursday, August 2, 2012

Welcome to the Currency War, Part 3: US Corporate Profits Plunge

The euro is down big lately, which is to be expected. Over-indebted countries have traditionally used devaluation to keep their debts from crippling them.

The problem is that a cheaper currency is only a temporary fix because it invites retaliation from everyone else. For a real-world example of this process in action, consider what just happened to McDonald’s. For the past few years it has been turning crappy food into great numbers, in part by adding new restaurants in hospitable markets and in part because the dollar was relatively weak, which made the euros and yen McDonald’s earned relatively valuable.

But with the euro plunging against the dollar, these trends have shifted into reverse:

McDonald’s second-quarter profit falls, shares slide

(Reuters) – McDonald’s Corp reported lower-than-expected quarterly profit on Monday, hurt by a slowing global economy and the impact of a stronger dollar, and said sales growth at established restaurants would slow this month.

Results from the world’s biggest hamburger chain showed that even the most resilient restaurant operators were being hurt by the weak U.S. economic recovery and persistent financial woes in Europe — which are forcing diners to pull back on spending for meals away from home.

Shares in McDonald’s, which hit all-time highs of over $100 earlier this year, fell 3 percent to $88.83 in midday trading on the New York Stock Exchange.

Net income fell 4.5 percent to $1.35 billion, or $1.32 per share. The impact of the stronger dollar — which lessens the value of sales overseas for U.S. companies — cut 7 cents a share from earnings in the latest quarter, the company said.

Now extend this strong dollar/weak earnings narrative to Boeing, Monsanto, Cisco, and most other US multinationals, and suddenly the stock market, tax revenues, year-end bonuses, incumbent political prospects and everything else that makes life worth living for US elites start to look shaky. This is clearly unacceptable and will require a response. The dollar will have to go back down, and soon.

This will be accomplished with some combination of even lower interest rates, election year tax cuts, publicly-announced asset purchases or secret loans to favored banks, corporations, and political action committees. And it will probably work, lowering the dollar and raising the foreign exchange earnings of McDonald’s, et al.

But by then the Japanese and Chinese will be in full retaliation mode, which will beget even more ease from Europe. And so it will go until ending the currency war by returning to sound money becomes the least destructive option.

Jeremy Grantham: Investment Outlook (Q2 2012)

Sum­mary of the Summary

We are five years into a severe global food cri­sis that is very unlikely to go away. It will threaten poor coun­tries with increased mal­nu­tri­tion and star­va­tion and even col­lapse. Resource squab­bles and waves of food-induced migra­tion will threaten global sta­bil­ity and global growth. This threat is badly under­es­ti­mated by almost every­body and all insti­tu­tions with the pos­si­ble excep­tion of some mil­i­tary establishments.


1. Last year we reported the data that showed that we are 10 years into a par­a­digm shift or phase change from falling resource prices into quite rapidly ris­ing real prices.

2. It now appears that we are also about five years into a chronic global food cri­sis that is unlikely to fade for many decades, at least until the global pop­u­la­tion has con­sid­er­ably declined from its likely peak of over nine bil­lion in 2050.

3. The gen­eral assump­tion is that we need to increase food pro­duc­tion by 60% to 100% by 2050 to feed at least a mod­est suf­fi­ciency of calo­ries to all 9 bil­lion+ peo­ple plus to deliver much more meat to the rapidly increas­ing mid­dle classes of the devel­op­ing world. (more)

Doug Casey’s 10 Tips on Speculation and Life

With Five Months To Go, Here Is “Cliff” Versus Consensus / By Tyler Durden / August 1, 2012

