Confluence and Fibonacci Levels to Watch in China Shanghai Index

December 10th, 2010

I’ve had a few requests to keep up with China’s Shanghai Stock Exchange Index, and indeed it’s trapped right now between two key confluence levels which make for an interesting chart picture.

Let’s start with the Daily Chart, note the key levels, then move to the pure Fibonacci Confluence Retracement Chart for additional clues, and finally top it off with a look at the Weekly EMA levels to watch in the week(s) ahead.

First, the $SSEC Daily Standard Chart:

I find it really interesting when price ‘respects’ key moving averages – and in all charts I use the 20 and 50 EMAs with the 200 SMA.

What’s happening now – as we’ll soon see in the weekly chart – is that a confluence resistance barrier is forming on the daily chart (shorter frame) at the 2,870 level while these same EMAs are forming confluence support on the weekly (longer) chart at 2,800.

It’s no surprise then that the price is trapped right now between those key reference levels:  2,800 as support and 2,875 as resistance.

As always, ONE of those levels has to break, which should produce a break-out style move and allow for a potential low-risk trade to play the breakout when confirmed/triggered.

From a price purism standpoint, these levels are referenced S/R levels from the consolidation rectangle that has formed since mid-November to present.

Let’s now turn off the moving averages and look at two short-term Fibonacci Retracement grids from prior lows:

The Blue Fibonacci Grid starts off the July low at 2,319 and ends at the November high at 3,186.  The two key levels to watch include the 38.2% Retracement at 2,855 and the 50% level at 2,753.

Price gave a spooky spike down to 2,750 at the end of November and then bounced off the level there, leaving it as a reference.

Beyond the intermediate Blue grid, I drew a smaller retracement grid from the August and September lows at the 2,567 level – also to the November high.

This grid reveals the 50% line at 2,876 (resistance) and the 61.8% level at 2,803 (support).

With a few exceptions of little spikes outside the green lines, the price has stayed within these boundaries.

I like to simplify prices to make it easier to remember, so again we can round the upper level of confluence to the 2,875 level (as shown above) and then the lower level down to 2,800.

Magic, right?  No – they’re just levels to watch for reference.

With those daily chart levels established as important (2,800 and 2,875), let’s now get a final glimpse at what the weekly chart reveals.

Without getting too complex, I just wanted to show first the two converging (blue) trendlines connecting past swing highs and swing lows.  Those come into play – also – at 2,800 and 2,875.

But perhaps the more imoportant reference is the dual crossing of the 20/50 EMAs at the 2,810 level as seen above, and the (so far) three weekly little doji candles off this confluence support region – at 2,800.

So, the going thought is that support is likely to hold, but of course be prepared to guard or position/re-position on a firm downside break under 2,800.

Otherwise, the index is still in a short-term rectangle range with resistance at 2,875.  To make it easy, you could use the simple levels 2,800 (key support) and 2,900 (key resistance) and determine what to do/whether to act or not in the event one of these levels firmly breaks.

As always, keep watching the charts for objective price evidence and don’t let bias get in the way – if possible!

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

Read more here:
Confluence and Fibonacci Levels to Watch in China Shanghai Index

Uncategorized

Three ETFs To Play Canada’s Rich Supply Of Resources

December 10th, 2010

With its array of natural resources, supply of commodities and enviable banking system, Canada remains relatively appealing and poses an opportunity for investors.

The democratically governed nation is one of the world’s largest trading nations and is a net exporter of energy. In fact, Canada boasts the world’s second largest oil reserves, behind Saudi Arabia, as well as ample supplies of natural gas and nuclear energy. Due to its abundance of energy-related resources, the maple-leaf nation has built strong relationships with China, South Korea and other energy-hungry nations, setting itself up to witness healthy growth in the near-term future.

In addition to energy resources, Canada is the world’s largest producer of zinc and uranium and is a global source of many other natural resources such as gold, nickel, aluminum and lead. Canada is also one the world’s largest suppliers of agricultural products such as wheat, canola, other grains, fertilizers and potash. This is of relevance because as incomes in developing nations increase and populations continue to grow, demand for food, and other natural resources, will follow. In fact, most of the world’s food demand growth is expected to come from its least-developed nations.

Lastly, Canada has appeal due to the safety of its financial system. According to the World Economic Forum, Canada has the safest banking system in the world with the lowest likelihood of default. Additionally, in the realm of the global financial catastrophe, not a single Canadian bank failed and the nation is known to generally run budget surpluses.  Canadian Finance Minister, Jim Flaherty, believes that one reason for the strength in his nation’s banking system to not allow foreign ownership of its nation’s banks and insurers. 

In a nutshell, Canada is rich in natural resources and commodities which are expected to see increased demand and here are a few plays to the play the country:

  • iShares MSCI Canada Index Fund (EWC), which allocates nearly 31.9% of its assets to financials, 25.6% to energy and 22.1% to materials.  It includes Royal Bank of Canada (RY), Suncor Energy (SU) and Barrick Gold Corporation (ABX) in its top holdings.
  • Guggenheim Canadian Energy Income (ENY), which primarily focuses on the energy sector and boasts Baytex Energy Trust, Canadian Oil Sands Trust and Enerplus Resources Fund as its top holdings.
  • CurrencyShares Canadian Dollar Trust (FXC), which is a currency play on the Canadian dollar and seeks to track the movements in the price of the Canadian dollar.

Disclosure: No Positions

Read more here:
Three ETFs To Play Canada’s Rich Supply Of Resources




HERE IS YOUR FOOTER

Commodities, Uncategorized

Three ETFs To Play Canada’s Rich Supply Of Resources

December 10th, 2010

With its array of natural resources, supply of commodities and enviable banking system, Canada remains relatively appealing and poses an opportunity for investors.

The democratically governed nation is one of the world’s largest trading nations and is a net exporter of energy. In fact, Canada boasts the world’s second largest oil reserves, behind Saudi Arabia, as well as ample supplies of natural gas and nuclear energy. Due to its abundance of energy-related resources, the maple-leaf nation has built strong relationships with China, South Korea and other energy-hungry nations, setting itself up to witness healthy growth in the near-term future.

In addition to energy resources, Canada is the world’s largest producer of zinc and uranium and is a global source of many other natural resources such as gold, nickel, aluminum and lead. Canada is also one the world’s largest suppliers of agricultural products such as wheat, canola, other grains, fertilizers and potash. This is of relevance because as incomes in developing nations increase and populations continue to grow, demand for food, and other natural resources, will follow. In fact, most of the world’s food demand growth is expected to come from its least-developed nations.

