America’s Leading Export: Inflation

November 30th, 2010

“Depending on how bad a crisis gets, gold ranges from being between the best answer and the only answer.”

Inflation is on everyone’s lips these days…everyone in Asia, that is. Because Fed Chairman, Ben Bernanke is so busy pumping up the US money supply to battle a perceived deflationary threat here at home, he is putting pressure on overseas economies to print money at the same pace, in order to prevent their currencies from appreciating against the dollar and, thereby, become less “competitive.” The mechanics of all this are a bit complicated, but suffice it to say that the US is “exporting inflation.”

This important topic hit the front page of yesterday’s The Wall Street Journal’s Money & Investing section. The paper posted official inflation rates for the biggest emerging market economies in Asia.

India leads the pack with an 8.6% official inflation rate. At that pace, prices would double in India in less than nine years. Indonesia is at 5.8%, China at 4.4% and South Korea at 4.1%. These are on the high side and increasing. Folks worry that central banks in these countries will tighten up their loose monetary policies to try to rein in inflation.

In so doing, these people worry economic growth will slow or even reverse. And that would have a wide impact on the world’s stock markets, as most of the growth that companies enjoyed in the last year came from Asian markets. After all, those rising commodity prices that delight commodity investors are due in good part to the demand from places like Asia.

China is already at work trying to contain price increases. It has implemented price controls, which never work. It has also tried to boost the reserve requirements of its banks, essentially forcing them to hold more in reserve and lend less.

This kind of tinkering and meddling creates its own problems and almost always ends badly. I should send a copy of Henry Hazlitt’s Economics in One Lesson to the world’s central bankers and policymakers – if only they’d read it.

I was in Baltimore last week recording an interview with my publisher, Addison Wiggin. We talked about this book, because Agora Financial has acquired the rights to it. We think it is an important book, so we are reprinting it. (You’ll hear more soon.)

Anyway, Hazlitt’s book is full of good principles and prescient predictions. The one key lesson he hammers home is to think not only of the immediate impact of any act or policy on one group, but to reason out the longer-term consequences for all groups.

For instance, the policy of encouraging homeownership seems a good one. But Hazlitt points out the problems of government-guaranteed mortgages. He wrote this passage in 1946, which is startling for its prescience. This describes exactly what happened in the big housing bubble that popped in the financial crisis:

“Government-guaranteed home mortgages, especially when a negligible down payment or no down payment whatever is required, inevitably mean more bad loans than otherwise. They force the general taxpayer to subsidize bad risks and to defray the losses. They encourage people to ‘buy’ houses that they cannot really afford. They tend eventually to bring about an oversupply of houses as compared with other things. They temporarily over-stimulate building, raise the cost of building for everybody (including the buyers of the homes with the guaranteed mortgages) and may mislead the building industry into an eventually costly overexpansion.”

Remember, this was written in 1946!

If only more policymakers and central bankers had read and understood this passage, we could have avoided a lot of pain and losses.

This is also a pretty good way to think as an investor. For example, Hazlitt writes about inflation. He makes some good points that most people overlook. Inflation, he tells us, doesn’t mean that all prices rise at the same time. Inflation is really a process, as the newly printed money courses its way through the economy.

“The process of inflation is certain to affect the fortunes of one group differently from those of another… It may indeed bring benefits for a short time to favored groups, but only at the expense of others. And in the long run, it brings ruinous consequences to the whole community. Even a relatively mild inflation distorts the structure of production. It leads to the overexpansion of some industries at the expense of others… When the inflation collapses, or is brought to a halt, the misdirected capital investment – whether in the form of machines, factories or office buildings – cannot yield an adequate return and loses the greater part of its value.”

This brings us to the inflation worries in Asia. Most of the time, you’ll hear commentators talking about economies “overheating” as if it is the duty of central banks to cool things down. But really, the damage is already done. Inflation distorts markets. It leads to people making investments they might not otherwise have made.

So the only choice is continuing the inflation to its ultimate flameout, or stopping it earlier. Either way, the “misdirected capital” – as Hazlitt dubs it – loses the greater part of its value. Anyone who owned, say, a homebuilder stock over the last five years knows this all too well.

Where is the misdirected capital in Asia? That’s what you want to avoid.

It’s hard to say, or investing would be easy. But it seems fair to say that real estate is one to be careful about. The building spree in Chinese cities has surely been abetted by lose money and an approving nod from the powers in Beijing.

The whole region, but China in particular, has had a great boom in heavy industry. Producers of cement and steel are concerns, in my view.

But the process of inflation also creates areas of neglect.

The great commodity boom we’ve enjoyed in the last decade came about in part because the industry has been starved for capital for a long time. Investors were drawn first to the telecom, media and Internet darlings of the 1990s…then to the miracles of subprime loans and financing in the 2000s. As a result, the resource sector received very little new investment. The last financial crisis also tightened the spigot on investing in resources. A whole raft of projects suffered delay, or even cancellation.

This, too, doesn’t fall evenly on all commodities. Some have been harder hit than others. Just this past weekend, I read a good piece in Barron’s on the titanium miners. From the piece:

“Titanium miners have painted themselves into a corner, as a lack of investment during the downturn has made it difficult to keep pace with booming emerging-market demand now. Higher prices are likely to result.”

It goes on to cite some titanium plays. Iluka Resources – trading under the ticker ILU in Australia – is the second largest miner, after Rio Tinto. Its stock is up 112% this year. South Africa’s Exxaro Resources is up 25% and Kenmare Resources is up 21%. The latter has a mine ramping up in Mozambique.

We’ve seen other commodities enjoy tight supply: uranium, iron ore, hard coking coal and rare earths. Each of these has gone up in price in the last year. No doubt there are some distortions in these markets, too. But new supply is not so easily forthcoming, leaving a window for investors to make some good money.

Another commodity that should be good no matter how Asia’s inflation story plays out is gold. The strength of gold reflects concerns of the creditworthiness of the issuers of paper money. As a result, gold is near 52-week highs. Yet the stocks of gold miners have lagged the metal. Gold miners should put up some great numbers in the next few quarters, though, sending their shares higher.

Hang onto your gold stocks.

Finally, if you read only one economics book in your life, Hazlitt’s is the one I recommend. I tell people that this book changed my life because it changed many of my ideas on economic questions and set me on a path that I still follow today.

