Don’t Buy Gold Before Reading This

October 6th, 2010

Don't Buy Gold Before Reading This

The late-1970s was witness to one of the most remarkable gold rallies in history. From a low of $100 per troy ounce in 1976, prices rose to a then-record $873 by 1980.

The culprit? Double-digit rates of inflation.

Indeed, the inflation in this period was so dramatic that the price of goods and services in the United States economy doubled during a nine year period between 1973 and 1981. That’s an average inflation rate of 8.8%, while in the year of gold’s peak in 1980, prices rose a sizzling +13.5%.

In response to the out of control prices, the Federal Reserve, led by Chairman Paul Volcker, ratcheted up interest rates to extreme levels, with the benchmark federal funds rate reaching a high of 20% during the middle of 1981. the Fed’s efforts paid off, but they also triggered a painful recession that lasted for more than a year. Nevertheless, by 1982, inflation had declined to 6.2% and in 1983, it was down to a much more manageable 3.2%.

As inflation cooled, so too did gold prices, with the precious metal falling back under $300 in 1982.
Fast forward to today: another remarkable rally has sent gold prices back to record levels, now above $1300, but only this time inflation is nearly nonexistent. In fact, in recent weeks Fed officials have been expressing concern that inflation may actually be too low for their liking. Thus, we have record gold prices and low inflation. How do we reconcile this situation?

There are many plausible theories one can point to in order to explain gold’s most recent advance. Some of the most popular have to do with the potential for high inflation down the road either due to the unprecedented monetary easing during the depths of the 2008/2009 economic meltdown, or future easing as governments grapple with surging levels of public debt, opting to monetize their obligations rather than raise taxes or cut spending.

Other theories speculate that inflation readings offered to us by the government, such as the consumer price index (CPI), are understated and that actual inflation is much higher. As the methodology for calculating CPI has been revised numerous times in the past couple decades, proponents of this theory argue that inflation readings would be much higher using the older, unrevised methods.

Finally, some point to the fact that gold remains well below the record inflation-adjusted price notched back in 1980 as evidence that the metal is cheap and that much upside remains. In today’s dollars, gold would have to surpass $2400 to reach a new inflation-adjusted high.

A common theme between all of the theories attributed to gold’s rise is a distinct loss of faith in fiat, or “paper” currencies. Gold’s history as money — a medium of exchange, a store of value and a unit of account — spans thousands of years. As confidence in paper currencies declines, more and more people are turning to gold as an alternative currency, or at least an alternative store of value — a perception that is fueling the relentless climb in gold prices.

But just as important as why gold is being bought is how gold is being bought.

Consider that the latest bull market in gold began all the way back in 2002. Then consider that it was about this time that the first gold exchange-traded-funds (ETFs) began to hit the market. This is no coincidence. [The 6 Rules ETF Investors Must Know]

Gold ETFs are backed by physical gold holdings and are a convenient way for investors or traders to gain exposure to the precious metal. Buying gold is now as simple as purchasing a stock or mutual fund in your brokerage account. The result has been that billions of dollars that would have flowed into other assets is now flowing into gold.

Recall that the first gold ETFs entered the market around 2002, thus gold demand from these products was zero prior to that period. By 2009, demand from gold ETFs totaled an incredible 617 metric tons, or nearly 20 million troy ounces, compared to a total demand of 3,455 metric tons.

The combination of demand from ETFs and other investment demand for gold through retail channels totaled 1,323 metric tons in 2009, or 38% of total demand. In 2002, investment demand (almost all of which was retail) was only 10% of total demand. In that same 2002-2009 time period, gold demand for jewelry fabrication fell from 80% of demand to 50%.

What these eye-opening figures suggest is that in the market for gold, investors have been outbidding traditional consumers, which has led to prices marching relentlessly higher.

Action to Take –> The biggest risk to gold prices is if investor appetite for gold wanes, particularly appetite for gold ETFs. If ETF investors were to liquidate a portion of their 2,100 metric tons (67.4 million troy ounces) of gold holdings, prices would likely fall. Moreover, because investors in these funds can sell with a mere click of a button, enormous amounts of gold holdings could be liquidated in a very short period of time, leading to potentially huge price declines.

Moreover, while the arguments in favor of gold — including the potential for future inflation and the fact that the metal remains well below its record inflation-adjusted highs — have merit, there are just too many unknowns to make gold a compelling investment. Prices could rise to $2,000, just as they could fall to $500. There is no way to tell.

You should consider limiting the portion of your portfolio allocated to gold, including gold ETFs such as the SPDR Gold Shares Trust (NYSE: GLD). Instead of speculating on the direction of prices, consider gold a hedge against inflation, dedicating only a single-digit percentage of risk capital to the metal.


– Sumit Roy

Sumit has more than eight years of experience covering equity and commodity markets. Sumit's work has been cited on Barron's and Yahoo! Finance. Read more…

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

This article originally appeared on StreetAuthority
Author: Sumit Roy
Don't Buy Gold Before Reading This

Read more here:
Don’t Buy Gold Before Reading This

ETF, Mutual Fund, Uncategorized

Don’t Buy Gold Before Reading This

October 6th, 2010

Don't Buy Gold Before Reading This

The late-1970s was witness to one of the most remarkable gold rallies in history. From a low of $100 per troy ounce in 1976, prices rose to a then-record $873 by 1980.

The culprit? Double-digit rates of inflation.