Lastly, Canada has appeal due to the safety of its financial system. According to the World Economic Forum, Canada has the safest banking system in the world with the lowest likelihood of default. Additionally, in the realm of the global financial catastrophe, not a single Canadian bank failed and the nation is known to generally run budget surpluses.  Canadian Finance Minister, Jim Flaherty, believes that one reason for the strength in his nation’s banking system to not allow foreign ownership of its nation’s banks and insurers. 

In a nutshell, Canada is rich in natural resources and commodities which are expected to see increased demand and here are a few plays to the play the country:

  • iShares MSCI Canada Index Fund (EWC), which allocates nearly 31.9% of its assets to financials, 25.6% to energy and 22.1% to materials.  It includes Royal Bank of Canada (RY), Suncor Energy (SU) and Barrick Gold Corporation (ABX) in its top holdings.
  • Guggenheim Canadian Energy Income (ENY), which primarily focuses on the energy sector and boasts Baytex Energy Trust, Canadian Oil Sands Trust and Enerplus Resources Fund as its top holdings.
  • CurrencyShares Canadian Dollar Trust (FXC), which is a currency play on the Canadian dollar and seeks to track the movements in the price of the Canadian dollar.

Disclosure: No Positions

Read more here:
Three ETFs To Play Canada’s Rich Supply Of Resources




HERE IS YOUR FOOTER

Commodities, Uncategorized

Ron Paul: The Fed Spends “More Money Than the Congress Does”

December 10th, 2010

This morning, Dr. Ron Paul (R-TX) held his first interview since being appointed chair of the House Monetary Policy Subcommittee. From what he says in the video below, he’s going “to think things through and not overdo things too soon,” but ultimately plans to stick to his guns, and “emphasize the oversight of the Federal Reserve.”

He also points out why he views his new role as important in these times…

“Obviously, it is very popular with the American people to audit the Fed and know what they’re doing when they can spend trillions of dollars and we don’t know where it goes. They have a bigger budget; they spend more money than the Congress does. Yet, we have no oversight. It was never intended that a secret body like this could create money out of thin air spend to take care of some banks and big business and foreign banks and the American people struggle? We have to look into it and we have to start to consider reforms.”

You can see and hear more details in the clip below, which came to our attention via Bloomberg Television in its recent exclusive interview with Ron Paul.

Ron Paul: The Fed Spends “More Money Than the Congress Does” 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:
Ron Paul: The Fed Spends “More Money Than the Congress Does”




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

Ron Paul: The Fed Spends “More Money Than the Congress Does”

December 10th, 2010

This morning, Dr. Ron Paul (R-TX) held his first interview since being appointed chair of the House Monetary Policy Subcommittee. From what he says in the video below, he’s going “to think things through and not overdo things too soon,” but ultimately plans to stick to his guns, and “emphasize the oversight of the Federal Reserve.”

He also points out why he views his new role as important in these times…

“Obviously, it is very popular with the American people to audit the Fed and know what they’re doing when they can spend trillions of dollars and we don’t know where it goes. They have a bigger budget; they spend more money than the Congress does. Yet, we have no oversight. It was never intended that a secret body like this could create money out of thin air spend to take care of some banks and big business and foreign banks and the American people struggle? We have to look into it and we have to start to consider reforms.”

You can see and hear more details in the clip below, which came to our attention via Bloomberg Television in its recent exclusive interview with Ron Paul.

Ron Paul: The Fed Spends “More Money Than the Congress Does” 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:
Ron Paul: The Fed Spends “More Money Than the Congress Does”




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

When the Government Demands More Debt

December 10th, 2010

I always like the name Minyanville because it sounds so soothing, and it makes me think of some peaceful, beautiful little town of my childhood dreams, where everything is always nice and everybody is happy, where wishes come true for good little boys, and there are no angry fathers literally throwing you out of his stupid house and yelling after you, “And stay away from my daughter, you worthless piece of teenaged hoodlum trash!”

Of course, life wasn’t like that back then, and it is apparently not like that in Minyanville.com, either, as it is there that I ran across Dan Cofall of NorAm Capital Holdings, Inc, and also the host of the radio show “The Wall Street Shuffle”, who is, perhaps without realizing it, summing up my horror of the gigantic increases in the money supply by the horrid Federal Reserve announcing a six month-long $600 billion creation of new money, and thus I fearlessly forecast them to create at least $1.2 trillion in the whole year!

The GDP, the total of all the goods and services produced in the Whole Freaking Country (WFC), is only $14 trillion, and yet here are these Federal Reserve weenies printing up a massive, monstrous $1.2 trillion in new money! This is an unbelievable 9% of GDP, for crying out loud!

And that’s just the amount This Freaking Year (TFY)! This doesn’t include even more money next year! And more the year after that! And more the year after that, on and on, more and more until, as Ludwig von Mises of the Austrian school of economics so famously said, the economy cracks up.

And now, thanks to Mr. Cofall, we know that it is worse than the astounding $1.2 trillion, as, “The Fed granted $9 trillion (that’s right, trillion) dollars of loans to countries, central banks, companies, and banks in the fall of 2008,” which leads to the terrifying fact that the money supply has taken a big boost, as he notes when he says, “This $9 trillion did not exist the day before the loans were made.”

If you remember that changes in price always equilibrate supply and demand, this is $9 trillion of new demand, which becomes significant when followed up by the obvious fact that supply did not increase, as, as he says, “The world did not create $9 trillion of goods and services in one day.”

Ergo, demand swamping supply means that prices must go up to clear the market!

Of course, Junior Mogambo Rangers (JMRs) look at the gigantic increase in the amount of money used to buy things, compared to the static sameness of the amount of things that can be bought, and come to the only possible conclusion, namely, “Forget that formation of Klingon battle-cruisers passing Saturn on their way here! We’re freaking doomed to die of inflation in prices! Buy gold, silver and oil, and lots of arms and armaments against the coming horde of desperate, angry people who do not want to die of exposure and starvation because of high prices that keep going higher and higher, and they want to kill you and steal all your stuff! And if not them, then the government wants to kill you and steal your stuff! Or the Klingons!”

The problem boils down to, as he succinctly puts it, that we “have long since passed the point of the world’s debts exceeding our assets,” and that, even worse, “Our debts far exceed our ability to repay those debts or, often, even service the debts.”

I figure that this “drowning in debt” scenario explains why people are not borrowing more money to buy more things to go farther in debt, and it is this lack of sales that explains why businesses are not going farther into debt to invest and expand to create more things for people to buy by going farther into debt, and why businesses are not hiring new workers, which explains why unemployment is so high, which explains why workers are being fired, and which explains why I will probably be “let go” in the next round of “restructuring” as people much less incompetent than I am have been fired already.