You’ll find Hazlitt’s book is also a doorway to other thinkers, should you decide to go deeper. His final section, “Notes on Books,” contains many excellent recommendations.

I found Hazlitt back in 1996 while browsing bookstore shelves. I had been studying finance and the great investors – Ben Graham, Warren Buffett, Peter Lynch, Phil Fisher and others – for several years. But I felt I wanted to get a better grounding in broader economic principles. I was looking for one readable book that had a good summary.

Hazlitt’s book is the one I found.

Regards,

Chris Mayer
for The Daily Reckoning

America’s Leading Export: Inflation originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

Read more here:
America’s Leading Export: Inflation




The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

Commodities, Real Estate, Uncategorized

CVOL Steps It Up

November 30th, 2010

In Citigroup Belly-Flops into the ETP Sponsor Pool, Ron Rowland had some harsh criticism for Citigroup seemingly stealth launch of the C-Tracks ETN on CVOL (CVOL) earlier this month.

I am glad to report that Citigroup now has a nifty new web site devoted to CVOL (see graphic below) that includes the prospectus, historical closing prices, a list of the factors and values that are inputs into the CVOL daily calculation (nice!) as well as a description of key risks and key terms and an attractive little charting module. In other words, Citigroup has stepped up to the plate in a big way here.

…and I’m excited that they have done so because I think CVOL has a great deal of potential. I will get into this in more detail in future posts, but essentially this ETN has chosen a much flatter part of the VIX futures term structure than VXX and is using 2x leverage to account for the fact that in the 3-4 month VIX futures maturities, volatility tends to move more gradually on a day to day basis than it does in the cash/spot VIX or in the front month VIX futures. Eventually, I think investors will warm up to this tradeoff, but until CVOL has a sufficient track record to convince some investors that in some respects CVOL has some advantages to VXX, I would expect adoption to be gradual.

So far the volume in CVOL has been low and the spreads have been very wide (often as high as 1%), but as soon as these spreads start to narrow and volume picks up, I expect to be an active trader in CVOL.

Related posts:

[graphic: Citigroup]
Disclosure(s): short VXX at time of writing



Read more here:
CVOL Steps It Up

Uncategorized

US Dollar Fights the Euro in a Battle With No Victor

November 30th, 2010

We awoke to a blizzard. After a few months away, we had forgotten how miserable London’s weather can be. As near as we can tell, the sun doesn’t reach this part of the world – at least, not in the winter months. And the winter hasn’t even begun.

Snow, sleet, rain – it is all coming down. But Londoners don’t seem to mind. They trudge to work over their slippery sidewalks…march over their frozen bridges…

Seeing them coming over Blackfriar’s bridge, we remembered T.S. Eliot’s line about how surprising it was that “death had left so many undone.”

Eventually, death gets us all. And not just us… Banks. Corporations. Trends. Bull markets. Paper currencies. Monetary systems. Empires…

For example, death seems to be stalking the euro as well as the dollar.

“Irish rescue fails to appease markets,” says the front page of The Financial Times.

Europe’s leaders came up with €85 billion that was supposed solve the Irish problem. It was especially important that it create a buffer between Ireland’s banking and funding issues and those of the rest of Europe.

Well, it took about 24 hours for the buffer to give way. Now, Spain’s bolsa is in freefall. Portugal’s asset prices are giving way. And there’s pressure on Italy and even France. Even the biggest banks are slipping (see below).

Yes, dear reader…and you thought you had problems.

We had not paid much attention to the European financial issues. We thought we had enough to worry about already, what with Ben Bernanke trying to destroy the dollar and the US going broke.

But hey…that’s just the beginning.

Since Bernanke announced his program to undermine the dollar, the old greenback has actually risen against its main rival – the euro. How do you like that? Bloomberg reports:

The dollar gained the most since August against six major counterparts as concern that Europe’s debt problem will worsen and military action in Korea will escalate boosted demand for the US currency as a refuge.

The greenback rose against the yen for a fourth straight week, the longest streak in 20 months, after North Korea shelled a South Korean island and said “escalated confrontation” will lead to war. The euro fell for a third week versus the greenback as investors speculated Portugal and Spain will be the next European countries to need a financial rescue. The US added jobs in November for a second month, data next week may show.

“The euro has further to fall against the dollar,” said Kathy Lien, director of currency research at online currency trader GFT Forex in New York. “If there is a war amongst the Koreas, the yen would fall off aggressively against the dollar.”

The problem with the euro is that it is too good for many Europeans. Everyone wants a flexible currency these days. That is, they want one that will act like a good dog…one that will “get down” off the furniture when it is told to do so.

Alas, all the currencies are unruly mutts. The dollar won’t go down, even though Ben Bernanke pulls the rug out from under it and gives it the old “bitch slap” with the back of his hand. And the euro won’t go down because the Germans don’t want it to go down.

Of course, this doesn’t make the Germans very popular with the Spanish…the Irish…and the rest of the peripheral crowd. They want a cheap currency so they can pay their debts. The Germans, on the other hand, must have a kind of race memory for the horrors of the Weimar days…when you could take a wheelbarrow full of paper money to the store and not be able to buy a loaf of bread.

The more you look at the European banking and sovereign debt crisis the more dangerous and insoluble it seems. Try to fix one part of the problem and you make another part worse.

The Germans don’t want to pay to bailout the Spaniards…and the Italians…et al.

But German banks have nearly half a trillion euros worth of their debt.

The Irish taxpayer doesn’t want to pay to bail out the banks either. He’s already facing austerity measures that would choke and appall Americans.

Yesterday, the Obama team proposed freezing federal salaries – that is, leaving them 50% to 100% higher than private sector wages – for the next two years.

“We are going to have to budge on some deeply held positions,” said the decider.

His proposal would save…are you sitting down, dear reader…$2 billion by the end of 2011. Let’s see, that would cut the deficit by approximately 3 tenths of one percent…BFD.

In Ireland, government workers already agreed to a pay cut. And now the Irish feds are supposed to fire 10% of their public workforce…with another 10%, probably, a few years from now.

How much austerity will the Irish be willing to take in order to protect banks from their losses? They could leave the euro…revive the punt…and shirk their commitments in the old-fashioned way – by devaluing their currency.

