Friday, March 2, 2012

Credit System Subverted - Implosion Imminent With Trillion Euro Gamble

On Wednesday, the second long-term refinancing operation (LTRO), sponsored by Mario Draghi's European Central Bank, lent out a staggering €529 billion to faltering banks, which could put up almost any collateral to get these short term life rafts. Nearly 800 commercial banks took advantage of the ECB's half trillion euro currency blast—taking the grand total of the European Central Bank's LTRO program to over a trillion euros.

Ambrose Evans-Pritchard of the Telegraph quotes a few congratulatory bakers and academics, who make it seem as if Draghi's central bank just saved the credit system and the entire universe:
Mr Draghi has won high praise from monetarists around the world, convinced that he has acted just in time to head off a dangerous contraction of the money supply and a full-blown banking disaster. "Draghi has been very astute, and has given the single currency project another lease of life," said Professor Tim Congdon from International Monetary Research.
"It helps enormously that banks have time to recover. Cheap loans will boost M3 money growth and drive a wider economic recovery this year.
And guess what those banks did with that currency? They went right ahead and bought more sovereign bonds from Spain and Italy—amongst the weakest sovereign bonds you can buy. The weakest banks used the funding to buy the weakest government bonds.
Bob Janjuah from Nomura said the whole credit system is being subverted. "We have monetary anarchy running riot where the elastic band between the real economy and the current liquidity-fuelled markets is stretched further and further beyond credulity," he said.
Professor Charles Wyplosz from Geneva University said the ECB ploy of bailing out insolvent states by the back door will come back to haunt if Europe’s leaders fail to sort out EMU’s fundamental woes and later face a "contagious wave" of sovereign defaults.
"The LTROs make things massively more dangerous. The banks borrow cash from the ECB to acquire sovereign bonds. The more the banks accumulate these bonds, the riskier the situation is becoming. The ECB seems to be making a trillion euro bet," he said.

Does any of this really matter? Are Draghi and the ECB actually strengthening anything or is he actually weakening the system he is trying to protect by weakening the balance sheet of his collective banking system? In reality this is simply window dressing to what's really going on Europe.

The Financial Times quotes Peter Sands, CEO of Standard Chartered Bank:
But Peter Sands, chief executive of Standard Chartered, said that the glut of central bank money risked “laying the seeds for the next crisis”. Mr Sands, whose Asia-focused bank is insulated from the eurozone crisis, said that no thought had been given to long-term consequences. “It is not clear what the exit strategy is. What happens in three years’ time when it needs to be refinanced?”

Quality Gold Junior Miners Poised to Soar

After a tough 2011, the junior resource market is turning and things are definitely looking up, Resource Opportunities Publisher Lawrence Roulston tells us in this exclusive interview with The Gold Report. The mood of investors in the resource sector has turned positive, and based on the sentiment and interest shown at recent investment conferences, the smart money is looking for deals that have real upside potential. Roulston tells us about several he feels are poised for significant action as the market heats up.

The Gold Report: Quite a bit has happened on the international economic and geopolitical fronts since you last spoke with The Gold Report in January 2011. In your view, how have these things affected the markets for precious metals and junior resource stocks?

Lawrence Roulston: Of course, most people who have invested over the past year have probably suffered some pretty serious losses and may be wondering why they ever got into this business. From where we sit now, I think the worst is over, and I'm very optimistic about what's coming up in the near term. There was a tremendous amount of uncertainty over the last year with the euro, the dollar and the growing debt levels.

Gold and silver, of course, have again become a safe haven for investors who are concerned about all of this uncertainty, reflected in very strong metals prices. Governments both here and in Europe are throwing out trillions of dollars and euros in bailouts to prop up failing companies and countries. Longer term, that's going to have a tremendous impact through devaluated currencies. That brings us back to gold and silver, not just as safe havens in the near term, but also as long-term hedges against currency devaluation. So that is very positive for the precious metals markets.

In the meantime, the companies that are involved in these metals were clobbered last year. Investors wanted the security of bullion, but fled from the risk of equities. But it's very clear now that the equity prices are coming back. Over the past couple of weeks, we've seen fairly strong growth in trading volumes and prices, which are starting to trend higher. I think now is just absolutely the best time in years to be getting into the market with the major risk factors being more-or-less put aside and stock prices beaten down to a level where there's tremendous value. (more)

The Boom in LNG Shippers As global natural gas demand soars, shippers can barely keep up

As the U.S. continues to grapple with an overabundance of natural gas and ultra-low domestic demand, the question remains about what to do with all that excess supply. One option that’s getting more support is exporting the fuel.

