Dan Norcini: Continued Dollar Selling to Keep a Firm Bid for Gold

from King World News:

With continued volatility in global markets, today King World News interviewed legendary Jim Sinclair’s chartist Dan Norcini. When asked about the chaotic, whipsaw trading action in the markets, Norcini stated, “Yesterday was the Bernanke rally in the commodity markets. It was all about Bernanke reinforcing the view that the global economy, but particularly the US economy, is in such a condition that it’s going to require a very low interest rate environment for at least the next 18 months and possibly out to the year 2014.”

Dan Norcini continues: Read More @ KingWorldNews.com

S&P cuts CME Group rating due to MF Global risk

Standard & Poor's Ratings Services cut its rating for CME Group Inc on Wednesday, warning the exchange operator increased its financial risk by increasing protection to futures customers in the wake of MF Global's collapse.

The ratings agency said CME also faced increased risk from the sudden growth of its over-the-counter clearing business.

CME did not immediately respond to a request for comment.

"The rating actions follow several instances of CME Group providing limited financial support to the trading customers of its defaulted clearing members," S&P credit analyst Charles Rauch said.

S&P lowered CME's long-term issuer credit rating to "AA-" from "AA" and said the outlook for the long-term rating was negative. The agency affirmed a short-term "A-1+" rating for the company.

CME, which owns the Chicago Mercantile Exchange and Chicago Board of Trade, is the world's biggest futures exchange operator and was a primary regulator of MF Global before the brokerage filed for bankruptcy on Oct. 31.

The failure shook traders' confidence in the futures industry, as former MF Global clients discovered million of dollars they had held in accounts at the firm were missing.

CME audited MF Global shortly before its collapse and has faced criticism from some customers who think it could have done more to protect them. Clients still have not received all their money back.

S&P said its negative outlook for CME represents the agency's view of "the potential legal, regulatory and reputational fall-out" from MF Global's bankruptcy.

CME last week said it would set up a new $100 million fund to try to draw farmers and ranchers back to the market for what it called "bona fide" hedging activities. Some have reduced their trading activity because of their diminished confidence in the market.

CME in November approved a $600 million guarantee to speed up payouts from the trustee overseeing MF Global's bankruptcy.

The support "raises incremental risks that were not previously factored" into S&P's ratings for CME, the ratings agency said. On their own, the money amounts to only about six months of CME's free-operating cash flows, according to S&P.

Matthew Heinz, analyst for Stifel Nicolaus, agreed the support for customers represented "pretty small potatoes for CME." Still, he noted "it's not their sandbox to be out their guaranteeing customer funds."

Regarding CME's over-the-counter clearing business, S&P said it was nervous about the exchange's growing profile in credit default swaps because the products are "outside the clearinghouse's historical expertise."

The company's clearing volumes for over-the-counter interest rate swaps and credit default swaps grew significantly in the fourth quarter.

The Spark That Lit the Economy

Friday’s employment data was the latest of a series of data showing marked improvement in the U.S. economy. ISI counted 18 straight weeks of stronger U.S. data including better vehicle sales, same store sales, homebuilding and manufacturing.

Also, U.S. money supply is growing at a robust 10 percent year-over-year, greasing the wheels for America’s economic engine, which showed 3.7 percent growth in nominal GDP in the fourth quarter.

What was the spark that lit the bottle rocket and sent the fireball into the sky for the economy?

The Wall Street Journal recently reported U.S. corporate tax receipts as a share of profits were at the lowest level in 40 years. Corporations paid a tax rate of 12 percent on profits during the fiscal year that ended September 30, 2011, less than half the average rate companies paid from 1987 to 2008. They employed a tax incentive known as “bonus depreciation” allowing businesses to deduct the capital that they invest back into their businesses.

At the same time, capital expenditures for American companies reached $1.5 trillion in 2011, up 10 percent from 2010. This is the third year in a row of increased capex spending.

Gold Market to skyrocket in 2012

Eric Sprott – Financial Sense Newshour

Chart of the Day - Church & Dwight (CHD)

The "Chart of the Day" is Church & Dwight (CHD), which showed up on Tuesday's Barchart "All Time High" list. Church & Dwight on Tuesday posted a new all-time high of $47.93 and closed up 5.28%. TrendSpotter has been Long since Dec 12 at $44.96. Church & Dwight on Tuesday reported Q4 adjusted EPS of 53 cents versus the consensus of 51 cents and announced a 41% increase in its quarterly dividend to 24 cents per share from 17 cents. Church & Dwight, with a market cap of $6.5 billion, is the world's leading producer of sodium bicarbonate, (baking soda), a versatile chemical which performs a broad range of functions such as cleaning, deodorizing, leavening and buffering.

Stocks Due for a Breather After a solid run, the market is exhibiting signs of exhaustion

The stock market took a breather on Monday following its recent successes. Observers blamed the slower day on “fretting over Greece” again. But the euro overcame early weakness and closed higher against the U.S. dollar, which doesn’t fully support that thesis. From the viewpoint of technical analysis there are other reasons for the market to rest.

At the close, the Dow Jones Industrial Average was off 17 points at 12,845, the S&P 500 fell a point to 1,344, and the Nasdaq lost 4 points to close at 2,902. The NYSE traded 686 million shares and the Nasdaq crossed 420 million. Decliners led advancers by 1.4-1 on both exchanges.

On Monday, I mentioned[1] that the S&P 500’s break from a small inverse head-and-shoulders formation that appeared in November and December provides a short-term target of 1,378. But what about a long term target?

One publication quoted Bloomberg on Jan. 3: “Valuations for U.S. equities have been stuck below the five-decade average for the longest period since Richard Nixon’s presidency.”

That average evaluation is 16.4 times. Multiply that by the expected earnings of the S&P 500, which is $104.78, and the target is 1,718, which would be very nice, but with current world tensions it may be a bit optimistic.

At the present level of 1,344, with an assumption of $100 to $110 earnings (Jeff Saut’s estimate), the S&P 500 is trading at a very modest P/E of just 12.2x to 13.5x. My guess is that the index should trade at about 15 times earnings. There are so many factors that could influence the ratio (Greece, Iran, China, Syria, etc.) that we must admit that we live in abnormal times. But 15 times $105 = 1,575.

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Supposition: A breakout by the S&P 500 above 1,345 could be from a huge inverse head-and-shoulders formation. The formation has a double head at an average of 1,120. To calculate the target, take the distance between the head and the neckline and add it to the neckline. Thus, 1,345 – 1,120 = 225 + 1,345 = 1,570, just 5 points from 15 times earnings.

That target is a mere 16% from yesterday’s close, which is exactly how far the index has traveled since its August to October lows. Surely stocks are due for a rest following such a run and there appears to be signs of exhaustion.

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The dollar via the PowerShares DB US Dollar Index Bullish Fund (NYSE:UUP[2]) seems to be oversold, and if Greece breaks from the EU, the dollar should strengthen. A strong dollar usually leads to lower stock prices, and so tomorrow we will examine what to expect in the way of a pullback or consolidation.