But wait… If the Irish opt out of the euro…the whole shebang could come falling down.

“If the euro fails, Europe will fail,” says Ms. Merkel, chancellor of Germany.

And if the euro fails…banks fail…companies fail…trade fails…and then US companies fail…US banks fail…

Who knows where this would lead? And only we seem to want to find out.

But what to do? A colleague warns us:

“It’s time to save every possible penny. Next year is going to be worse than 2008 – a lot worse.

“Here’s why:

1. The euro is going to fail. Ireland, Spain, and Italy’s sovereign debt cannot be financed.

Shares of even the biggest and strongest of Europe’s banks (Deutsche Bank) have begun to “roll-over.”

2. More QE in Europe and America will make it much more difficult for businesses to invest across borders. That will result in massive trade problems and could easily cause a global famine. Most people don’t realize how dependent the world has become on free trade for basics, like food. Here’s what agriculture prices have done since July when QE II began. Vastly higher ag prices are not bullish for financial markets or world order.

3. Housing in the US is going to collapse, again. The various games that have been played to prop up the housing market in the US have failed. Tax credits, etc. haven’t worked…and they never had a chance. I have good contacts in this industry and it is completely bleak. With foreclosed properties making up 25%-50% of the inventories, housing prices will continue to fall 10%-15% a year – or more. There will be no new net demand for homes for a long time. Several major homebuilders will go bankrupt, including the largest, Pulte.

4. Lots of major US corporations – see GE – have unsustainable debt loads. These companies will end up bankrupt and will fire at least 50% of their employees over the next three years.

5. Muni/State finance: You guys have seen all of the numbers. Probably half of the states and munis in the US are being run in a way that’s completely unsustainable. As these cuts are made it will have a big impact on the economy. See what happened to Cisco last quarter, all because of cutbacks at the local government level.

“The problems of 2008 haven’t gone away. We’ve just borrowed a lot more money to make people think everything would be okay. As the veneer wears off, there’s going to be a real panic; and this time it will be worse, because there’s zero trust and confidence left in the government or the bankers…

“If I were in your shoes, I’d make sure every business unit I controlled was being run in a very prudent way, with a big cash flow buffer. I’d make sure they were ready to cut overhead by 50% in 30 days…”

Regards,

Bill Bonner
for The Daily Reckoning

US Dollar Fights the Euro in a Battle With No Victor originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

Read more here:
US Dollar Fights the Euro in a Battle With No Victor




The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

Uncategorized

India: Land of Hope and Growth

November 30th, 2010

Indian markets have rebounded nicely from the crisis, outperforming both the U.S. and China over the past three years. As of November 23, India’s Sensex was up just over 6 percent for the past three years, while the S&P 500 Index was down more than 16 percent and China’s Shanghai Composite Index was down 43 percent over the same time period.

Looking out for the next 5-10 years, India has one of the strongest growth profiles of any major economy in the world. Rapid urbanization, favorable demographics, key government policy reforms and further globalization of the world economy have India poised to match China’s GDP growth of 8.5-9.5 percent over the next two years before possibly outpacing Chinese growth for the next decade.

The McKinsey Global Institute (MGI) believes India is on the verge of the second greatest urban migration the world has ever seen. MGI sees India’s urban population ballooning to 590 million—nearly twice the size of the United States—by 2030.

This urbanization could send shockwaves through the global commodity balance.

Currently India accounts for just 3.8 percent and 4.8 percent of the world’s metals and primary energy demand, respectively, but Barclays is projecting that India’s metals and primary energy demand will increase by 80 percent and 50 percent, respectively, over the next five years.

India is approaching a tipping point in terms of urbanization. As you can see in both of these charts, once China reached the key 30 percent level of urbanization, both commodity demand and GDP per capita took off.

As the population’s discretionary income increases, people tend to use their money to improve living conditions by buying goods or adding utilities such as running water and electricity to their homes. MGI estimates that the number of Indian households with discretionary spending could jump from just 13 million in 2005 to 89 million by 2025. MGI says discretionary spending will account for 70 percent of consumption growth.

This urban population will not only be wealthier, it will also be younger and better educated than prior generations. The age dependency ratio, which is the ratio of population that is either below or above working age, is expected to shrink from 67.7 percent of the population in 1991 to just over 48 percent of the population by 2025. This means India will have a youthful labor force of roughly 900 million who can adapt easily to advances in technology and other shifts in the global economy.

This anticipated massive urban migration is going to strain India’s cities, airports and roadways so the government is quickly taking steps to expand its existing infrastructure. Currently the government spends 7 percent of the country’s GDP on infrastructure but that is expected to rise to 10 percent of GDP over the next few years, according to Morgan Stanley. That is roughly equal to what China is currently spending on its infrastructure.

This year, infrastructure lending has led the banking sector in 2010. According to CLSA, infrastructure lending from the Reserve Bank of India is up 80 percent from the same time period last year.

Last December I traveled through the Punjab region of India and there is no doubt the country has a long way to go. The roads are crowded, airports inadequate, and sewer systems non-existent, but when I spoke to people I immediately saw the feeling of hope this population carries with it. These people have firmly grasped the American Dream and it is only a matter of time before it comes true.

Regards,

Frank Holmes,
for The Daily Reckoning

P.S. For more updates on global investing from me and the U.S. Global Investors team, visit my investment blog, Frank Talk.

India: Land of Hope and Growth originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

Read more here:
India: Land of Hope and Growth




The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

Commodities, Uncategorized

India: Land of Hope and Growth

November 30th, 2010

Indian markets have rebounded nicely from the crisis, outperforming both the U.S. and China over the past three years. As of November 23, India’s Sensex was up just over 6 percent for the past three years, while the S&P 500 Index was down more than 16 percent and China’s Shanghai Composite Index was down 43 percent over the same time period.

Looking out for the next 5-10 years, India has one of the strongest growth profiles of any major economy in the world. Rapid urbanization, favorable demographics, key government policy reforms and further globalization of the world economy have India poised to match China’s GDP growth of 8.5-9.5 percent over the next two years before possibly outpacing Chinese growth for the next decade.

The McKinsey Global Institute (MGI) believes India is on the verge of the second greatest urban migration the world has ever seen. MGI sees India’s urban population ballooning to 590 million—nearly twice the size of the United States—by 2030.