A variety of emerging market nations, especially in Asia, have turned to natural gas as a cheap way to power their economic growth. Global consumption of LNG is set to rise around 5% this year, and gas prices have fallen about 30% since the end of 2008, while both coal and oil have risen. However, unlike the U.S., these nations aren’t blessed with domestic sources of supply. The ideal solution for U.S. producers would be to open exports to these nations.

In “How to Play the Potential of LNG Exports,” I wrote about the first step in getting this gas to Asia. Natural gas needs to be cooled under pressure at minus-260 degrees and converted to a liquid in order to be transported overseas. These so-called liquefaction terminals and export facilities are vital steps in the process.

Private equity firm Blackstone’s (NYSE:BX) recent $2 billion investment to help Cheniere Energy Partners (NYSE:CQP) develop its Sabine Pass liquefaction project in Louisiana helps underscore the potential growth in natural gas exports.

However, these export terminals aren’t the only way to profit from LNG. Companies that physically ship the compressed gas overseas could be equally, if not more, rewarding for investors.

Surging Day Rates and a Dwindling Vessel Glut

Day rates for LNG tankers have been steadily rising over the last three years as a decade-long glut of vessels has begun to disappear. The cost to rent a LNG tanker for a day rose to $97,630 during 2011, up from $43,663 in 2010. However, as high-growth economies like China continue to demand more natural gas, some analysts expect future day rates to eclipse these amounts. A recent survey conducted by Bloomberg shows that median analyst estimates for LNG day rates will average $147,000 in 2012.

Those rates are certainly possible as the supply of LNG ships continues to be weak in the face of high demand. Currently, the global LNG tanker fleet totals only 347 vessels. Two new ships scheduled to be delivered in 2012, but that still won’t be enough.

Demand for LNG tanker services is expected to rise about 12% throughout the year. To meet that demand, analysts predict that carriers actually need to add around 5.5 million cubic feet of capacity. That’s essentially equal to 25% of the U.K.’s daily winter usage.

Given the strong uptrend in LNG demand (China alone will imports 42% more LNG this year), the tanker fleet will need to grow by an additional 100 ships by 2020. Given that an LNG tanker costs around $210 million to build, that’s a tall order.

Several vessels are currently in construction and set for delivery between 2013 and 2014, but these ships still won’t alleviate any near-term increases in day-rate pricing. That’s why tanker companies could be the best way for investors to profit from LNG’s current growth trajectories: The lack of shipping capacity will act as a leveraged play on exports. Morgan Stanley (NYSE:MS) highlights that this environment will be “an opportunity for a lot of LNG ship owners to generate premium returns.”

In addition, shares of the LNG tanker firms are relatively cheap due to guilt by association. As day rates for oil tankers and bulk dry ships have been falling due to overcapacity issues, many LNG shippers have felt the burn as well. The broad-based Guggenheim Shipping ETF (NYSE:SEA), which tracks a variety of subsectors of the global shipping industry, sits well below its 52-week high. However, the growth projections for LNG, coupled with the lack of capacity, makes these firms a value among the sector.

Charting a Course

Given the profit potential in LNG tanker stocks, investors may want to add some exposure through a few broad-based shipping companies. For example, Overseas Shipholding (NYSE:OSG) has a 49.9% interest in four LNG carriers.

However, to get the maximum benefit, investors may want to bet on Golar LNG (NASDAQ:GLNG). The firm, which operates nine LNG tankers and is controlled by the Warren Buffet of shipping — John Fredriksen — recently saw its fourth-quarter net income surge to $17.2 million. This is up from $4.71 million a year earlier. Now, though, analysts expect Golar’s net income to jump to $195 million for 2012. Analysts also expect shares of this LNG shipper to rise about 7.5% throughout the year.

There’s plenty of reasons to be bullish on Golar. The shipper expects to see continued improving earnings until 2017 as the global supply of available vessels remains tight. In addition, Fredriksen cites long-term strength in emerging-market LNG growth to support Golar’s decision to invest nearly $400 million on two new LNG carriers. This bullish outlook and strong earnings has helped Golar reaffirm its 2.9% dividend, while many other shippers have been cutting payouts.