Indeed, the inflation in this period was so dramatic that the price of goods and services in the United States economy doubled during a nine year period between 1973 and 1981. That’s an average inflation rate of 8.8%, while in the year of gold’s peak in 1980, prices rose a sizzling +13.5%.

In response to the out of control prices, the Federal Reserve, led by Chairman Paul Volcker, ratcheted up interest rates to extreme levels, with the benchmark federal funds rate reaching a high of 20% during the middle of 1981. the Fed’s efforts paid off, but they also triggered a painful recession that lasted for more than a year. Nevertheless, by 1982, inflation had declined to 6.2% and in 1983, it was down to a much more manageable 3.2%.

As inflation cooled, so too did gold prices, with the precious metal falling back under $300 in 1982.
Fast forward to today: another remarkable rally has sent gold prices back to record levels, now above $1300, but only this time inflation is nearly nonexistent. In fact, in recent weeks Fed officials have been expressing concern that inflation may actually be too low for their liking. Thus, we have record gold prices and low inflation. How do we reconcile this situation?

There are many plausible theories one can point to in order to explain gold’s most recent advance. Some of the most popular have to do with the potential for high inflation down the road either due to the unprecedented monetary easing during the depths of the 2008/2009 economic meltdown, or future easing as governments grapple with surging levels of public debt, opting to monetize their obligations rather than raise taxes or cut spending.

Other theories speculate that inflation readings offered to us by the government, such as the consumer price index (CPI), are understated and that actual inflation is much higher. As the methodology for calculating CPI has been revised numerous times in the past couple decades, proponents of this theory argue that inflation readings would be much higher using the older, unrevised methods.

Finally, some point to the fact that gold remains well below the record inflation-adjusted price notched back in 1980 as evidence that the metal is cheap and that much upside remains. In today’s dollars, gold would have to surpass $2400 to reach a new inflation-adjusted high.

A common theme between all of the theories attributed to gold’s rise is a distinct loss of faith in fiat, or “paper” currencies. Gold’s history as money — a medium of exchange, a store of value and a unit of account — spans thousands of years. As confidence in paper currencies declines, more and more people are turning to gold as an alternative currency, or at least an alternative store of value — a perception that is fueling the relentless climb in gold prices.

But just as important as why gold is being bought is how gold is being bought.

Consider that the latest bull market in gold began all the way back in 2002. Then consider that it was about this time that the first gold exchange-traded-funds (ETFs) began to hit the market. This is no coincidence. [The 6 Rules ETF Investors Must Know]

Gold ETFs are backed by physical gold holdings and are a convenient way for investors or traders to gain exposure to the precious metal. Buying gold is now as simple as purchasing a stock or mutual fund in your brokerage account. The result has been that billions of dollars that would have flowed into other assets is now flowing into gold.

Recall that the first gold ETFs entered the market around 2002, thus gold demand from these products was zero prior to that period. By 2009, demand from gold ETFs totaled an incredible 617 metric tons, or nearly 20 million troy ounces, compared to a total demand of 3,455 metric tons.

The combination of demand from ETFs and other investment demand for gold through retail channels totaled 1,323 metric tons in 2009, or 38% of total demand. In 2002, investment demand (almost all of which was retail) was only 10% of total demand. In that same 2002-2009 time period, gold demand for jewelry fabrication fell from 80% of demand to 50%.

What these eye-opening figures suggest is that in the market for gold, investors have been outbidding traditional consumers, which has led to prices marching relentlessly higher.

Action to Take –> The biggest risk to gold prices is if investor appetite for gold wanes, particularly appetite for gold ETFs. If ETF investors were to liquidate a portion of their 2,100 metric tons (67.4 million troy ounces) of gold holdings, prices would likely fall. Moreover, because investors in these funds can sell with a mere click of a button, enormous amounts of gold holdings could be liquidated in a very short period of time, leading to potentially huge price declines.

Moreover, while the arguments in favor of gold — including the potential for future inflation and the fact that the metal remains well below its record inflation-adjusted highs — have merit, there are just too many unknowns to make gold a compelling investment. Prices could rise to $2,000, just as they could fall to $500. There is no way to tell.

You should consider limiting the portion of your portfolio allocated to gold, including gold ETFs such as the SPDR Gold Shares Trust (NYSE: GLD). Instead of speculating on the direction of prices, consider gold a hedge against inflation, dedicating only a single-digit percentage of risk capital to the metal.


– Sumit Roy

Sumit has more than eight years of experience covering equity and commodity markets. Sumit's work has been cited on Barron's and Yahoo! Finance. Read more…

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

This article originally appeared on StreetAuthority
Author: Sumit Roy
Don't Buy Gold Before Reading This

Read more here:
Don’t Buy Gold Before Reading This

ETF, Mutual Fund, Uncategorized

What’s This Key Stock’s Move Today Means for the Retail Sector

October 6th, 2010

What's This Key Stock's Move Today Means for the Retail Sector

As we've been discussing throughout the past six months, a range-bound market means you're likely better off moving in and out of certain stocks and sectors as they prove timely. Buy-and-hold appears dead for now, although few have the ability to profit from very short-term trades either.

Costco (Nasdaq: COST) highlights the value of a “mid-term trade.” In just six weeks, investors have made about +25% from this investment. Yet Wednesday's quarterly report from this retailer tells us it's time to “sell on the news.”