This urbanization could send shockwaves through the global commodity balance.

Currently India accounts for just 3.8 percent and 4.8 percent of the world’s metals and primary energy demand, respectively, but Barclays is projecting that India’s metals and primary energy demand will increase by 80 percent and 50 percent, respectively, over the next five years.

India is approaching a tipping point in terms of urbanization. As you can see in both of these charts, once China reached the key 30 percent level of urbanization, both commodity demand and GDP per capita took off.

As the population’s discretionary income increases, people tend to use their money to improve living conditions by buying goods or adding utilities such as running water and electricity to their homes. MGI estimates that the number of Indian households with discretionary spending could jump from just 13 million in 2005 to 89 million by 2025. MGI says discretionary spending will account for 70 percent of consumption growth.

This urban population will not only be wealthier, it will also be younger and better educated than prior generations. The age dependency ratio, which is the ratio of population that is either below or above working age, is expected to shrink from 67.7 percent of the population in 1991 to just over 48 percent of the population by 2025. This means India will have a youthful labor force of roughly 900 million who can adapt easily to advances in technology and other shifts in the global economy.

This anticipated massive urban migration is going to strain India’s cities, airports and roadways so the government is quickly taking steps to expand its existing infrastructure. Currently the government spends 7 percent of the country’s GDP on infrastructure but that is expected to rise to 10 percent of GDP over the next few years, according to Morgan Stanley. That is roughly equal to what China is currently spending on its infrastructure.

This year, infrastructure lending has led the banking sector in 2010. According to CLSA, infrastructure lending from the Reserve Bank of India is up 80 percent from the same time period last year.

Last December I traveled through the Punjab region of India and there is no doubt the country has a long way to go. The roads are crowded, airports inadequate, and sewer systems non-existent, but when I spoke to people I immediately saw the feeling of hope this population carries with it. These people have firmly grasped the American Dream and it is only a matter of time before it comes true.

Regards,

Frank Holmes,
for The Daily Reckoning

P.S. For more updates on global investing from me and the U.S. Global Investors team, visit my investment blog, Frank Talk.

India: Land of Hope and Growth originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

Read more here:
India: Land of Hope and Growth




The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

Commodities, Uncategorized

Euro Falls Through 200-Day Moving Average

November 30th, 2010

Well… November hasn’t been kind to the currencies and precious metals, that’s for sure… But then, it was about time for the markets and media to shift their focus in November, wasn’t it? Yes, it was… The thing I kept worrying about, happened, and here we are today with the euro (EUR) barely hanging by a thread to the 1.30 handle once again… Shoot Rudy, haven’t we seen this before, like last winter? Then it was the knee-jerk reaction to the GIIPS (Greece, Italy, Ireland, Portugal, Spain) that caused a huge sell-off of the euro from 1.45 to 1.18… But then the markets and media grew tired of this story, and their attention span ended for the GIIPS, and was shifted back to the problems of the US.

In June, the focus shifted back to the US and we saw a huge rally in the currencies and precious metals, with gold reaching $1,409.55 and the Swiss franc (CHF), Aussie dollar (AUD), and Canadian dollar/loonie (CAD), all reaching parity to the US dollar…

But now the focus has shifted back to the GIIPS, even in the face of an aid package for Ireland, now the keyword in the markets is “contagion”… As in what is going to be the contagion risk for the European periphery countries like Spain and Portugal… So… Once again, it’s time to batten down the hatches and ride this storm out… Riding the storm out, waiting for the fall out… And those of us who in our heart of hearts know that the end game for the dollar is to be much weaker to allow the government to pay the interest on the debt they’ve issued, will use this current weakness to buy more insurance against a dollar devaluation, at much cheaper levels… As I told a group of people yesterday… When the currency is weaker, you get to buy more of it! So, it can be a good thing!

As the day went on yesterday, the weakness of the currencies was confined to the euro and the euro alternatives, like Norway and Switzerland (Sweden, as I told you yesterday is cooking with gas these days!). The commodity currencies (minus Norway) were gaining ground versus the dollar along with gold and silver, which had turned their negative performance on the day to positive by the afternoon.

The overnight markets brought more pain to the euro, and the other euro alternative currencies, this time including Sweden, are getting taken to the woodshed, while the commodity currencies of Aussie, Canada, New Zealand, Brazil, and South Africa, are weaker, but by just a small amount.

I told you yesterday that the euro was nearing its 200-day moving average, and if it falls through that average it could be an indicator that more weakness is coming… And that’s what’s happened overnight. So… I checked with my tech charts friend, and he tells me that a move through the 200-day moving average that is now confirmed, could mean the euro would fall through 1.30, all the way to 1.25… But these are charts friends… Do not bet your house on them coming to fruition… But, the historic data on moving through 200-day moving averages is pretty good…

The “better than the average bear” – economic data for Germany – continues to print… This morning, it was German unemployment data that showed a slight fall in jobs of 9,000, but the overall unemployment fell for a 17th month… The total unemployed moved to 3.14 million, the lowest level of unemployment in Germany since 1992!

So… It’s chaos all around Germany, but in the core country, the largest economy of the Eurozone, things are moving in the right direction… The export driven economy will get a further boost by the weaker euro, folks… So, a weaker euro is not all bad for Germany! I’m sure the Germans would prefer to see their currency remain around this 1.30 level, with 1.25 being the low water mark. To have the euro at 1.50 isn’t their preference either…

Speaking of data today… Canada will print its third quarter GDP today, and Australia will print their third quarter GDP late today (tomorrow morning for them)… I would look for Canada to outperform Australia and, as I told you yesterday, I’m looking for a softer GDP in Australia after one year of rate hikes.

And In Brazil, inflation is really setting into the Brazilian economy. Brazil’s IGP-M Price Index – which measures consumer, construction and wholesale prices – jumped 1.45% in November… Since January of 2010, this inflation measure has been positive each month, but November’s increase of 1.45% is the largest move. This is what happens when a Central Bank and government get their hands in the cookie jar.

By that, I mean, inflation in Brazil has been rising all year, and the year started off with the Brazilian Central Bank (BCB) raising interest rates aggressively… But by doing so, it caught the markets’ attention, and the money flowed into Brazil, pushing the Brazilian real (BRL) stronger, and stronger. That’s when the BCB and government decided that they didn’t want to see the real that strong, and cut off the interest rate hikes, and implemented all sorts of hoops for investors to jump through if they wanted to invest in Brazil.