While shares of Golar aren’t as cheap as rival Teekay LNG Partners (NYSE:TGP), on a forward P/E basis, Golar’s excellent growth profile makes it worthwhile choice to play the LNG export market.

Scott Minerd: “A Wide Range of Assets Are About to Make Large Gains”

Scott Minerd, Guggenheim Partners CIO, discusses his long-term strategy, investing for an asset bubble, the risk-on trade, and shorting Treasuries. Also, how best to implement and apply the trend, with the Fast Money traders.

From CNBC:

“The world is being flooded with liquidity,” says Minerd in a live interview on CNBC’s Fast Money. “Money is coming out of central banks around the world.” And he adds that the Federal Reserve is committed to keeping rates low for an extended period of time.

With so much liquidity chasing return, Minerd thinks a wide range of assets are about to make large gains. “Over the next 2-3 years, it’s risk on,” he says. And he’s planning to position as follows:

- Long High-Beta Equities
- Long gold and silver
- Long junk bonds
- Buy art & collectibles
- Short Treasurys

In the near term, that sounds good for your equity portfolio –but if you have a longer time horizon, Minerd also makes some troubling comments.

Top 6 Stocks to Buy for March

by Sam Collins

Pimco CEO Mohamed A. El-Erian, the world`s largest bond manager, made some incisive comments during a recent CNBC interview. With the European crisis now settled and Italy saved, he said, Greece has been sacrificed in order to build a firewall.

And, according to Riverfront Investment Group, The good news is that in contrast [to Europe], the U.S. economy is turning slowly. For the first time in 35 years, manufacturing employment is increasing faster than non-manufacturing employment.

The U.S. unemployment rate is falling and even existing home sales are increasing –the best sign that the housing market is showing signs of improvement.

From a technician`s viewpoint, the major indices have had difficulty breaking several psychological barriers, chiefly the Dow`s 13,000 line and the S&P 500`s May 2011 high at 1,371. But a lagging sector, the banks, has turned positive, and that could provide the push needed to break the logjam for the indices. In February, bank stocks led the other sectors, and on Feb. 27, advanced 1%.

On the defensive side, there is massive support under all of the markets, and so corrections are probably limited to no more than 3% to 5%. And on the positive side, breakouts could easily move the major indices 10% or more.

Here are your top stocks to buy for March:

Top Stock to Buy #1 CSX Corp. (CSX)

CSX Corp. (NYSE:CSX[1]) is the operator of the largest rail network in the easternUnited States. The stock is expected to be driven higher by an increase in foreign coal shipments and auto and international container shipments.

Profit margins are expected to rise in 2012 due to an increase in volume and productivity. And earnings are expected to increase from $1.35 in 2010 and $1.67 in 2011 to $1.85 in 2012. Credit Suisse sees steady growth ahead and has a target of $29 on the stock.

Technically the stock has been consolidating just under its 50-day moving average at $22. A break over $22 on high volume could catapult CSX to $27. (more)

Top Stock to Buy #1 – CSX Corp. (CSX)
Click to Enlarge

David Morgan : what happened Wednesday is a paper scheme

David Morgan interviewed by - Kerry Lutz - March 1, 2012 trying to explains what really happened Wednesday in the gold and silver markets : they are losing and we are wining they are running out of ammunition says David Morgan , what happened yesterday is a paper scheme aimed to move the price towards a certain direction at a certain time.

Corning is ready to break out (GLW)

Shares of Corning have been building a base since hitting bottom back in October. Share price should be ready to break out of the ascending triangle soon.

Corning (GLW) the maker of Gorilla Glass has a very low downside potential as long as the market cooperates. The bottom of the triangle right now is about $12.85, where we expect to see some strong support.

The 200 day Moving Average is slowly making a move down to the 50 day moving average as the base builds. Soon, we expect a golden cross (50 day moving Average Crosses the 200 day MA) as share price breaks out of the wedge pattern.

At this point GLW should have a huge pocket of air to run up in - but expect some resistance at $15.80. However, if the market is still trending upwards GLW could easily break through this into the next level of resistance around $18.80.

Bottom line:

We believe that GLW is trading at about half of what it should be right now. Get in now before everyone else realizes it. Place your stops at $12.50.

Recall we talked up Corning back in January in Stock to Buy on Weakness: Corning. The stock made a nice run from $12.60 to $14.62. Its very probable GLW repeats this trend again in the coming months.

corning chart