America is now exactly 5 months away from the day the US Fiscal cliff will crater the economy unless a Congress which has never been as partisan as it is currently agrees to collaborate and delay the day of reckoning. This is very unlikely to happen before the presidential elections for obvious reasons, and it is even more unlikely to happen after the elections when politicians demonstrate just why the term “graceful loser” has never existed when describing what happens in D.C. So what would happen to the US economy if and when January 1, 2013 rolls in and nothing has changed, and how does this differ from the consensus? The chart below from BofA answers that particular question, and brings up a new one: even if the Fed goes ahead with more NEW QE today or in September, if the “cliff” consensus really is as wrong as it very well may be, will the Fed have no choice but to follow up its easing at this FOMC meeting or the next with another one immediately following? And is this precisely the one consideration for Ben Bernanke, who realizes very well that if financial conditions, read the Russell 2000, are relaxed just in time for the crucial decision on Bush Tax Cut extension, then absolutely nothing will happen, forcing the Fed to continue being the sole source of “stimulus” in America. Of course, in that case expect nothing from the Fed not only in in August and September, but well into 2013.


Jay Taylor: Turning Hard Times Into Good Times

Part 2 click here
7/31/2012: Reinventing Collapse & Preparing for Survival


Sometimes trading in the stock market can be complicated, and at times, confusing. However, there are some trading opportunities that are clear and somewhat obvious. One potentially simple trading opportunity would be for the stock of CNH Global NV.

CNH Global N.V. manufactures, markets, and distributes a line of agricultural and construction equipment and parts worldwide. It operates in three segments: Agricultural Equipment, Construction Equipment, and Financial Services. The Agricultural Equipment segment provides tractors, combine harvesters, hay and forage equipment, seeding and planting equipment, tillage equipment, and sprayers, as well as cotton picker packagers, and sugar cane and grape harvesters primarily under the Case IH and New Holland brands. The Construction Equipment segment offers heavy construction equipment, such as crawler and wheeled excavators, wheel loaders, graders, dozers, and articulated haul trucks. The Financial Services segment provides financial products and services, including retail financing for the purchase or lease of the company's and other manufacturer's new and used products. CNH Global N.V. sells and distributes its products through dealers and distributors in approximately 170 countries.

Please take a look at the 1-year chart of CNH (CNH Global N.V.) below with my added notations:

It's relatively straightforward. CNH has been holding a very important level of support at $35 (navy) for the last (9) months. No matter what the market has or has not done over that period of time, CNH has not broken below that area of support. If the market should move lower, CNH would most likely move closer to that $35 support area for a potential trade.

The Tale of the Tape: CNH has held a strong level of support at $35. If the stock were to approach that level again, a trader could enter a long position with a stop placed under the level. If CNH were to break below the support, a short position would be recommended instead.

S&P 500 Rolling Ten Year Returns: Better Than You Think

by Bespoke Invest­ment Group

While the period from March 2000 through now has been clas­si­fied as the dark ages for invest­ing, the rolling ten year returns for the S&P 500 hit their high­est lev­els since Jan­u­ary 2008 this month. The chart below shows the his­tor­i­cal rolling ten-year returns for the S&P 500 going back to 1938. As shown in the chart, the returns have been rebound­ing from multi-decade lows in the last cou­ple of years and are now up to 51.9%. In other words, $100 invested in the S&P 500 ten years ago this month is worth $151.9 today.

Before we start call­ing it a golden age for equi­ties, though, we would note that a big rea­son for the cur­rent pos­i­tive level is the fact that this Sum­mer also rep­re­sents the 10-year anniver­sary of the end of the dot-com bear mar­ket that went from Spring 2000 through Sum­mer 2002. Time sure flies when you're hav­ing fun. Doesn't it?

Germany Now Has a REAL Debt to GDP of 300%…. Bye Bye Eurozone

The European Crisis is accelerating with every day. Indeed, at this point there’s a new major development (if not more than one) on a daily basis.

Rather than detailing every single news item, I’d rather address the larger concerns. This will better help you understand the larger systemic issues and how this is all likely to play out.

Greece, which we’ve been told was “saved” more than a dozen times, is back on the ropes and on the verge of needing a third bailout:

Greece will need more debt restructuring…EU officials

Greece is unlikely to be able to pay what it owes and further debt restructuring is likely to be necessary, three EU officials said on Tuesday, a cost that would have to fall on the European Central Bank and euro zone governments.

The officials said that twice bailed-out Greece would be found to be way off track by EU and International Monetary Fund officials who have been assessing the country. (more)