Unfortunately, the Excellent Mogambo Investment Plan (EMIP) dictates that I buy gold, silver and oil when the government is acting so bizarrely, and whether I have a job or not, which may make a mockery of the EMIP slogan, “Whee! This investing stuff is easy!”

The Mogambo Guru
for The Daily Reckoning

When the Government Demands More Debt 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:
When the Government Demands More Debt




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

Bernanke Meddles as Bondholders Exit the Market

December 10th, 2010

As were the days of Noah, so will be the coming of the Great Correction (38) For as in those days before the flood they were eating and drinking, marrying and giving in marriage, until the day when Noah entered the ark, (39) and they did not know until the flood came and swept them all away, so will be the coming of the Great Correction…

– Apologies to Matthew 37, (Sent to us by a Dear Reader)

Gold +$9.

Dow -2.

What more do you need to know?

Well, what you OUGHT to know is that the bond market may finally be cracking up.

“People are getting out…shell-shocked at the speed of the rise in yield,” says a “strategist” quoted by The Financial Times.

Bond buyers are leaving the scene of Bernanke’s crime. They are packing up and moving out.

The yield on the 10-year note hit 3.33% on Wednesday…a full percentage point over its October low.

Whoa. The bond market is the biggest, most important market in the world. What would cause a 25% move in so little time?

Bernanke pledged to lower bond yields (raise bond prices) back in August. He said he would buy $600 billion worth of US government bonds with money he was going to print especially for that purpose. And another $250 billion more with money he got from selling those mortgage backed monsters he acquired in the Panic of ’08-’09.

You’d think that a guy with $850 billion in his pocket could pretty much name his own price. But central planners always seem to run into a ditch. Even with their eyes wide open and GPS on the dashboard.

Here we are almost at the end of the year and what have bonds done? They’ve gone down!

They defied Ben Bernanke and all his ilk. They thumbed their noses. They turned their backs and dropped their pants!

We’re beginning to feel a little sorry for Ben. He’s like a rich kid in school with a flashy car who still can’t get a date.

Oh, the humiliation! Oh, the shame of it!

Wait a minute. We’re not going to waste a minute of sympathy on the little creep. He got himself into this mess – against our advice. He should be grateful they don’t castrate him. Or run him out of town on a rail.

Lucky for him they don’t do that any more.

The Great Correction, mentioned above, is still on-going. Unemployment numbers actually got worse in the latest reading. So did home pricing. As for retail, holiday-inspired spending, the figures are mixed.

As near as we can tell, de-leveraging has a ways to go. A long ways. Say, 7 years?

Maybe longer. That’s how long it OUGHT to take to squeeze the debt out of the system.

But Mr. Bernanke, the aforementioned little creep, is making it a lot harder. As the private sector squeezes debt out, Mr. Bernanke pumps it in. That’s why we’re seeing such crazy anomalies. It’s a correction – yet commodities, emerging market stocks, collectibles, oil, gold…all are flying off the shelves and out of the wells.

Did you see what happened to Audubon’s bird pictures? A book of them sold for $14 million at Christies. Okay… He could draw some cool fowl. But $14 million worth? Our guess is that the price tells us more about Mr. Bernanke’s cuckoo money machine than it does about the bird man.

And the strangest anomaly has got to be the rise in interest rates. Whatever good Mr. Bernanke thinks he is doing is surely undone by rising rates. Now, he can print all he wants. He may make an even bigger mess of the economy, but he won’t be able to get interest rates down that way. He prints…the feds spend…and rates rise, squeezing the real economy even harder.

Rates rise like Noah’s floodwaters. Make sure you’ve got an ark.

Bill Bonner
for The Daily Reckoning

Bernanke Meddles as Bondholders Exit the Market 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:
Bernanke Meddles as Bondholders Exit the Market




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

Global Currencies Rally Against the US Dollar

December 10th, 2010

Well… I’ve spent a lot of time this week talking about the rise in Treasury yields… Apparently the rise in yields wasn’t confined to Treasuries, as municipal bonds are getting whacked too… I saw that my friend and former colleague, David Galland, had this to say about the problems with the municipal bonds…

“The problem is state debt. New York, California and Illinois look more like Greece to their bondholders every day.”

Hmmm, isn’t that the stuff I was telling you a year ago? But it’s taken a year for the municipal bondholders to realize it?

Well, any old way, the rise in Treasury yields took a pause for the cause yesterday, gaining back some ground with the 10-year yield falling to 3.20% from 3.23%… Maybe the FOMC was in doing their dirty work with quantitative easing… And then maybe, the rise in bond yields was too far, too fast…

So… With the selling in Treasuries taking a pause, gold was able to gain back some lost ground, rallying back to $1,390.00… And… The euro (EUR) was able to rally back to above the 1.32 handle, after falling through it briefly yesterday morning. The euro led the currencies higher throughout the day, but has given a little back this morning as France and Italy posted manufacturing numbers that were below expectations. I do believe that the Eurozone will continue to come under attack by the markets until the Eurozone members all agree and sing from the same song sheet on a rescue plan… I’ve said this before, and I’ll probably say it a few more times, but for the Eurozone to work through times like this, they need a coordinated monetary policy… Yes, I know, it takes away each Eurozone country’s central bank, but Shoot Rudy, who needs them? They have one currency; they should have one monetary and fiscal policy!

OK… Well… Recall a week or so ago, I told you about Brazil’s soaring inflation, and said that the central bank was dragging its feet to raise interest rates because of the fear of investment flows into Brazil, to take advantage of the higher interest rates, would drive the real (BRL) higher, and that the Brazilian Central bank has an axe to grind with a stronger real… Well… I do believe that the Brazilian Central Bank (BCB) is going to have to raise rates soon… Last night, Brazil posted a stronger-than-expected third quarter GDP growing 0.5% from the second quarter, and 6.7% annualized.

I truly believe that Brazil’s economy is smoking, and should be dealt a higher interest rate to cool its heels before things get out of hand, and the economy overheats…

Aussie (AUD) and Canadian dollars (CAD) are adding to their small rally yesterday, with both only about a cent away from parity with the US dollar once again… Even the New Zealand dollar/kiwi (NZD) saw a reversal of its recent downward move, as traders try to get past the dovish statement by Reserve Bank of New Zealand (RBNZ) Governor Bollard.

You know… I’ve said this before… But I just don’t like RBNZ Governor Bollard, as a central banker… (I don’t know him personally!) He’s no Don Brash, that’s for sure! Governor Bollard disses kiwi any chance he gets, and I just don’t see that as being prudent… A strong currency should be the goal of any country’s central bank… And that’s all I’ll say about that, otherwise I would begin to talk about how the US Fed/Cartel/Bernank has watched the value of the dollar slide down the slippery slope for almost 100 years now… OH! I went ahead and said it!