Whenever you see a stock make a solid move as Costco has, it leads you to wonder if business is trending well ahead of expectations. That's why it makes sense to hang on and see how quarterly results fare. I've noticed solid upward moves in four other retail pays I track; Best Buy (NYSE: BBY), Leapfrog Enterprises (NYSE: LF), Office Depot (NYSE: ODP) and Casual Male (Nasdaq: CMRG). Is business improving for these firms, or is the recent spike in Costco and these other companies' shares simply due to a re-rotation back into retail?

Wednesday's dismal ADP jobs report, which is a precursor to Friday's monthly employment report from the Labor Department, should give pause. So the retail trade may be premature and it may be time to book profits in recent retail gainers. That's what investors are doing with Costco, which is pulling back -1.5% today after running from $60 to $65 in the second half of September.

Costco's quarterly sales slightly lagged estimates (when you back out the impact of gas price changes), although per share profits were slightly better than analysts had expected. And judging by the numbers, the recent rally makes this stock now look fully valued. Thanks to the tepid economy, Costco's sales are likely to only rise +6% to +7% in the fiscal year that began last month. Profits are likely to grow at low double-digits. Yet shares trade for about 20 times projected fiscal 2011 profits and are really no bargain.

Action to Take –> Whether it's the broader stock market or an individual stock, I'm always on the lookout for a sideways chart. When a stock is rising, buyers outnumber sellers. When a stock starts to move sideways, that's a sign that either sellers are stepping in or buyers are petering out. Either way, it often results in the next move being a downward one, as sellers eventually overwhelm buyers. I'm not predicting that for Costco specifically, but you may want to use this as a signal to take profits if you have secured a solid run in an investment.

As noted above, select retail stocks have had a nice run, though it is unlikely they are reflecting improving consumer spending. On Wednesday and Thursday, a wide range of retailers will weigh in on how they fared in the back-to-school season. How the sector trades in response will be telling. If Costco is any indication, investor sentiment may be cooling and it may be wise to book any profits you've had on “mid-term trades” like this one.


– David Sterman

P.S. –

Uncategorized

What’s This Key Stock’s Move Today Means for the Retail Sector

October 6th, 2010

What's This Key Stock's Move Today Means for the Retail Sector

As we've been discussing throughout the past six months, a range-bound market means you're likely better off moving in and out of certain stocks and sectors as they prove timely. Buy-and-hold appears dead for now, although few have the ability to profit from very short-term trades either.

Costco (Nasdaq: COST) highlights the value of a “mid-term trade.” In just six weeks, investors have made about +25% from this investment. Yet Wednesday's quarterly report from this retailer tells us it's time to “sell on the news.”

Whenever you see a stock make a solid move as Costco has, it leads you to wonder if business is trending well ahead of expectations. That's why it makes sense to hang on and see how quarterly results fare. I've noticed solid upward moves in four other retail pays I track; Best Buy (NYSE: BBY), Leapfrog Enterprises (NYSE: LF), Office Depot (NYSE: ODP) and Casual Male (Nasdaq: CMRG). Is business improving for these firms, or is the recent spike in Costco and these other companies' shares simply due to a re-rotation back into retail?

Wednesday's dismal ADP jobs report, which is a precursor to Friday's monthly employment report from the Labor Department, should give pause. So the retail trade may be premature and it may be time to book profits in recent retail gainers. That's what investors are doing with Costco, which is pulling back -1.5% today after running from $60 to $65 in the second half of September.

Costco's quarterly sales slightly lagged estimates (when you back out the impact of gas price changes), although per share profits were slightly better than analysts had expected. And judging by the numbers, the recent rally makes this stock now look fully valued. Thanks to the tepid economy, Costco's sales are likely to only rise +6% to +7% in the fiscal year that began last month. Profits are likely to grow at low double-digits. Yet shares trade for about 20 times projected fiscal 2011 profits and are really no bargain.

Action to Take –> Whether it's the broader stock market or an individual stock, I'm always on the lookout for a sideways chart. When a stock is rising, buyers outnumber sellers. When a stock starts to move sideways, that's a sign that either sellers are stepping in or buyers are petering out. Either way, it often results in the next move being a downward one, as sellers eventually overwhelm buyers. I'm not predicting that for Costco specifically, but you may want to use this as a signal to take profits if you have secured a solid run in an investment.

As noted above, select retail stocks have had a nice run, though it is unlikely they are reflecting improving consumer spending. On Wednesday and Thursday, a wide range of retailers will weigh in on how they fared in the back-to-school season. How the sector trades in response will be telling. If Costco is any indication, investor sentiment may be cooling and it may be wise to book any profits you've had on “mid-term trades” like this one.


– David Sterman

P.S. –

Uncategorized

The Best Dow Stocks for the Next Decade

October 6th, 2010

The Best Dow Stocks for the Next Decade

The world is changing fast.

Economic dominance is undergoing an epic shift. According to the International Monetary Fund (IMF), the gross domestic product (GDP) of the world's emerging markets will eclipse that of the developed world by 2017.

Such a tectonic shift in the world economy is changing the way the world does business.

Consider this: The World Bank estimates that the global middle class will triple to 1.2 billion in 2030 from 430 million in 2000, and China and India will account for two thirds of the expansion.

In fact, after decades of unprecedented economic expansion, the percentage of total households with annual disposable incomes of $5,000-15,000 is already expected to reach 31.7% in China and 14.6% in India this year. This number is expected to rocket to 46.2% in China and 41.1% in India by 2020.

IMAGE

What can these hundreds of millions of brand new consumers afford to buy?

They will most likely start with basic products that satisfy life's necessities like soap, toothpaste, band aids and toilet paper.