But the kicker was the cutting off of interest rate hikes… And now… Inflation is the strongest it’s been all year! I would think that the BCB will be back to the rate hike table soon, especially if next month’s inflation number is as strong…

This news of stronger inflation in Brazil allowed the real to rally yesterday, and overnight, with the markets thinking like me that the BCB would be back to the rate hike table soon.

Well… I see where the President has announced a pay freeze for federal civilian employees… I don’t think he got the message loud and clear, though… A pay freeze is OK… But didn’t the recent elections tell the government that the public supports measures to narrow the budget deficit? Freezing pay doesn’t narrow the deficit… Only cutting the fat narrows the deficit…

And in my never-ending attempt to show you what China is doing to gain wider distribution of the renminbi (CNY)… It was reported overnight that renminbi deposits, which can now be made in Hong Kong, jumped by a record $10 billion-worth in October… And in other news… China offered 5 billion renminbi-worth of bonds in Hong Kong, and they were oversubscribed by 10 times! Folks, this means that investors all around the world see Chinese bonds as a very good opportunity to hold renminbi assets… And, to me, I do believe these investors are looking at the faster appreciation that we’ve seen recently in the renminbi, and licking their chops that they get paid interest on the bonds, while the renminbi appreciates…

These are baby steps, folks… Baby steps to the ultimate goal for the renminbi, and that is to have it be the world’s reserve currency.

Oil, which was priced at $81.04 on November 17th, is priced today at $85.45! This rise in the oil price is interesting to me, given the claim that there’s deflation in our economy… Deflated prices in houses, yes… But overall economic deflation is a bunch of bunk… I’ve shown you the price increases in food this year, and just think about your personal economics. I’m sure you have your own example of rising inflation… But then the “Bernank” is going to implement more quantitative easing? I just can’t get this out of mind… The “Bernank” is doing nothing more than throwing gas on the inflation fire we already have! Can you say hyperinflation?

OK… Maybe I went a little overboard there, and hyperinflation is a little harsh… But… When it happens, you’ll be able to say that Chuck told you about it long before the media got the memo.

Then there was this from US News & World Report

US can take lessons from Europe’s debt crisis

It might be a matter of time before the debt crisis that first struck Greece and then spread to Ireland reaches the US, according to US News & World Report. One lesson the US can learn from Europe’s crisis is that when debt starts getting out of hand, don’t stall. No country, not even China, has enough money to bail out the US.

Amen, brother!

To recap… The euro has fallen through its 200-day moving average, which could be an indicator that more weakness is on the way. German unemployment is at the best level since 1992, but the periphery countries are weighing down the euro, and German data is being ignored. Brazilian inflation is soaring, and we get to see the third quarter GDP reports from Canada and Australia today.

Chuck Butler
for The Daily Reckoning

Euro Falls Through 200-Day Moving Average originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

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Euro Falls Through 200-Day Moving Average




The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

Uncategorized

Edward Hugh and A Fistful of Euros

November 30th, 2010

Ever since the European sovereign debt crisis began flaring up, I have made it a habit to read Edward Hugh’s excellent A Fistful of Euros. While The Economist and the Financial Times are two top notch resources for U.S. investors hoping to avoid an Americentric bias and incorporate a European perspective into events as they unfold across the pond, it continues to appear that ultimately the fate of the euro zone will be determined by events in Spain. Given the likely trajectory of events, I can’t think of a better time than the present to be reading what Barcelona-based economist Hugh has to say about Spain and the European financial difficulties.

For starters, check out Hugh’s last three offerings:

…then be sure to check out the archives for a comprehensive set of charts and data about the Spanish economy, more commentary, etc.

Readers, what other top European-based economics blogs should we all be reading?

Related posts:

Disclosure(s): none



Read more here:
Edward Hugh and A Fistful of Euros

ETF, Uncategorized

Edward Hugh and A Fistful of Euros

November 30th, 2010

Ever since the European sovereign debt crisis began flaring up, I have made it a habit to read Edward Hugh’s excellent A Fistful of Euros. While The Economist and the Financial Times are two top notch resources for U.S. investors hoping to avoid an Americentric bias and incorporate a European perspective into events as they unfold across the pond, it continues to appear that ultimately the fate of the euro zone will be determined by events in Spain. Given the likely trajectory of events, I can’t think of a better time than the present to be reading what Barcelona-based economist Hugh has to say about Spain and the European financial difficulties.

For starters, check out Hugh’s last three offerings:

…then be sure to check out the archives for a comprehensive set of charts and data about the Spanish economy, more commentary, etc.

Readers, what other top European-based economics blogs should we all be reading?

Related posts:

Disclosure(s): none



Read more here:
Edward Hugh and A Fistful of Euros

ETF, Uncategorized

Not much time left for year-end moves!

November 30th, 2010

Nilus Mattive

Lots of meals with friends and family. Hundreds of e-mails about shopping deals. And even a trip into the woods to saw down a nine-foot douglas fir for our living room. Yes, this past weekend clearly kicked off another major holiday season!

Of course, now that we’re coming into the home stretch of 2010, I’d also like to remind you that — amid all the general madness — you should also take a little time to revisit your finances.

Reason: Time is running out for certain moves that can benefit you and your family in 2011 and beyond.

Today, I’ll cover three of the most important year-end moves you can make …

Year-End Move #1:
Establish, Contribute to, or Withdraw from Retirement Accounts!

Yes, some accounts — such as IRAs — give you all the way until April 15, 2011 to sock away money for 2010 … but others must be established and/or funded by December 31.

For example, if you have access to an employer’s 401(k) plan, your contributions have to be in before New Year’s Day. So if you’ve been slacking, there should still be time for you to get something in there for this calendar year. Doing so will provide you with more money for the future … the possibility of matched contributions from your employer … PLUS a nice tax break on your 2010 taxes.

Self-employed? Consider a Solo 401(k), which allows you to sock away as much as $49,000 just THIS YEAR! But again, you have only until December 31 to establish one.

And if you’re 70 or older, remember that the temporary suspension of required minimum distributions on retirement accounts has NOT been extended into 2010!

