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http://www.bloomberg.com/apps/news?pid=20601012&sid=aMwurj2nS2Bs&refer=commodities
My Opinion: As previously mentioned, shares of gold producing stocks will rise this year, reflecting the increased profit they can make. With gold trading above $900/oz and currencies of resource rich nations depreciating, this presents a unique profit maximization opportunity for many.
Firms like Kingsgate consolidated have announced sales may double this year compared to last, a feat that is unlikely to be seen in any other industry. Armed with huge profits from last year and the prospect of higher gold prices this year, Kingsgate has reinvested all its profits to double capacity at its Thai mine.
Investors are bullish on gold producing companies and have put their money where their mouths are. Shares in Kingsgate have gained 31% alone this year, beating the 15% decline on the benchmark Australian Index. The Sydney based firm plans to sell shares on the Thai market in the future.
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Recall I’ve been saying we’re in the timeframe for an important low in oil? See article and my comments below. – Larry
Bullish on Oil
http://www.bloomberg.com/apps/news?pid=20601110&sid=aPwgg8LlzGbI
http://www.bloomberg.com/markets/commodities/energyprices.html
While market prices are drastically lower than their July 2008 prices, crude prices have rallied in the last week to post gains of almost 30%. The Brent spot price is currently at $44.38 and is forecast to breach $50/bbl. The current rally was sparked by China’s decision to take advantage of low prices and build its reserve stockpile and expectations that OPEC will further cut output.
My Opinion: More gains coming for oil. Technicals are supportive, and so is OPEC, which is expected to soon cut oil production again. Meanwhile, the oil and energy sector is extremely undervalued, with many oil companies trading at levels that value their proven oil reserves at as little as $5 a barrel. Once the broader stock markets bottom, which I expect to occur very soon, oil and energy stocks may turn out to be the best plays, extremely profitable. Keep an eye out for signals in my Real Wealth Report.
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http://www.bloomberg.com/apps/news?pid=20601110&sid=a.6u.EHUlfm8
My Opinion: With interest rates at rock bottom levels across the world and asset levels plummeting to record lows, the appeal of the Japanese carry trade is all but gone. This has been evident for several months as investors unwound their positions, resulting in a greater demand for yen which pushed it to decade high levels. Consequently, Japanese exports suffered immensely as they became more expensive, costing the economy jobs and trade revenue.
This appears to be ending as the yen has dropped 8.8% to 98Y/USD since January with analysts predicting further falls to 102Y/USD. While this is a result of declining confidence in Japan and its politicians, the yen falling below the 100 level can positively impact export driven corporations. Breaching such a psychologically important level can boost the competitive advantage of Japanese goods sold abroad as they will appear cheaper.
While the structures of certain Japanese companies will not allow them to fully take advantage of this situation, there are some that will positively benefit from a weaker yen. Firms with limited to no exposure to foreign debt and price sensitive products will benefit the most as their cost structures remain intact while their revenues increase.
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http://www.bloomberg.com/apps/news?pid=20601110&sid=afIkX076rzJc
http://www.bloomberg.com/apps/news?pid=20601110&sid=a0srzs9UtTNM
http://www.bloomberg.com/apps/news?pid=20601110&sid=aWZ05kCKPm5s
As the world grapples with an economic downturn, the Chinese government has enacted policies that will promote freeing up capital within the economy. The Chinese central bank has already cut interest rates five times in 2008 to the current 5.31% level and the government has scrapped lending quotas and pressed banks to support its 4 trillion yuan stimulus package. The Bank of China plans to sell as much as 120 billion yuan worth of bonds to raise capital to be used as credit, in addition to other corporate entities plans to raise as much as 100 billion yuan. China doesn’t appear to be facing the same credit scarcity problems affecting the West as mainland banks gave out a record 1.62 trillion yuan and 800 billion yuan worth of loans in January and February respectively.
There appear to be signs of a recovery as the official manufacturing index rose for the third straight month in February along with increased retail spending and electricity consumption, all positive signs.