Who can sell these things to them?

The answer is local companies as well as large multinationals that possess the scale and wide geographical distribution networks to stock the shelves. Such companies exist on the Dow Jones Industrial Index.

These companies have deeper pockets than some governments — and they know all the tricks. For example, they know how to get the best shelf space, how to distribute efficiently, how to advertise in a new market and how to drive out competition. These companies have become some of the world's most dominant companies by doing these things better than anyone else for years. Newly established and still-learning local establishments in emerging market countries are no match for these well-seasoned goliaths.

Dow stocks for the next decade
Founded in 1837, Proctor and Gamble (NYSE: PG) is the world's largest consumer products company, with operations in more than 180 countries and sales of $79 billion in fiscal 2010. The company features a huge array of famous brands covering everything from dog food to cosmetic care products including Gillette, Bounty, Charmin, Crest toothpaste and Tide detergent, just to name a few. About 60% of 2010 sales came from overseas and 32% of total company sales came from emerging markets.

How big is Proctor and Gamble?

The company has a market capitalization of about $170 billion, which is larger than the GDP of many countries. The household products giant has 43 brands with sales in excess of $500 million a year and 23 products with more than $1 billion in sales every year. In fact, P&G has an estimated 4.2 billion customers throughout the world –that's about 65% of the 6.5 billion people estimated to be living on the planet.

The company estimates that it generates the equivalent of $12 in sales every year for every living person on earth. P&G plans to ratchet that number up to $14 per person in five years — primarily through growth in emerging markets.

While P&G has doubled sales in emerging markets since 2001, there is still plenty of room to grow. Consider that P&G is the largest consumer goods company in China, with a market share four times larger than its nearest competitor. Yet, China still only spends about $3 per capita annually on P&G products, compared to $20 in Mexico and $100 in the United States. P&G estimates that increasing sales in China and India to the levels of Mexico would add $40 billion per year in revenue.

P&G forecasts core earnings growth of +7% to +9% in 2011. The company also pays a quarterly dividend which has increased for 56 straight years. The stock currently yields about 3.2%.

Johnson & Johnson (NYSE: JNJ) is the world's largest and most diverse health care company, selling everything from heart stents to band aids. The company has been in business over 120 years and engages in the development, manufacture and sale of health care products through more than 250 operating companies located in some 60 countries and generated $62 billion in revenue in 2009.

J&J is a world leader in three different health care segments: pharmaceutical, medical devices and diagnostics and consumer health products. The pharmaceutical segment has several leading drugs including rheumatoid arthritis drug Remicade. Consumer products include household staples such as Listerine, Carefree and Tylenol. J&J has incredibly strong brands, with 70% of sales coming from products with a No. 1 or No. 2 global market share.

The fastest growing segment of the world's population is 65 and older — and older people need more health care. Slightly more than half of sales are generated outside the U.S., and 26% of first half 2010 sales came from outside of the U.S. and Europe. While first half sales increased just +2.3% overall, sales in the Asia-Pacific/Africa regions increased +14%. This also accounted for 17% of total sales, up from 15% in the first half of 2009.

The stock pays quarterly dividends and currently yields about 3.4%. Dividends have risen for 48 straight years, supported by sales that have increased for 78 straight years.

Action to Take –> Both Proctor & Gamble and Johnson & Johnson are cheap now, selling at price-to-earnings ratios well below their five-year averages. Both companies have relatively defensive earnings and strong, growing dividends. Emerging markets add a strong element of growth to compliment steady cash flow elsewhere. Both companies are attractive defensive core holdings 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

The Best Dow Stocks for the Next Decade

October 6th, 2010

The Best Dow Stocks for the Next Decade

The world is changing fast.

Economic dominance is undergoing an epic shift. According to the International Monetary Fund (IMF), the gross domestic product (GDP) of the world's emerging markets will eclipse that of the developed world by 2017.

Such a tectonic shift in the world economy is changing the way the world does business.

Consider this: The World Bank estimates that the global middle class will triple to 1.2 billion in 2030 from 430 million in 2000, and China and India will account for two thirds of the expansion.

In fact, after decades of unprecedented economic expansion, the percentage of total households with annual disposable incomes of $5,000-15,000 is already expected to reach 31.7% in China and 14.6% in India this year. This number is expected to rocket to 46.2% in China and 41.1% in India by 2020.

IMAGE

What can these hundreds of millions of brand new consumers afford to buy?

They will most likely start with basic products that satisfy life's necessities like soap, toothpaste, band aids and toilet paper.

Who can sell these things to them?

The answer is local companies as well as large multinationals that possess the scale and wide geographical distribution networks to stock the shelves. Such companies exist on the Dow Jones Industrial Index.

These companies have deeper pockets than some governments — and they know all the tricks. For example, they know how to get the best shelf space, how to distribute efficiently, how to advertise in a new market and how to drive out competition. These companies have become some of the world's most dominant companies by doing these things better than anyone else for years. Newly established and still-learning local establishments in emerging market countries are no match for these well-seasoned goliaths.

Dow stocks for the next decade
Founded in 1837, Proctor and Gamble (NYSE: PG) is the world's largest consumer products company, with operations in more than 180 countries and sales of $79 billion in fiscal 2010. The company features a huge array of famous brands covering everything from dog food to cosmetic care products including Gillette, Bounty, Charmin, Crest toothpaste and Tide detergent, just to name a few. About 60% of 2010 sales came from overseas and 32% of total company sales came from emerging markets.