China saw their trade surplus numbers last night, and brother, were they cooking with gas! China’s exports rose 34.4% versus November last year! I’m sure there were some gnashing of teeth in Washington DC when China’s trade figures were released… And I’m sure the calls for more trade sanctions will begin to show up on the TV once the boys in DC wake up this morning… But if I were the Chinese, I would respond to those calls for trade sanctions with a comment like: Chinese exports face a gloomy outlook next year, with increased pressure from the appreciation of the renminbi (CNY) and trade frictions… So, leave us alone, and we’ll take care of this ourselves…

Maybe the Chinese would want to hire me as a publicist? HAHAHAHAHAHAHA! Now that would be funny; I don’t care who you are!

OH! And China raised their bank reserve requirements last night, showing once more that they are working at cooling their economy the right way…

While we’re in Asia… Japan printed their November Business Sentiment Index for Large Manufacturers and saw it fall to a negative level for the first time since June 2009. The index fell from 13.3 to -8.0… Now, that certainly looks to me like Business Sentiment in Japan just fell off a cliff! But get this… The Japanese yen (JPY) rallied overnight… That’s crazy, folks… And just goes to show you that Japanese traders are a different breed…

Well… The US will print their Trade Balance for October, and their November Monthly Budget Statement today. Both will be HUGE numbers that will be difficult to swallow for the Treasury and Cartel/Bernank… But, they’ll get through it, by printing more dollars… The more the merrier, eh? NOT! At least not in this case!

The U. of Michigan Consumer Confidence for the first two weeks of December will also print this morning… Amazing enough, it is forecast to show confidence rising… I sure wish I knew what those being surveyed that feel so confident were drinking…

Then there was this… So… I’ve heard quite a few claims lately about what the extension of the tax cuts will do for our economy…

Now, I might not be the sharpest tool in the shed, but apparently, I’m sharper than those making claims that the tax cut extensions will cure all that ails us… You see, the key word here is “extension”…

Now… I learned many years ago, that an initial tax cut, or new tax cut, could increase the tax receipts of a country, and spur the economy. (Of course, government spending cuts also needed to happen to keep government deficits from growing!) But, what we’re doing now isn’t “new” or “initial”… It is simply extending what we already have.

When someone gets a new tax cut, they immediately experience “found money”, and the propensity to spend goes up! What we’re doing now isn’t going to help… Yes, maybe a short blip from those that already stopped spending ahead of the previously planned end of the Bush tax cuts… But, that’s it… That’s all… Thank you for playing, there’s a nice parting gift for you at the door!

And then there was this… So… If you think Big Ben Bernanke’s lip was quivering on 60 Minutes the other night, imagine what it was doing when he heard yesterday that Ron Paul, the only Congressman who understands sound monetary policy, was named the Chairman of the House Financial Services Committee, which puts him directly in line to put significant pressure on the Fed/Cartel/Bernank… It was Ron Paul who pushed for a full audit of the Fed… And it was the same Ron Paul who authored a book called Fire the Fed… I’m sure that the “audit the Fed” bill will get some sharper teeth in the next go around… And I for one am glad to see this, because the Fed/Cartel/Bernank has gotten too big for their britches… They have more power over the US economy than any other institution, but it’s not audited? Something has to change… And I believe that Ron Paul is the man to bring about that change…

To recap… The rise in Treasury yields took a pause for the cause yesterday, and that allowed the currencies and precious metals to rebound a bit. That rebound carried over to the Asian and European trading sessions, where the euro met up with some soft manufacturing data from France and Italy. That has put a cap on the euro’s rise this morning. Brazil posted a better-than-expected third quarter GDP, proving once again that the BCB needs to get off their duffs and hike rates!

Chuck Butler
for The Daily Reckoning

Global Currencies Rally Against the US Dollar 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:
Global Currencies Rally Against the US Dollar




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

4 ETFs Impacted By China’s Bank Reserve Requirements

December 10th, 2010

In an attempt to ease concerns and fears that rising inflation could damper economic growth, China raised bank reserve requirements for the third time in the last five weeks, influencing the Global X Financials ETF (CHIX), the iShares FTSE/Xinhua China 25 Index Fund (FXI), the SPDR S&P China ETF (GXC) and the Guggenheim China All-Cap ETF (YAO). 

The Chinese Central Bank raised the reserve requirement ratio by 50 basis points after earlier data showed a rise in property prices for a third straight month, an increase in both exports and imports, significant increases in M2 money supply and jumps in new lending by financial institutions despite government efforts to stem the flood of liquidity into the nation’s economy. 

This move by the central bank, which takes effect on December 20th, effectively reduces the amount of money China’s banks have available to lend and aids in decreasing money supply, which further helps fight inflationary pressures.

Inflation is of major concern in the world’s fastest growing economy as remain a primary challenge in China.  Some forces that continue to add to inflationary woes in China include strong export growth despite an overheated domestic economy, excessive liquidity as a result of massive amounts of money coming from both domestically and abroad, rising food and commodity prices around the world and the loose monetary policies implemented by the US which are resulting in increased money supply of the Dollar.  In fact, it is estimated that China’s consumer price index is expected to rise at its fastest pace in more than two years, jumping by nearly 4.7% from a year earlier.

At the end of the day, as mentioned above, increasing bank reserve requirements reduces a Chinese bank’s ability to lend and therefore aids in decreasing money supply in the nation’s economy.

  • Global X Financials ETF (CHIX), which is a pure play on the Chinese financial sector.
  • iShares FTSE/Xinhua China 25 Index Fund (FXI), which allocates nearly 47.7% of its assets to financials.  Some of its top holdings include China Construction Bank, Ind. & Comm. Bk Of China and Bank of China.
  • SPDR S&P China ETF (GXC), which allocates nearly 33.3% of its assets to financials and boasts China Const Bk as its top holding.
  • Guggenheim China All-Cap ETF (YAO), which allocates nearly 33.7% of its assets to the financial sector.

Disclosure: No Positions

Read more here:
4 ETFs Impacted By China’s Bank Reserve Requirements




HERE IS YOUR FOOTER

ETF, Uncategorized

Interest Rates Surge as Fed, Congress Crush Debtholders

December 10th, 2010

Mike Larson

Washington, 0. The bond market, 1.

That’s the score folks, in case you haven’t been keeping track. The Federal Reserve Chairman said his $600 billion “QE2″ program would lower interest rates. Instead, rates have done nothing but rise since investors got wind of the Treasury buying plan.