My Opinion: China will certainly not be as badly affected as the U.S. or European nations. Chinese banks are amongst the world’s healthiest and are in a position to responsibly encourage lending to boost a staggering economy. While the government avoided announcing any additional stimulus package for the country, easing of regulations with respect to raising capital is an encouraging step that will have positive ramifications to the economy.
The government also recently announced its intention to keep the yuan at a stable level, implying it will not allow any wild fluctuations and thus removing the threat of foreign exchange risk to Chinese corporate entities. With forward looking plans and ambitious ideas, China is poised to do what it takes to restart its economy as fast as it can.
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China to Lead Global Recovery?
The Chinese Manufacturing Index rose for the third month in a row as Beijing’s stimulus package takes effect on the economy. Amid signs that the Chinese economy appears to be bottoming out, stocks rose and new orders expanded for the first time in five months. Other positive signs include an increase in loans, growth in retail sales and an increase in electricity production and consumption in January. A measure of export orders also increased, in addition to employment, the first increase in six months. There are signs that this will continue as new manufacturing and construction projects are scheduled to break ground in the spring.
Amid these positive signs, the Chinese government has plans to further boost the economy by adding to the stimulus. Premier Wen Jiabao is expected to announce these new measures tomorrow after the Communist Party’s Politburo last month pledged a massive increase in government investment.
My Opinion: In light of these positive signs, it is difficult to argue how China will not emerge as stronger and more powerful than it already is. China is poised to lead the global economic recovery.
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Emerging economies eye gold reserves as dollar fears rise
DUBAI, March 2 (Reuters) — Major emerging economies are seeking to raise their central banks’ gold reserve holdings as fears of a sharp depreciation in the U.S. dollar mount, senior industry officials said on Monday.
Investors have been piling into gold as a safe haven as the the world’s worst financial crisis since the 1930s depression sent global stock markets crashing.
“In this recession it is India and China which are going to grow at a slow rate, but they are growing,” said Aram Shishmanian, chief executive officer of the World Gold Council.
“And they will naturally be looking to gold as part of their reserve asset management strategy, and I see them buying.”
China, the biggest foreign holder of dollar denominated treasury securities with some $681.9 billion or about 12 percent of treasury papers outstanding, could reverse that by paring its dollar holdings.
“China has $2 trillion of reserves, and only one percent in gold and nearly all of the rest is in U.S. dollars,” said Marcus Grubb, managing-director of investment research and marketing at the industry-sponsored World Gold Council.
“What we are seeing is a reassessment of the risk associated with the high exposure to the dollar. Obviously at the moment you see the dollar appreciating 25 to 30 percent against most currencies around the world, but a lot of that is obviously driven by liquidity.”
European central banks, which hold about half of global gold reserves, saw gold sales fall to their lowest levels since 1999, according to Grubb as governments store the precious metal as a buffer against worsening markets.
“Sales were underneath the Central Bank Gold Agreement (CBAG) cap … the cap was about 400 metric tonnes and I think they sold 356 tonnes … something is going on.”
Under the terms of the CBAG, signed in 1999 by key European institutions including Germany’s Bundesbank and the European Central Bank and renewed in 2004, members can sell up to 500 tonnes of gold a year.
The dollar hit a three-year high against a basket of six major currencies on Monday, with news that the U.S. government would pour a further $30 billion into troubled insurer AIG hastening risk-averse flows. The dollar index hit 88.822 — its highest since April 2006.
MIDDLE EAST CONCERN
But Grubb said the strength of the U.S. dollar is likely to be short-lived.
“That is a temporary phenomenon, if you look at the size of the bailout packages in North America the fact that the U.S. economy may well enter a depression … there is a real fear of that,” he said. “In that scenario I wonder what will happen to the U.S. dollar.”
Such a decline would apply pressure on Gulf Arab states which have faced popular pressure to ditch their currencies link to the greenback and switch to fight imported inflation when the dollar was weak.
“It would certainly be (a concern) to all regions pegged on the dollar … because they have run surpluses, and the Western countries have been in deficits, they have huge accumulation of dollar reserves,” Grubb said.