How big is Proctor and Gamble?

The company has a market capitalization of about $170 billion, which is larger than the GDP of many countries. The household products giant has 43 brands with sales in excess of $500 million a year and 23 products with more than $1 billion in sales every year. In fact, P&G has an estimated 4.2 billion customers throughout the world –that's about 65% of the 6.5 billion people estimated to be living on the planet.

The company estimates that it generates the equivalent of $12 in sales every year for every living person on earth. P&G plans to ratchet that number up to $14 per person in five years — primarily through growth in emerging markets.

While P&G has doubled sales in emerging markets since 2001, there is still plenty of room to grow. Consider that P&G is the largest consumer goods company in China, with a market share four times larger than its nearest competitor. Yet, China still only spends about $3 per capita annually on P&G products, compared to $20 in Mexico and $100 in the United States. P&G estimates that increasing sales in China and India to the levels of Mexico would add $40 billion per year in revenue.

P&G forecasts core earnings growth of +7% to +9% in 2011. The company also pays a quarterly dividend which has increased for 56 straight years. The stock currently yields about 3.2%.

Johnson & Johnson (NYSE: JNJ) is the world's largest and most diverse health care company, selling everything from heart stents to band aids. The company has been in business over 120 years and engages in the development, manufacture and sale of health care products through more than 250 operating companies located in some 60 countries and generated $62 billion in revenue in 2009.

J&J is a world leader in three different health care segments: pharmaceutical, medical devices and diagnostics and consumer health products. The pharmaceutical segment has several leading drugs including rheumatoid arthritis drug Remicade. Consumer products include household staples such as Listerine, Carefree and Tylenol. J&J has incredibly strong brands, with 70% of sales coming from products with a No. 1 or No. 2 global market share.

The fastest growing segment of the world's population is 65 and older — and older people need more health care. Slightly more than half of sales are generated outside the U.S., and 26% of first half 2010 sales came from outside of the U.S. and Europe. While first half sales increased just +2.3% overall, sales in the Asia-Pacific/Africa regions increased +14%. This also accounted for 17% of total sales, up from 15% in the first half of 2009.

The stock pays quarterly dividends and currently yields about 3.4%. Dividends have risen for 48 straight years, supported by sales that have increased for 78 straight years.

Action to Take –> Both Proctor & Gamble and Johnson & Johnson are cheap now, selling at price-to-earnings ratios well below their five-year averages. Both companies have relatively defensive earnings and strong, growing dividends. Emerging markets add a strong element of growth to compliment steady cash flow elsewhere. Both companies are attractive defensive core holdings 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

When Emerging Markets Emerge

October 6th, 2010

Sometimes the best way for an investor to see ahead is to take a look and see what happened in the past. This is why Charlie Munger, the wise old vice chairman at Berkshire Hathaway, likes to say, “There are answers worth billions of dollars in a $30 history book.”

The history books have a riveting story to tell about emerging markets. This story has clues that tell us what might happen in the big emerging markets of today – such as China, India and Brazil. And these clues, like a trail of breadcrumbs, lead to one great investment theme. It’s so sweeping and powerful that it has even huge multinationals giddy at the opportunity.

First, a little of that history, beginning with postwar Japan and the “three electric treasures”…

In the 1950s, Japan was the hot story. In the postwar era, Japan’s economy began to industrialize in a big way. Investment poured in from all over the world. Steel mills and power plants and factories sprouted up quickly like bean plants. Japan soon became a big producer of ships, electronics, petrochemicals, photographic equipment, synthetic fibers and automobiles.

The Japanese people also moved from rural areas to the cities in large numbers. The population of Tokyo, for example, more than doubled in less than 10 years. With that came a hunger for new consumer goods. People ate better – that’s always the first thing to change. But these new consumers also coveted the goods that make life easier, such as washing machines, refrigerators and television sets.

In fact, demand was so high for these three goods that people called them the “three electric treasures.” Sales of washing machines quadrupled between 1953–55. Then sales doubled again in 1956. The number of TVs went up nearly fivefold in one year – 1957. And then the number doubled again in ’58!

Yet while this was going on, there were still a lot of growing pains. There was still widespread poverty. Masses of people huddled up in tiny apartments. Sewage facilities were inadequate. Water was often unsafe to drink. Traffic was terrible, since road building couldn’t keep up with the ballooning number of cars on the road. Pollution was a big problem.

Does this sound familiar? I could easily be writing about China today!

I owe these observations on Japan to the late Robert Shaplen, a longtime Asia correspondent. Shaplen first arrived in Asia in 1944, near Leyte, in the Philippines. He was a war correspondent with the 1st Cavalry Division and he landed on a beach softened up by US Navy artillery. Walking through the surf, Shaplen recalls the acrid smoke and shattered coconut trees. What a way to begin a long tour in Asia! But his departure was even more dramatic. In 1975, he would leave from Saigon aboard a Sea Stallion helicopter flown by US Marines taking communist rocket and small-arms fire near the American defense compound at Tan Son Nhut Air Base.

In between these poles, Shaplen managed 30 years of distinguished reporting on the Far East as a New Yorker correspondent. I’ve been reading pieces of his A Turning Wheel (the ’79 edition). It’s a kind of summing up of his 30-year tour of duty in the Far East, based on thousands of interviews and his own research and observations traipsing throughout Asia over that time.