That means you must take money out of IRAs, 401(k)s, and other plans by the end of this year. Failure to do so could cost you a massive 50 percent penalty. The only exception is if you turned 70 this year — in that case you have until April 1 to take your distribution.

Of course, there’s also …

Year-End Move #2:
Consider Converting to a Roth IRA

I’ve talked about some of the reasons to convert a traditional IRA to a Roth in past columns. But just to summarize, the two biggest reasons to do so are:

  • Going forward, your money will be able to grow tax-free rather than just tax-deferred
  • There are no required minimum distributions, which means the Roth is an ideal vehicle for retaining wealth and passing it along to heirs

If you've been considering a Roth IRA conversion, it's time to get moving!
If you’ve been considering a Roth IRA conversion, it’s time to get moving!

Both of these can prove to be huge advantages whether you’re 30 or 70!

And while the former income limits for conversions are now gone, only folks who convert by this December 31 will get the additional advantage of being able to split the taxes owed on the conversion across 2011 and 2012.

So if you’ve been on the fence about doing a conversion … I’d suggest you decide pretty darn soon!

Year-End Move #3:
Remember to Harvest Investment Losses

Have some dead weight in your portfolio? Then the next month is a great time to get rid of it!

After all, when you sell a position at a loss the IRS allows you to deduct that loss come tax day. That means you’ll be able to offset any gains booked this year on a dollar-for-dollar basis with no limit.

If you recorded more losses than gains — or no gains at all — you can use your losses to offset some ordinary income. The maximum amount is $3,000 ($1,500 if married filing separately) … but you can carry additional losses forward for future tax years.

Although it’s a bit more aggressive, you can even consider selling losers that you believe will come back to life down the line.

That’s because as long as you wait more than 30 calendar days before buying back those same positions, the loss will still count for tax purposes!

Obviously, there are some risks and commissions involved. But I think it’s still something worth considering, especially for more active investors.

And again, these are just three of the most common moves you can make. There are also other important year-end deadlines related to education accounts, charitable donations, and other categories.

So by all means, enjoy this month’s festivities as much as possible. But please spend a little time with your portfolio this holiday season, too!

Best wishes,

Nilus

Read more here:
Not much time left for year-end moves!

Commodities, ETF, Mutual Fund, Uncategorized

Turning One – PIMCO Intermediate Municipal Bond Strategy Fund (MUNI)

November 30th, 2010

PIMCO’s Intermediate Municipal Bond Strategy Fund (MUNI: 51.18 0.00%) turns one today, having been launched on November 30th, 2009 a year ago. MUNI has been one of two actively-managed ETFs that hone in on the intermediate muni bond market, with the other fund being the Grail McDonnell Intermediate Municipal Bond Fund (GMMB: 50.3199 0.00%). MUNI has been a lot more successful than its competition from Grail Advisors and it has gathered close to $50 million in assets. That makes it the 2nd largest of PIMCO’s four actively-managed ETF offerings. MUNI has generally been received quite well by investors, due in no small part to PIMCO’s strong reputation in managing fixed-income funds. It has appealed to investors looking for tax-exempt income from muni bonds, especially those in higher tax brackets.

MUNI invests in a diversified portfolio of intermediate duration municipal bonds that provide interest income which is exempt from federal tax and in some cases also state tax. PIMCO utilizes issuer specific credit analysis to identify which bonds to own and this is a key selling point for MUNI versus index funds like iShares S&P National Municipal Bond Fund (MUB: 101.82 0.00%). Index funds and passive ETFs rely on the national rating agencies for credit analysis since the selection criteria for the underlying indices is usually based on the ratings on each muni bond. Active management of the fund allows the portfolio managers behind MUNI to decide which names to own and to adapt the portfolio to changing credit conditions. Given the recent upheavals in the municipal bond market and unstable financial positions of many municipalities in the US, that could be a crucial differentiating factor for the fund. Another point of note is that MUNI only invests in AMT-free bonds. The fund is benchmarked against the Barclays Capital 1-15 Year Municipal Bond Index.

As of Nov 26th, MUNI had a 30-day SEC yield of 2.14% and an effective duration of 5.55. 83% of the fund was invested in municipal bonds that had a maturity between 5-10 years, giving the overall fund an average maturity of 6.36 years. The largest allocation in the fund was to state and local general obligations, making up 19% of the fund – in contrast to the index, in which these types of bonds made up 32% of the total. On the opposite side of the ledger, MUNI significantly over-weighted educational revenue bonds which made up 15% of the fund, in contrast to 5% for the index. Looking at overall performance, MUNI has been able to outperform its benchmark marginally by 47 basis points, returning 5.96% as of the end of October. MUNI’s general outperformance of the market is also visible when compared to how the passive MUB has performed, shown in the chart below. MUNI has held up especially well in the last couple of weeks when the entire US municipal bond market took a tumble due to state budgetary problems and the pending closure of the Build America Bond program.

MUNI charges investors 0.35% in expenses compared to MUB’s 0.25%. The extra 10 basis points in cost is to be expected given that investors are getting access to an actively-managed portfolio with MUNI. MUNI’s asset base has grown slowly but steadily through the year. Back in March 2010, the fund’s size was only $23 million but it has accumulated investor assets since. As with most PIMCO ETFs, MUNI has also done well in a keeping a tight check on the premium/discounts of the ETF share price from the fund NAV – in Q3 2010, there was not a single day where the premium or discount exceeded 50 basis points.

ETF

The Single Best Tool For Investing in Today’s Market

November 30th, 2010

The Single Best Tool For Investing in Today's Market

I've never worked a day on Wall Street. I've never worked at Goldman Sachs (NYSE: GS) or a hedge fund, either. I'm not what you call an insider by any means.

Commodities, Uncategorized

This Solar Stock Could Double in a Year

November 30th, 2010

This Solar Stock Could Double in a Year

Taking aggressive steps to boost sales can be a wise move. But if you try to do too much too fast, investors can quickly grow concerned if rapid expansion plans are creating too much risk. That was the concern with LDK Solar (NYSE: LDK) in the past year, which borrowed nearly $2 billion to try to become a key player in various niches of the solar market, from raw silicon processing to completed solar panels.

Throughout 2009 and the first half of 2010, LDK Solar kept hitting roadblocks in its bid to ramp up output in its new business segments. So after hitting almost $70 back in 2007, investors abandoned the stock, and it's traded between $6 and $12 ever since. And its bonds sold off sharply, trading at a big discount to par on concerns that a looming $1 billion in debt obligations could lead to massive dilution.