Then this week, Republicans in Congress — and the Obama administration — decided to kick Treasury holders while they’re down. They announced plans to cut estate taxes, lower payroll taxes, extend President Bush’s tax cuts for even the wealthiest citizens, and extend unemployment benefits for jobless Americans.

The catch? There’s no plan whatsoever to pay for any of it! The deal makes a total mockery of all that highfalutin language from the National Commission on Fiscal Responsibility and Reform.

Tallying Up the Losses

The bond market’s reaction has been swift and severe. Treasury bond prices plunged more than 2 points on Tuesday and another point-and-a-half the next day. That sent them to a six-month low.

The yield on the 10-year Treasury Note surged 21 basis points on Tuesday and another 15 on Wednesday. That brings its cumulative rise since October to 89 basis points!

What about shorter-term Treasuries? No solace there. The yield on the 5-year note has almost doubled — from 1.02 percent to 1.87 percent!

Many state and local governments face humongous budget holes. And their bonds have taken a nosedive.
Many state and local governments face humongous budget holes. And their bonds have taken a nosedive.

Municipals? If you bought these overvalued securities earlier this year when I said to avoid them, you’ve gotten hammered. Some muni bond funds have lost 7 percent, 8 percent, or 9 percent of their value in just a couple months.

Or what about STRIPS — bond market investments that are among the most sensitive to changes in interest rates? Hold on to your hats! The Vanguard Extended Duration Treasury ETF (EDV), which tracks the value of these investments, has plunged more than 21 percent since late August.

Budget Deficit Exploding as
Fiscal Sanity Sorely Lacking

I’ve already discussed how the Fed’s plan to support bond prices has been a dismal failure. So there’s no need to bang that drum too loudly right now. The new selling catalyst this week was the budget-busting bundle of tax and benefit goodies The New York Times dubbed a “back-door stimulus plan.”

Politicians on both sides of the aisle have paid a lot of lip service to cutting deficits. They’ve talked of the need for fiscal restraint. Some have pointed to the European debt crisis as a preview of what could happen here if we don’t get our house in order.

But what they’re SAYING and what they’re DOING are too completely different things. The latest package being discussed in Washington will likely cost more than $900 billion over the next two years. That’s on par with the cost of the previous “official” stimulus plan.

We don’t have the money, of course; so the budget deficit is going to explode once again. Credit Suisse now estimates the deficit will come in at a whopping $1.34 trillion in fiscal 2011. That’s after a $1.29 trillion deficit in 2010 and $1.42 trillion in red ink in 2009.

As the chart to the right clearly shows, Washington spending is out of control!

We were able to get away with this for a while. But now bond investors are demanding their pound of flesh. The cost of borrowing is climbing here in the U.S., just as it already surged in heavily indebted European nations.

My strategy? Continue to avoid long-term Treasuries during the “plunge” phase of this move. Or consider buying investments that rise in value as bonds fall.

Then once rates rise to reasonable levels, look to tentatively, selectively add exposure to fixed-income investments. That way you’ll lock in much juicier yields for the future.

Until next time,

Mike

P.S. This week on Money and Markets TV, we checked in on the health of the U.S. economy, and offered our prognosis for the pace of recovery in 2011. And I gave viewers my opinion on whether economic growth will speed up next year, plus a perspective on last week’s disappointing employment report.

If you missed last night’s episode of Money and Markets TV — or would like to see it again at your convenience — it’s now available at www.weissmoneynetwork.com.

Read more here:
Interest Rates Surge as Fed, Congress Crush Debtholders

Commodities, ETF, Mutual Fund, Uncategorized

Now is the Time to Buy These Dividend Juggernauts

December 10th, 2010

Now is the Time to Buy These Dividend Juggernauts

We just endured a recession that was the worst since the Great Depression. Since the recession ended, the economic recovery has been weak to say the least. Forecasts for economic growth in 2011 and 2012 are hardly awe inspiring.

While anything can happen and the stock market has cyclical bounces and dips at any time along the way, it is only reasonable to seek out investments that have performed well under similar economic circumstances — times of tepid economic growth. Let's take a look back…

In the economic malaise of 1974 through 1982, GDP growth averaged an anemic +2% per year. During this period, the S&P's price return was an annualized +4.14% — but total return for this period, which also included dividends, averaged +9.39% per year. That means dividends accounted for most of the market's total return.

History suggests that it might be a good time to take a look at some reliable dividend paying stocks. Special attention should be paid to those companies that pay secure dividends in good times and bad as well as stocks that the market recovery has neglected.

AT&T (NYSE: T)
This more-than 100-year old company is one of the largest telecommunications providers in the world. The company is the second largest wireless provider in the country, the dominant local phone company in 22 states, and a wireless services provider in more than 220 countries.

Major telecom companies today generally offer steady cash flow but limited growth. A major growth driver in the wireless industry has been data services (Internet access from phones and other mobile devices). AT&T has been far outgrowing rival Verizon (NYSE: VZ) in this area, primarily because AT&T has had exclusive rights to offer Apple's (Nasdaq: AAPL) iPhone. But, it is widely expected that AT&T will lose exclusivity early next year.

Investors in AT&T have largely dismissed solid recent results in anticipation of lower future results next year. But I think this fear has been overemphasized. While results will likely slip somewhat, the company has plenty of room to grow data services, as 43% of its wireless customers still don't use them. As well, AT&T has been adding subscribers at a solid pace apart from the iPhone, and other phones are becoming increasingly competitive.

The stock pays quarterly dividends, which at the current rate of $0.42 per share, translates to $1.68 a year for a stellar yield of nearly 6.0%. The company has raised the dividend every year since 1998. The dividend is also rock solid: In the first nine months of 2010, the telecom giant generated free cash flow of $11.6 billion and paid out $7.4 billion in dividends. In the past six quarters, the company had more than $9 billion in free cash flow left over after dividends.

Eli Lilly and Company (NYSE: LLY)
Founded in 1876, Eli Lilly is one of the largest pharmaceutical companies in the world. The company makes top drugs in a variety of areas, including antidepressant drug Prozac and neurological drug Zyprexa. Its products are sold in 143 countries and the company generated about $22 billion in revenue for 2009.

Like most big pharma companies, Lilly faces significant patent expirations in the next several years. But the company's patent expirations are particularly steep even for the industry, as drugs representing about 40% of sales will lose patent protection between 2011 and 2013.

However, the looming expirations are factored into the price already and the company has taken significant steps to develop new sources of revenue. The company acquired biotech giant Imclone in 2008 and has been investing heavily in its internal pipeline of new drugs. Meanwhile, the stock currently sells for less than eight times earnings, compared with an industry average of 13.