In his book, Shaplen also has striking observations about that other superstar of the period: South Korea. “Seoul became Asia’s biggest boomtown,” Shaplen writes, “a throbbing metropolis of 7.5 million (one-fifth of the South’s population) and the hub of what was probably the fastest-developing nation in the world except for the petroleum powers.”

The pattern of development was the same. A man living in Seoul then saw the factories sprout up out of nowhere. In came the steel mills, cement plants and shipyards. He saw apartments and high-rise office buildings and industrial centers fill in the city blocks. He watched the massive migration of people from the farms and villages to the cities. New subways and hotels opened. It became hard to find an empty taxi. And good restaurants stayed crowded until 10 at night. People got richer. Per capita income in 1977 was four times what it was 10 years before.

I am struck by the similarities of these development stories and the ones unfolding today. I wonder if we’re seeing the same thing all over again, only the names are different. Today, it’s about China and India and Brazil. I also see another wave of similarly sweeping changes and growth in other parts of the world. I have my eye on Vietnam and Indonesia, on Colombia, the Middle East and parts of Africa.

The telltale patterns are all there…

Look at Vietnam, a market of 86 million people – more than half under 25 years of age. One of the other books I’m reading is Vietnam: Rising Dragon by BBC correspondent Bill Hayton. It’s a new book about Vietnam’s swift rise. Again, you see the same patterns repeat. “Vietnam is in the middle of a revolution,” Hayton writes, “capitalism is flooding into a nominally communist society, fields are disappearing under new industrial parks, villagers are flocking to booming cities… It’s one of the most breathtaking periods of social change anywhere, ever.”

The money is pouring in. The factories are going up. Samsung has a $700 million plant in Hanoi. Intel has a billion-dollar chip plant outside of Saigon. Canon, Hon Hai, NEC and many others are already there. Yet ports are congested and roads are poor. It reminds one of the early years of Japan or South Korea…or China.

If you listen to what companies are saying – especially some of the big multinationals or some of the small pups with operations overseas – these kinds of markets get them excited.

They think about all the razor blades and batteries and beer they can sell. Really, for the first time, we’ll have hundreds of millions of people that can buy simple things like a can of baked beans. (As one H.J. Heinz manager working in Nigeria says, a can of baked beans is “considered a special treat here.”)

Take Proctor & Gamble, a huge consumer products company. It estimates that if people in China and India spent at a level comparable to that in Mexico, P&G’s sales would grow by $40 billion. That’s huge for a company that generates $79 billion in sales today. That potential $40 billion prize has sharpened the attention of P&G’s top brass. And it’s a lure for competitors as well.

What will drive these sales is the bulging global middle class. That middle class gets more than 70 million new members a year – on its way to 2 billion in two decades.

I am most optimistic about investing when I think about this big picture. The emerging markets will provide lots and lots of investment opportunities over the next several years. Watch this space…closely and continuously.

Chris Mayer
for The Daily Reckoning

When Emerging Markets Emerge 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 Emerging Markets Emerge




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 Emerging Markets Emerge

October 6th, 2010

Sometimes the best way for an investor to see ahead is to take a look and see what happened in the past. This is why Charlie Munger, the wise old vice chairman at Berkshire Hathaway, likes to say, “There are answers worth billions of dollars in a $30 history book.”

The history books have a riveting story to tell about emerging markets. This story has clues that tell us what might happen in the big emerging markets of today – such as China, India and Brazil. And these clues, like a trail of breadcrumbs, lead to one great investment theme. It’s so sweeping and powerful that it has even huge multinationals giddy at the opportunity.

First, a little of that history, beginning with postwar Japan and the “three electric treasures”…

In the 1950s, Japan was the hot story. In the postwar era, Japan’s economy began to industrialize in a big way. Investment poured in from all over the world. Steel mills and power plants and factories sprouted up quickly like bean plants. Japan soon became a big producer of ships, electronics, petrochemicals, photographic equipment, synthetic fibers and automobiles.

The Japanese people also moved from rural areas to the cities in large numbers. The population of Tokyo, for example, more than doubled in less than 10 years. With that came a hunger for new consumer goods. People ate better – that’s always the first thing to change. But these new consumers also coveted the goods that make life easier, such as washing machines, refrigerators and television sets.

In fact, demand was so high for these three goods that people called them the “three electric treasures.” Sales of washing machines quadrupled between 1953–55. Then sales doubled again in 1956. The number of TVs went up nearly fivefold in one year – 1957. And then the number doubled again in ’58!

Yet while this was going on, there were still a lot of growing pains. There was still widespread poverty. Masses of people huddled up in tiny apartments. Sewage facilities were inadequate. Water was often unsafe to drink. Traffic was terrible, since road building couldn’t keep up with the ballooning number of cars on the road. Pollution was a big problem.

Does this sound familiar? I could easily be writing about China today!

I owe these observations on Japan to the late Robert Shaplen, a longtime Asia correspondent. Shaplen first arrived in Asia in 1944, near Leyte, in the Philippines. He was a war correspondent with the 1st Cavalry Division and he landed on a beach softened up by US Navy artillery. Walking through the surf, Shaplen recalls the acrid smoke and shattered coconut trees. What a way to begin a long tour in Asia! But his departure was even more dramatic. In 1975, he would leave from Saigon aboard a Sea Stallion helicopter flown by US Marines taking communist rocket and small-arms fire near the American defense compound at Tan Son Nhut Air Base.