“In that scenario you could see an increased demand for gold then.”
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Buffett says U.S. Treasury bubble one for the ages
Feb. 28, 2009, NEW YORK (Reuters) — Warren Buffett, whose Berkshire Hathaway Inc. sits on $25.54 billion (17.8 billion pounds) of cash, said worried investors are making a costly mistake by buying up U.S. Treasuries that yield almost nothing.
In his widely read annual letter to Berkshire shareholders, the man many consider the world’s most revered investor said investors are engulfed by a “paralyzing fear” stemming from the credit crisis and falling housing and stock prices. Treasury prices have benefited as investors flocked to the perceived safety of the “triple-A” rated debt.
But Buffett said that with the U.S. Federal Reserve and Treasury Department going “all in” to jump-start an economy shrinking at the fastest pace since 1982, “once-unthinkable dosages” of stimulus will likely spur an “onslaught” of inflation, an enemy of fixed-income investors.
“The investment world has gone from underpricing risk to overpricing it,” Buffett wrote. “Cash is earning close to nothing and will surely find its purchasing power eroded over time.”
“When the financial history of this decade is written, it will surely speak of the Internet bubble of the late 1990s and the housing bubble of the early 2000s,” he went on. “But the U.S. Treasury bond bubble of late 2008 may be regarded as almost equally extraordinary.”
I cover this topic in depth in my February issue of REAL WEALTH REPORT, to read more and to find out how to profit from the bursting bond market bubble, click here.
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This just in from a colleague of mine. I agree with him. See my comments below. — Larry
Banking financial services stocks have taken a beating in the last year. The diversified banks group within the S&P 500 Index have fallen 54% in the last 12 months alone. This presents a unique opportunity for investors who don’t normally shy away from risky opportunities.
While there is definitely a banking crisis, this is not to say all banks are in trouble. Many banks did not engage in the risky behavior that was characteristic of Citibank, Merrill Lynch and Lehman Brothers amongst others. There are 119 publically traded banks in the U.S. with market capitalizations of $250m or more, of which 73 have a Tier 1 capital ratio of 10% or more, more than double the 4% required by regulators. Of these 73 banks, 17 have a risk-based capital ratio of more than 16%, again twice the amount required by regulators.
Three small-cap banks with market capitalizations of less than 1 billion that John Dorfman of Thunderstorm Capital likes include: Republic Bancorp Inc. (NASDAQ:RBCAA), SVB Financial Group (NASDAQ:SIVB) and Washington Federal Inc. (NASDAQ:WFSL). For those more interested in large-cap banks, Dorfman suggests BB&T Corp. (NYSE:BBT) which has a capitalization of $10bn.
My Opinion: These 17 banks look very good on paper and are all trading at significantly discounted values. Their share prices have fallen by half on average in the last 12 months, and several of them are trading at a price-to-book value ratio of less than 1, making the sum of their shares worth less than the book value of their assets.
The current banking crisis can’t and won’t last forever. These small- to mid-cap banking companies are slated for share value appreciation once investors re-enter the financial services sector.
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China Life Insurance Group is interested in purchasing AIG’s Asian Insurance unit, to maintain the stability of their Chinese operations.
My Opinion: We are witnessing a paradigm shift in global economics where it is no longer the traditional North American or Western European nations coming to the aid of Asian economies, as we have grown accustomed to. A shift has occurred wherein traditionally strong economies are in financial trouble and the only parties with deep enough pockets to secure their future viability are Asian powerhouses like China, South Korea and Japan and Middle Eastern oil rich nations.
This makes for an interesting scenario particularly as units like AIG’s Insurance is larger than China Life’s operations. The potential value that can be added to the portfolio of firms like China Life is immense, making it a bargain if the deal pulls through.
I expect this scenario to play out in the future on multiple occasions, where Asian corporations can purchase the assets of their former competitors for pennies on the dollar and leverage their expertise to turn them into huge profit generators. Now is the time to look at Asian firms with healthy cash flows and strong balance sheets as they may be looking to gain from some M&A action very soon.
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