Lilly pays quarterly dividends of $0.49, which translates to a generous 5.7% yield based on recent prices. The dividend has nearly doubled in the past decade and is still well supported with a payout ratio of less than 50% of net income.

Consolidated Edison (NYSE: ED)
Con Ed is the primary electric utility in southeastern New York (including New York City) and also operates in New Jersey and Pennsylvania. The company provides electricity (more than three quarters of revenue), steam and natural gas. It is one of the nation's oldest utilities, and about 80% of revenue is generated in its regulated segment.

The company has a well-entrenched and difficult-to-duplicate infrastructure in a high demand area and should continue to deliver solid results. Con Ed is in the process of updating and expanding its systems, for which it has been granted a rate increase, and should boost future revenue.

The stock has outperformed both Morningstar's regulated utilities group and the S&P 500 in every measurable period for the past fifteen years, averaging total annual returns of +7% for the past 10 years, compared with less than +1% for the S&P. But the stock still sells for 14 times earnings compared with the industry average of 22.

As for the dividend, the company pays a current rate of $2.38 a year per share, which translates to a well-above industry average yield of nearly 5.0%. The dividend should grow, too, considering the utility has raised it every year for the past 36 years.

Action to Take –> All three of these companies are reasonably valued, operate in defensive industries and have secure dividends with growth potential. The current market may be ideal for stocks with these characteristics and all can be purchased at current prices.


– Tom Hutchinson

Tom has a 15-year history as a financial advisor with UBS constructing investment portfolios. Tom's background includes a NASD Series 7 and 63 certifications.

Uncategorized

How Citigroup Can Deliver 50% Gains by 2012

December 10th, 2010

How Citigroup Can Deliver 50% Gains by 2012

Uncle Sam's decision to unload its remaining block of 2.4 billion common shares of Citigroup (NYSE: C) — one quarter ahead of time — has caused many to take a fresh look at the banking titan. A quick survey of analysts' opinions reveals a stock with +15% or +20% upside from here. Yet as you dig deeper, you'll see why Citigroup can actually spike well higher — perhaps rising +50% or more in the next two years.

A continuing clean-up
Make no mistake, Citigroup is still hurting. The damage from the 2008 crisis was so deep that management will be spending another year — or more — cleaning up the mess. They've started the process by creating “Good Citi” and “Bad Citi,” otherwise known as Citicorp and Citi Holdings. Citicorp holds all the assets that we'll be talking about a few years from now. Citi Holdings contains a hodge-podge of assets that management hopes to eventually sell, including retail partner credit cards, CitiMortgage, private student lending, brokerage and a group of pooled assets.

There are two items to note about these unwanted assets. First, Citigroup is carrying them on its books at levels likely below fair market value. So the bank's tangible book value of $4.44 is understated. Second, as the economy improves, so will the likely value of these assets. Management is in no hurry to simply hold a fire sale, so it may be several years before the process is complete.

The road ahead
The remaining assets (Good Citi) are what investors will be focusing on. And there's a lot to love. Citigroup aims to get back to the old-fashioned business of banking, providing advice, facilitating global transactions and generally playing it safe. The days of throwing money after the latest financial gimmicks are over. CEO Vikram Pandit, who seemed to be a poster child of financial recklessness a few years ago, now appears to be the most sober-minded executive in the business.

Pandit is staking his claim on Citigroup returning to its historical role of consumer banking and advice. And we're again reminded that banking is a nice business. Citigroup lost $7.8 billion in 2009 as many assets were written down, but it is likely to generate more than $14 billion in operating profit this year. Pandit's goal is to boost that figure well higher in coming years. To get there, he's making a big push into Asia, Latin America and Africa.

Judging by recent results, Citigroup is making major inroads in some of the most dynamic regions and countries in the world. In the most recent quarter, Latin America-derived revenue rose +8%, while Asia-derived revenue rose +17%. Right now, North America and Europe constitute about two-thirds of revenue. But emerging markets are expected to grow at a faster pace than Europe and North America in coming years, so that revenue mix may move closer to 50/50.

The emerging market focus isn't on the rising middle class in these countries. Instead, it is on those in upper income segments, as well as corporations. So much wealth is being created in places like Brazil and China right now that the ranks of millionaires is likely to keep swelling. And that's Citigroup's bread and butter. From private banking to corporate advisory services, Pandit is focusing Citigroup on the highest margin businesses.

By the numbers
Shares of Citigroup have traded between $3 and $5 in the past year. And after a recent spike, they currently hover around $4.60. But I see a move up to $7 by early 2012. Here's how we get there…

First, Citigroup needs to be keep shedding the divisions housed in Citi Holdings (Bad Citi). That could take anywhere from 12 to 36 months to complete. As noted, a patient disposition of those assets should yield sale prices above the level they are being carried on Citi's books.

Second, with increased financial flexibility, look for deals that expand the company's footprint in emerging markets. (That financial flexibility is noted by a 10.3% Tier One Capital ratio, the highest among any major bank, and well above regulatory minimums). Third, look for the U.S. and European economies to start to perk back to life in the next six to 18 months. As signs of life emerge in these two large economic regions, investors are likely to reward bank stocks with higher price-to-book multiples.

Right now, shares of Citigroup trade right around book value, which is $4.44. The bank is generating impressive 20%-plus returns on its equity base, and book value could exceed $5.50 by the middle of 2012. By then, a more bullish take on bank stocks could lead to target price-to-book multiples to rise up to 1.5. That would push shares of Citigroup past $8.

By 2012, Citigroup will also likely be buying back stock, boosting its dividend, or both. Based on 2011 profit forecasts, Citigroup can afford to pay out $0.35 to $0.45 in dividends. Assume it's the lower end of that range, and assume that investors own the stock for a 5% yield. That translates into a $7 stock.

Action to Take –> It's been a brutal slog for Citigroup, and the struggle isn't over just yet. The U.S. economy remains weak, and the company needs to keep working to clean up its balance sheet by unloading those unwanted assets.

If the economy stays weak for an extended period and Citigroup can't find any takers for those assets, then shares are likely dead money for the next few years. But if the stars align, then investors are looking at +50% or even +70% upside. That will take several years to accomplish, so this is a “buy-and-hold” stock and not a quick trade. But one thing's for sure, it's safe again to be a buyer of Citigroup.