In between these poles, Shaplen managed 30 years of distinguished reporting on the Far East as a New Yorker correspondent. I’ve been reading pieces of his A Turning Wheel (the ’79 edition). It’s a kind of summing up of his 30-year tour of duty in the Far East, based on thousands of interviews and his own research and observations traipsing throughout Asia over that time.

In his book, Shaplen also has striking observations about that other superstar of the period: South Korea. “Seoul became Asia’s biggest boomtown,” Shaplen writes, “a throbbing metropolis of 7.5 million (one-fifth of the South’s population) and the hub of what was probably the fastest-developing nation in the world except for the petroleum powers.”

The pattern of development was the same. A man living in Seoul then saw the factories sprout up out of nowhere. In came the steel mills, cement plants and shipyards. He saw apartments and high-rise office buildings and industrial centers fill in the city blocks. He watched the massive migration of people from the farms and villages to the cities. New subways and hotels opened. It became hard to find an empty taxi. And good restaurants stayed crowded until 10 at night. People got richer. Per capita income in 1977 was four times what it was 10 years before.

I am struck by the similarities of these development stories and the ones unfolding today. I wonder if we’re seeing the same thing all over again, only the names are different. Today, it’s about China and India and Brazil. I also see another wave of similarly sweeping changes and growth in other parts of the world. I have my eye on Vietnam and Indonesia, on Colombia, the Middle East and parts of Africa.

The telltale patterns are all there…

Look at Vietnam, a market of 86 million people – more than half under 25 years of age. One of the other books I’m reading is Vietnam: Rising Dragon by BBC correspondent Bill Hayton. It’s a new book about Vietnam’s swift rise. Again, you see the same patterns repeat. “Vietnam is in the middle of a revolution,” Hayton writes, “capitalism is flooding into a nominally communist society, fields are disappearing under new industrial parks, villagers are flocking to booming cities… It’s one of the most breathtaking periods of social change anywhere, ever.”

The money is pouring in. The factories are going up. Samsung has a $700 million plant in Hanoi. Intel has a billion-dollar chip plant outside of Saigon. Canon, Hon Hai, NEC and many others are already there. Yet ports are congested and roads are poor. It reminds one of the early years of Japan or South Korea…or China.

If you listen to what companies are saying – especially some of the big multinationals or some of the small pups with operations overseas – these kinds of markets get them excited.

They think about all the razor blades and batteries and beer they can sell. Really, for the first time, we’ll have hundreds of millions of people that can buy simple things like a can of baked beans. (As one H.J. Heinz manager working in Nigeria says, a can of baked beans is “considered a special treat here.”)

Take Proctor & Gamble, a huge consumer products company. It estimates that if people in China and India spent at a level comparable to that in Mexico, P&G’s sales would grow by $40 billion. That’s huge for a company that generates $79 billion in sales today. That potential $40 billion prize has sharpened the attention of P&G’s top brass. And it’s a lure for competitors as well.

What will drive these sales is the bulging global middle class. That middle class gets more than 70 million new members a year – on its way to 2 billion in two decades.

I am most optimistic about investing when I think about this big picture. The emerging markets will provide lots and lots of investment opportunities over the next several years. Watch this space…closely and continuously.

Chris Mayer
for The Daily Reckoning

When Emerging Markets Emerge 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 Emerging Markets Emerge




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

How the War in Afghanistan Depends on the Khyber Pass

October 6th, 2010

We begin the day haunted by two images. The first is a chart of crude oil going back about six weeks.

6-Week Crude Oil Price

The second is a picture of refined crude going up in flames today.

Oil Fire

That is a convoy of NATO tankers bound for Afghanistan. Or should we say “was.” For the seventh time in a week, gunmen in Pakistan have ambushed and/or torched NATO convoys.

It’s happening far from any major Middle East oil fields. But this sort of thing makes oil traders twitchy anyway.

The attacks are a vivid reminder of an old military saw: “Amateurs talk strategy. Professionals talk logistics.” That is, what’s really important in war is to keep the troops supplied with ammo, food and fuel.

Especially fuel.

“Soldier for soldier,” says Byron King, editor of Outstanding Investments, “the modern US Army uses about 10 times as much fuel as did Gen. Patton’s troops in World War II. And Patton’s army used about 10 times as much fuel per capita as did the American Expeditionary Force in France under Gen. Pershing in World War I.

“Today, there’s no escaping the dictates of fuel logistics, and certainly not when the campaign is in distant Afghanistan.

“Thus, when I heard that the Pakistanis had closed the Khyber Pass to truck traffic – including the critical fuel trucks – my first instinct was that America’s opponents (and NATO’s, as well) have found a key center of gravity.

“Cut the fuel and American/NATO operations within Afghanistan will decline proportionately.”

No doubt… 75% of NATO’s supplies come through just two slender routes stretching up from Karachi, Pakistan.

Oil Supply Routes in Afghanistan

“The initial event that sparked closing Khyber Pass,” Byron goes on to explain, “was a US helicopter attack that killed three Pakistani soldiers.

“One way or another, the severed fuel lines are the kernel of strategic disaster for the US/NATO in Afghanistan. This is the kind of issue that makes US diplomats go into private meetings with senior host nation officials and discuss ‘very severe consequences’ if things don’t change in a hurry.”

“Now that the Pakistanis have closed the pass and allowed fuel trucks go up in flames – live and in color, on TVs across the world – they’ve made their point. They’re smart enough not to rub it in. I anticipate that the Pakistanis will soon reopen the Khyber Pass.

“It’s worrisome, but not out of control. Still, it doesn’t give me a warm, fuzzy feeling.”