Just a few quarters later, the financing and production concerns are waning, and LDK Solar now looks far healthier. Though I doubt we'll see the lofty heights of 2007 ever again, business is finally turning around, and shares could move back into the $20s in 2011. Here's why…

Massive scale
LDK Solar is world's second largest multi-crystalline solar wafer manufacturer, with about two gigawatts of capacity and roughly 10% global market share. Wafers are the principal raw material used to produce solar cells. The company has been spending heavily to complete a massive production complex in China that the company hopes will provide a path to even higher market share.

Market share is nice, but to regain investor interest LDK Solar has to prove its ability to generate much higher cash flow to help support its debt-laden balance sheet. And that's precisely what's happening. After three straight quarters of very weak or even negative cash flow, the company surprised the Street in the second quarter with $53 million in cash flow from operations, its highest level in several years.

That rising cash flow was met with another positive surprise: In September, LDK Solar announced that the China Development Bank (CDB) would step in and backstop up to $8.9 billion of LDK's loans in the next five years. That's enough to meet any existing debt concerns, but leaves plenty left over for any future expansion.

And the good news kept on coming. In October, global solar wafer prices started to rebound, leading many analysts to start boosting sales and profit forecasts for LDK Solar. Then in early November, LDK Solar posted another very impressive quarterly report, highlighted by $676 million in sales, roughly +10% ahead of forecasts and $0.72 in earnings per share (EPS), roughly +67% ahead of consensus estimates. The company also issued 2011 sales guidance that was some +30% to +50% ahead of most analysts' forecasts, thanks in part to improved industry pricing, but also due to faster than expected capacity additions.

With all the good news in place, analysts now think that LDK Solar can earn around $1.75 a share in 2011, roughly double what they had been forecasting back in the summer. A few analysts, such as Piper Jaffray's Ahmar Zaman, think EPS will exceed $2.50 next year. Not bad for a company that lost more than $2 a share in 2009. And annual cash flow should exceed $500 million in 2011, reversing a trend of massively negative cash flow in recent years.

To be sure, some investors are concerned that the whole industry is adding too much capacity and predict that pricing will take a hit in 2011. That's a minority view, but even if they're right, EPS is still likely to exceed $1.50, and shares trade for just eight times that bearish view. The high end of the Street sees EPS of around $3 next year, and the price-to-earnings (P/E) ratio is around four times that bullish forecast.

Let's assume that EPS comes right in line with the consensus forecast of $1.75. Slap a multiple of 10 on that view, and shares would trade up to $17.50. Yet if EPS exceeds $2 next year, as many suspect, then that target multiple means shares would double from current levels. Piper Jaffray recently boosted its target price to $25, roughly +130% above current levels.

Action to Take –>This is a very volatile sector, and LDK Solar could easily retrench a bit after doubling since the summer. But if you can stomach the volatility, the Sshares look like they could double again.


– David Sterman

P.S. –

Uncategorized

Gold’s Run is Over — I’d Much Rather Own This Stock

November 30th, 2010

Gold's Run is Over -- I'd Much Rather Own This Stock

Gold is the worst investment around. Anyone buying it now is doing so at their own risk, near the end of a bull run that's apt to end badly.

A major clue gold's time is up: institutions and hedge funds are starting to get out.

In October, for example, these big players reduced their long gold futures by -9%. Meanwhile, small investors added +5% to their long gold positions. It's a familiar pattern in which large investors exit the market of an overheated asset in a timely fashion, leaving the little guy to drive the final run-up to the big pop.

I give gold up to another year, maybe two, before it peaks. From there, it's all downhill.

Gold is so undesirable that I'd rather buy stock in a firm that was broke only four years ago due to $5.2 billion in lawsuits over asbestos in its products. The company came out of bankruptcy in October 2006 and has since resumed a leadership position in its industry.

Indeed, it's set for a four or five-year bull run of its own that could see its stock rise +75% to +130%. I'm talking about none other than Owens-Corning (NYSE: OC), the company that makes pink insulation found in houses and commercial buildings.

Importantly, Owens-Corning's asbestos-related legal problems are well behind it, and the incidents leading up to those problems are ancient history. The lawsuits I mentioned were for illnesses from exposure to asbestos-containing cement, insulation and other products manufactured and sold primarily during the 1950s, '60s and '70s, before the dangers of asbestos were widely known.

To prevent further litigation, Owens-Corning placed $1.7 billion in trust in 2006 to cover future asbestos-related claims. As part of the company's bankruptcy deal, these claims must be filed against the trust, not Owens-Corning. Although the company had to issue (and still carries) $1.7 billion of debt to fund the trust, it has no legal obligation to put in any more money.

Reduced dependence on new housing
Despite a struggling economy, 2010's sales have been strong and are on track for more than a +15% gain over 2009. Earnings are on course for a +75% increase from last year and are expected to grow by +15% to +22% annually for the next five years.

Owens-Corning has been doing so well (and should continue to) because it knows it can't try to generate all its revenue in the new residential and commercial building markets, which are highly cyclical. To reduce its dependence on those sectors, the company has been turning more to the repair and remodeling market.

That market offers tremendous opportunity to increase insulation sales, since an estimated 80 million American homes are under-insulated. It's already a major income source for the company's roofing business, which gets nearly three-quarters of its revenue from this market.

To further shield itself from declines in new construction, Owens-Corning is increasing development of fiberglass-based composite materials. At $50 billion, the composites market is 15 times larger than the insulation market. Many industries use composites — the aerospace/defense, automotive and wind power industries, for example — to build their products.

Growing that side of the business should also accelerate global expansion. There's strong foreign demand for composite products, and already about two-thirds of Owens-Corning's composites revenue comes from countries like Brazil, China and India. By contrast, insulation sales are highly concentrated in the United States and Canada.

Financial condition and risks
Despite a big debt to fund the asbestos trust, Owens-Corning is financially sound. Annual free cash flow of nearly $300 million is far more than needed to cover interest expense. Thus, there's extra cash for the buyback program approved last August by the Board of Directors, which authorized the repurchase of up to 10 million shares.