– David Sterman

P.S. — Using the same principles that helped trounce the S&P 500 for seven years, one of our top investing gurus, Nathan Slaughter, hand-picked all 10 of the stocks featured in his latest exclusive report, The Top 10 Stocks for 2011. These 10 stocks are not only poised to deliver above-average returns throughout the 2011 calendar year, but also in the years that follow…

David Sterman started his career in equity research at Smith Barney, culminating in a position as Senior Analyst covering European banks. David has also served as Director of Research at Individual Investor and a Managing Editor at TheStreet.com. Read More…

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

This article originally appeared on StreetAuthority
Author: David Sterman
How Citigroup Can Deliver 50% Gains by 2012

Read more here:
How Citigroup Can Deliver 50% Gains by 2012

Uncategorized

Now is the Time to Buy These Dividend Juggernauts

December 10th, 2010

Now is the Time to Buy These Dividend Juggernauts

We just endured a recession that was the worst since the Great Depression. Since the recession ended, the economic recovery has been weak to say the least. Forecasts for economic growth in 2011 and 2012 are hardly awe inspiring.

While anything can happen and the stock market has cyclical bounces and dips at any time along the way, it is only reasonable to seek out investments that have performed well under similar economic circumstances — times of tepid economic growth. Let's take a look back…

In the economic malaise of 1974 through 1982, GDP growth averaged an anemic +2% per year. During this period, the S&P's price return was an annualized +4.14% — but total return for this period, which also included dividends, averaged +9.39% per year. That means dividends accounted for most of the market's total return.

History suggests that it might be a good time to take a look at some reliable dividend paying stocks. Special attention should be paid to those companies that pay secure dividends in good times and bad as well as stocks that the market recovery has neglected.

AT&T (NYSE: T)
This more-than 100-year old company is one of the largest telecommunications providers in the world. The company is the second largest wireless provider in the country, the dominant local phone company in 22 states, and a wireless services provider in more than 220 countries.

Major telecom companies today generally offer steady cash flow but limited growth. A major growth driver in the wireless industry has been data services (Internet access from phones and other mobile devices). AT&T has been far outgrowing rival Verizon (NYSE: VZ) in this area, primarily because AT&T has had exclusive rights to offer Apple's (Nasdaq: AAPL) iPhone. But, it is widely expected that AT&T will lose exclusivity early next year.

Investors in AT&T have largely dismissed solid recent results in anticipation of lower future results next year. But I think this fear has been overemphasized. While results will likely slip somewhat, the company has plenty of room to grow data services, as 43% of its wireless customers still don't use them. As well, AT&T has been adding subscribers at a solid pace apart from the iPhone, and other phones are becoming increasingly competitive.

The stock pays quarterly dividends, which at the current rate of $0.42 per share, translates to $1.68 a year for a stellar yield of nearly 6.0%. The company has raised the dividend every year since 1998. The dividend is also rock solid: In the first nine months of 2010, the telecom giant generated free cash flow of $11.6 billion and paid out $7.4 billion in dividends. In the past six quarters, the company had more than $9 billion in free cash flow left over after dividends.

Eli Lilly and Company (NYSE: LLY)
Founded in 1876, Eli Lilly is one of the largest pharmaceutical companies in the world. The company makes top drugs in a variety of areas, including antidepressant drug Prozac and neurological drug Zyprexa. Its products are sold in 143 countries and the company generated about $22 billion in revenue for 2009.

Like most big pharma companies, Lilly faces significant patent expirations in the next several years. But the company's patent expirations are particularly steep even for the industry, as drugs representing about 40% of sales will lose patent protection between 2011 and 2013.

However, the looming expirations are factored into the price already and the company has taken significant steps to develop new sources of revenue. The company acquired biotech giant Imclone in 2008 and has been investing heavily in its internal pipeline of new drugs. Meanwhile, the stock currently sells for less than eight times earnings, compared with an industry average of 13.

Lilly pays quarterly dividends of $0.49, which translates to a generous 5.7% yield based on recent prices. The dividend has nearly doubled in the past decade and is still well supported with a payout ratio of less than 50% of net income.

Consolidated Edison (NYSE: ED)
Con Ed is the primary electric utility in southeastern New York (including New York City) and also operates in New Jersey and Pennsylvania. The company provides electricity (more than three quarters of revenue), steam and natural gas. It is one of the nation's oldest utilities, and about 80% of revenue is generated in its regulated segment.

The company has a well-entrenched and difficult-to-duplicate infrastructure in a high demand area and should continue to deliver solid results. Con Ed is in the process of updating and expanding its systems, for which it has been granted a rate increase, and should boost future revenue.

The stock has outperformed both Morningstar's regulated utilities group and the S&P 500 in every measurable period for the past fifteen years, averaging total annual returns of +7% for the past 10 years, compared with less than +1% for the S&P. But the stock still sells for 14 times earnings compared with the industry average of 22.

As for the dividend, the company pays a current rate of $2.38 a year per share, which translates to a well-above industry average yield of nearly 5.0%. The dividend should grow, too, considering the utility has raised it every year for the past 36 years.

Action to Take –> All three of these companies are reasonably valued, operate in defensive industries and have secure dividends with growth potential. The current market may be ideal for stocks with these characteristics and all can be purchased at current prices.


– Tom Hutchinson

Tom has a 15-year history as a financial advisor with UBS constructing investment portfolios. Tom's background includes a NASD Series 7 and 63 certifications.

Uncategorized

How Citigroup Can Deliver 50% Gains by 2012

December 10th, 2010

How Citigroup Can Deliver 50% Gains by 2012

Uncle Sam's decision to unload its remaining block of 2.4 billion common shares of Citigroup (NYSE: C) — one quarter ahead of time — has caused many to take a fresh look at the banking titan. A quick survey of analysts' opinions reveals a stock with +15% or +20% upside from here. Yet as you dig deeper, you'll see why Citigroup can actually spike well higher — perhaps rising +50% or more in the next two years.

A continuing clean-up
Make no mistake, Citigroup is still hurting. The damage from the 2008 crisis was so deep that management will be spending another year — or more — cleaning up the mess. They've started the process by creating “Good Citi” and “Bad Citi,” otherwise known as Citicorp and Citi Holdings. Citicorp holds all the assets that we'll be talking about a few years from now. Citi Holdings contains a hodge-podge of assets that management hopes to eventually sell, including retail partner credit cards, CitiMortgage, private student lending, brokerage and a group of pooled assets.

There are two items to note about these unwanted assets. First, Citigroup is carrying them on its books at levels likely below fair market value. So the bank's tangible book value of $4.44 is understated. Second, as the economy improves, so will the likely value of these assets. Management is in no hurry to simply hold a fire sale, so it may be several years before the process is complete.

The road ahead
The remaining assets (Good Citi) are what investors will be focusing on. And there's a lot to love. Citigroup aims to get back to the old-fashioned business of banking, providing advice, facilitating global transactions and generally playing it safe. The days of throwing money after the latest financial gimmicks are over. CEO Vikram Pandit, who seemed to be a poster child of financial recklessness a few years ago, now appears to be the most sober-minded executive in the business.

Pandit is staking his claim on Citigroup returning to its historical role of consumer banking and advice. And we're again reminded that banking is a nice business. Citigroup lost $7.8 billion in 2009 as many assets were written down, but it is likely to generate more than $14 billion in operating profit this year. Pandit's goal is to boost that figure well higher in coming years. To get there, he's making a big push into Asia, Latin America and Africa.

Judging by recent results, Citigroup is making major inroads in some of the most dynamic regions and countries in the world. In the most recent quarter, Latin America-derived revenue rose +8%, while Asia-derived revenue rose +17%. Right now, North America and Europe constitute about two-thirds of revenue. But emerging markets are expected to grow at a faster pace than Europe and North America in coming years, so that revenue mix may move closer to 50/50.

The emerging market focus isn't on the rising middle class in these countries. Instead, it is on those in upper income segments, as well as corporations. So much wealth is being created in places like Brazil and China right now that the ranks of millionaires is likely to keep swelling. And that's Citigroup's bread and butter. From private banking to corporate advisory services, Pandit is focusing Citigroup on the highest margin businesses.

By the numbers
Shares of Citigroup have traded between $3 and $5 in the past year. And after a recent spike, they currently hover around $4.60. But I see a move up to $7 by early 2012. Here's how we get there…

First, Citigroup needs to be keep shedding the divisions housed in Citi Holdings (Bad Citi). That could take anywhere from 12 to 36 months to complete. As noted, a patient disposition of those assets should yield sale prices above the level they are being carried on Citi's books.

Second, with increased financial flexibility, look for deals that expand the company's footprint in emerging markets. (That financial flexibility is noted by a 10.3% Tier One Capital ratio, the highest among any major bank, and well above regulatory minimums). Third, look for the U.S. and European economies to start to perk back to life in the next six to 18 months. As signs of life emerge in these two large economic regions, investors are likely to reward bank stocks with higher price-to-book multiples.

Right now, shares of Citigroup trade right around book value, which is $4.44. The bank is generating impressive 20%-plus returns on its equity base, and book value could exceed $5.50 by the middle of 2012. By then, a more bullish take on bank stocks could lead to target price-to-book multiples to rise up to 1.5. That would push shares of Citigroup past $8.

By 2012, Citigroup will also likely be buying back stock, boosting its dividend, or both. Based on 2011 profit forecasts, Citigroup can afford to pay out $0.35 to $0.45 in dividends. Assume it's the lower end of that range, and assume that investors own the stock for a 5% yield. That translates into a $7 stock.

Action to Take –> It's been a brutal slog for Citigroup, and the struggle isn't over just yet. The U.S. economy remains weak, and the company needs to keep working to clean up its balance sheet by unloading those unwanted assets.

If the economy stays weak for an extended period and Citigroup can't find any takers for those assets, then shares are likely dead money for the next few years. But if the stars align, then investors are looking at +50% or even +70% upside. That will take several years to accomplish, so this is a “buy-and-hold” stock and not a quick trade. But one thing's for sure, it's safe again to be a buyer of Citigroup.


– David Sterman

P.S. — Using the same principles that helped trounce the S&P 500 for seven years, one of our top investing gurus, Nathan Slaughter, hand-picked all 10 of the stocks featured in his latest exclusive report, The Top 10 Stocks for 2011. These 10 stocks are not only poised to deliver above-average returns throughout the 2011 calendar year, but also in the years that follow…

David Sterman started his career in equity research at Smith Barney, culminating in a position as Senior Analyst covering European banks. David has also served as Director of Research at Individual Investor and a Managing Editor at TheStreet.com. Read More…

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

This article originally appeared on StreetAuthority
Author: David Sterman
How Citigroup Can Deliver 50% Gains by 2012

Read more here:
How Citigroup Can Deliver 50% Gains by 2012

Uncategorized

3 Little-Known Government Projects That Could Change the Face of Tomorrow

December 10th, 2010

3 Little-Known Government Projects That Could Change the Face of Tomorrow

Not many people have heard of the Defense Advanced Research Projects Agency, DARPA for short, much less know what it does. But this little-known government agency was created by the Department of Defense in the late 1950s to ensure the U.S. military's technical superiority. Even more interesting to investors, it also controls about $3 billion in research funds that act like seed capital that is strategically distributed to the private sector in hopes of creating technological breakthroughs that can be put to use by the military.

As the Chief Strategist of Game-Changing Stocks, I'm always on the lookout for “the next big thing.” That's why it's a no-brainer to look through DARPA's current projects and ideas for potential blockbusters.

The agency tends to be the ground floor operation for broader Department of Defense goals, and if you can find a trend in new project ideas, you can get a good sense of companies that are worth following as they develop their technologies and bring a product to the market. This is kind of intel I live for.

But what makes this angle unique is that these breakthrough companies hired by DARPA offer a more defensive play than similar businesses. In this uncertain economy, it's very helpful to have a stable, reliable partner like the U.S. government. Uncle Sam is picking up the tab for the project they're working on — pretty nice if you're a small company!

Below, I've highlighted a few technologies I've found looking through DARPA's files that look like ground-breaking ideas if all goes according to plan. While it can take considerable time to take a new idea from “lab to fab” (laboratory to fabrication), the companies below already have a good start in their respective fields.

  • Neovision2: An effective military operation demands superior intelligence — both human intelligence (called “HUMINT”) and signals intelligence (“SIGINT”), the latter meaning radar and satellites. While the SIGINT problem has been solved by dozens of orbiting satellites, it's not perfect because the data still has to be analyzed and can never be as precise as human observers. But that mission is highly risky.

What the Pentagon wants from contractor Evolved Machines is a sensor that mimics HUMINT, one that can see and instantly interpret what's going on, identifying threats and convey that information in real-time to battlefield commanders. “Integration of recent developments in the understanding of the mammalian visual pathway with advances in microelectronics,” DARPA says, “will lead to the production of new revolutionary capabilities from the ground to the sky that will provide a new level of situational awareness for the warfighter.”

  • Blood Pharming: Blood used in combat zones is donated in the United States and is usually up against its expiration date (about 28 days) by the time it ships, let alone by the time it might be used. So the military wants to be able to produce transfusable universal red blood cells that can be grown in an automated, portable cell culture. In other words, one guy in the platoon wears a backpack that can grow blood. The company building this system is Cleveland-based Arteriocyte.

    Uncategorized

Copyright 2009-2015 MarketDailyNews.COM

LOG