A current ratio of 1.6, a long-term debt/equity ratio of 0.45 and a leverage ratio of 1.9 also reflect financial strength. All are markedly lower than the industry averages.

Every company faces headwinds, though, including Owens-Corning. Although the company is diversifying, it still depends heavily on new construction. Downturns would obviously hurt profits, as they did during the recession.

There are the ever-present specters of competition and cost, too. Owens-Corning will be going head-to-head with formidable Asian rivals in the composites market, for instance, and its roofing business could sometimes face dramatic spikes in the price of asphalt and other product components.

Action to Take –> Follow the lead of large investors and sell gold, especially if it occupies a large portion of your overall portfolio, say 10% or more. I suggest trimming back so gold is no more than 5% to 7% of your portfolio.

Since people commonly devote 20%, 30% or more of their investments to gold these days, scaling back as much as I suggest could leave you with a lot of cash to invest. Owens-Corning looks like a good place to allocate a meaningful amount of that extra cash.


– Tim Begany

Tim Begany has worked at several financial planning and investment advisory firms. He also holds a Series 65 investment consultant license. Read more…

Disclosure: Neither Tim Begany nor StreetAuthority, LLC hold positions in any securities mentioned in this article.

This article originally appeared on StreetAuthority
Author: Tim Begany
Gold's Run is Over — I'd Much Rather Own This Stock

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Gold’s Run is Over — I’d Much Rather Own This Stock

Uncategorized

Three ETFs Influenced By Accelerated Economic Growth

November 30th, 2010

Although it is hard to say that the US economy is in a sustainable recovery, there are plenty of signs showing that economic growth is accelerating, paving the path to opportunity for the Retail HOLDRs (RTH), the PowerShares Dynamic Retail (PMR) and the First Trust Dow Jones Internet Index (FDN).

The most promising and upbeat news recently came from a decline in new applications for jobless claims in the week ending November 20, 2010.  The 407,000 applications were far lower than expected and is aiding in easing concerns about job security and income growth.  This can further be supported by an increase in personal spending, which jumped to 0.4% in October, marking the fourth consecutive month of increased consumer spending. 

As for income growth, wages and salaries witnessed there largest jump in five months, increasing 0.6% while personal income jumped 0.5% in October.  This, in conjunction with non-existent inflation, is expected to increase purchasing power which is resulting in improved consumer sentiment.  According to the University of Michigan/Reuters consumer sentiment index increased to a 71.6 from 67.7, the highest level in nearly 20 months. 

To further support the notion that the US economy is in growth mode, many suggest that, aggregately, Americans have increased their credit-card debt for the first time in nearly two-years in such a manner that is consistent with increases in household income.  The consumer is such a critical factor in US economic growth because consumer spending constitutes nearly 70% of US GDP.

As mentioned above, three ETFs influenced by accelerated economic growth include:

  • Retail HOLDRs (RTH), which allocates a significant portion of its assets to Wal-Mart (WMT), Amazon (AMZN) and Target (TGT).
  • PowerShares Dynamic Retail (PMR), which allocates a significant portion of its assets to Bed Bath & Beyond (BBBY), Limited Brands (LTD) and Costco Wholesale Corp. (COST).
  • First Trust Dow Jones Internet Index (FDN), which boasts Amazon, eBay (EBAY) and Priceline (PCLN) as top holdings, all internet-based companies that are highly correlated with increased consumer spending.

Disclosure: No Positions

Read more here:
Three ETFs Influenced By Accelerated Economic Growth




HERE IS YOUR FOOTER

ETF, Uncategorized

Platinum ETFs Likely to Remain Elevated

November 30th, 2010

Platinum has witnessed a nice upward trend in 2010 and increased demand from the heavy-duty transportation sector and the industrial sector are expected to provide further positive price support to platinum-based exchange traded funds (ETFs) like the ETFS Physical Platinum Shares (PPLT), iPath DJ-UBS Platinum TR Sub-Idx ETN (PGM), UBS E-TRACS Long Platinum TR ETN (PTM) and the First Trust ISE Global Platinum Index (PLTM).

A primary driver behind the expected elevated demand for catalytic converters made of platinum is due to their ability to reduce noxious vehicle emissions.  According to the Wall Street Journal, Johnson Matthey, who controls nearly one-third of the market for platinum and palladium-coated catalytic converters, witnessed a 72% increase in sales of heavy-duty diesel catalytic converters during the first six months of the year as catalyst demand increased. 

As for the future, this demand is expected to remain elevated as the European Union follows the US on imposing tougher heavy-duty diesel emission standards.  Furthermore, demand for platinum in catalytic converters is expected to increase due to the metal’s higher efficiency in absorbing diesel-engine emissions than its sister metal palladium, which is the catalyst of choice in gasoline-dominated automobiles. 

In addition to an uptick in demand from diesel fueled vehicles, as economies around the world grow, industrial demand for platinum will likely follow.  Platinum plays a significant role in electronics in that it is used in the production of hard disk drive coatings and fiber optic cables.  As demand for personal computers remains elevated around the world and is expected to further increase as personal incomes rise in developing countries, demand for platinum will likely see positive support

Further positive price support may also prevail from anticipated supply concerns.  South Africa, the world’s largest producer of the metal, is expected to see a decline in production due to shaky labor relations, safety considerations and the relative strength of the South African Rand against the US Dollar. 

At the end of the day, platinum has relatively strong fundamentals and increased demand of the metal will likely enable it to luster.  Some ways to play platinum include:

  • ETFS Physical Platinum Shares (PPLT), which holds physical platinum.
  • iPath DJ-UBS Platinum TR Sub-Idx ETN (PGM), which tracks the Dow Jones-UBS Platinum Subindex Total ReturnSM is a single-commodity sub-index currently consisting of one futures contract on platinum.
  • UBS E-TRACS Long Platinum TR ETN (PTM), which tracks an index that measures the collateralized returns from a basket of platinum futures contracts which are targeted for a constant maturity of three months.
  • First Trust ISE Global Platinum Index (PLTM), which tracks an index designed to track public companies that are active in platinum group metals mining.  Top holdings include MMC Norilsk Nickel JSC, Impala Platinum Holdings Ltd. and Johnson Matthey.

Disclosure: No Positions

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Platinum ETFs Likely to Remain Elevated




HERE IS YOUR FOOTER

ETF, Uncategorized

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