Addison Wigging
for The Daily Reckoning

How the War in Afghanistan Depends on the Khyber Pass 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:
How the War in Afghanistan Depends on the Khyber Pass




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

How the War in Afghanistan Depends on the Khyber Pass

October 6th, 2010

We begin the day haunted by two images. The first is a chart of crude oil going back about six weeks.

6-Week Crude Oil Price

The second is a picture of refined crude going up in flames today.

Oil Fire

That is a convoy of NATO tankers bound for Afghanistan. Or should we say “was.” For the seventh time in a week, gunmen in Pakistan have ambushed and/or torched NATO convoys.

It’s happening far from any major Middle East oil fields. But this sort of thing makes oil traders twitchy anyway.

The attacks are a vivid reminder of an old military saw: “Amateurs talk strategy. Professionals talk logistics.” That is, what’s really important in war is to keep the troops supplied with ammo, food and fuel.

Especially fuel.

“Soldier for soldier,” says Byron King, editor of Outstanding Investments, “the modern US Army uses about 10 times as much fuel as did Gen. Patton’s troops in World War II. And Patton’s army used about 10 times as much fuel per capita as did the American Expeditionary Force in France under Gen. Pershing in World War I.

“Today, there’s no escaping the dictates of fuel logistics, and certainly not when the campaign is in distant Afghanistan.

“Thus, when I heard that the Pakistanis had closed the Khyber Pass to truck traffic – including the critical fuel trucks – my first instinct was that America’s opponents (and NATO’s, as well) have found a key center of gravity.

“Cut the fuel and American/NATO operations within Afghanistan will decline proportionately.”

No doubt… 75% of NATO’s supplies come through just two slender routes stretching up from Karachi, Pakistan.

Oil Supply Routes in Afghanistan

“The initial event that sparked closing Khyber Pass,” Byron goes on to explain, “was a US helicopter attack that killed three Pakistani soldiers.

“One way or another, the severed fuel lines are the kernel of strategic disaster for the US/NATO in Afghanistan. This is the kind of issue that makes US diplomats go into private meetings with senior host nation officials and discuss ‘very severe consequences’ if things don’t change in a hurry.”

“Now that the Pakistanis have closed the pass and allowed fuel trucks go up in flames – live and in color, on TVs across the world – they’ve made their point. They’re smart enough not to rub it in. I anticipate that the Pakistanis will soon reopen the Khyber Pass.

“It’s worrisome, but not out of control. Still, it doesn’t give me a warm, fuzzy feeling.”

Addison Wigging
for The Daily Reckoning

How the War in Afghanistan Depends on the Khyber Pass 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:
How the War in Afghanistan Depends on the Khyber Pass




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

Investing in the World of the New Normal

October 6th, 2010

First, a personal note…

My sincere thanks to all the Daily Reckoning readers who offered kind words about the untimely death of my cat, Uzi. I truly appreciate the emails – both from those who offered condolences and from those who merely appreciated this real-world illustration of asymmetric risk.

Many thanks!

But since no other pets, family members or relatives perished during the last 48 hours, today’s edition of The Daily Reckoning will not impart any additional hard-life lessons about risk or reward. Instead, we’ll return to our usual diet of dispassionate analysis, co-mingled with skepticism, disbelief, bewilderment and/or pure panic.

In his latest investment commentary, Bill Gross, CEO of PIMCO, notes that long-time hedge fund manager, Stan Druckenmiller, is finally hanging up his (gilded) spurs. According to Gross, Druckenmiller’s retirement is “reflective of a broader trend in the capital markets, one which saw the availability of cheap financing drive asset prices to unsustainable heights during the dotcom and housing bubble of the past decade, and then suffered the slings and arrows of a liquidity crisis in 2008 to date.”

Gross asserts that “cheap financing” also fueled “lots of other successful business models over the past 25 years: housing, commercial real estate, investment banking, goodness – dare I say, investment management.” Druckenmiller, and his 30% annulized returns were merely one notable beneficiary of the Easy Money Era. But the easy money is gone…and so is Druckenmiller.

“The New Normal has a new set of rules,” Gross cautions. “What once pumped asset prices and favored the production of paper, as opposed to things, is now in retrograde. Leverage and deregulation are fading from the horizon and their polar opposites are in the ascendant. Some characterize it in biblical terms – seven fat years to be followed by seven years of lean. Others like Michael Moore and Oliver Stone describe it in terms of social justice – greed no longer is good. And the hedge fund guys – well, they just take their ball and go home…

“The unmistakable fact is that future investment returns will be far lower than historical averages,” Gross predicts. “There are all sizes and shapes of ‘investors’ out there who have not correctly visualized the lower return world of the New Normal.”

Gross does not name names, but he does single out pension plan managers for their failure to understand the New Normal.

Despite the fact that median annualized pension plan returns for the past 10 years have averaged 3%, most pension plan managers and consultants continue to assume 8% annualized returns in perpetuity. “Best of luck,” Gross scoffs. “The last time I checked, the investment grade bond market yielded only 2.5%,” which means that a 60/40 allocation of stocks and bonds “would require 12% from stocks to hit the magical 8% pool ball.”

Gross is skeptical…and so are the insiders of America’s largest public corporations. The latest ratio of insider selling to insider buying was 1,413 to 1. That’s not a typo. During the week ending September 24, insiders sold a whopping $417 million worth of company stock, while insiders purchased only $295 thousand worth of stock. Do the math.

Even if we were to eliminate the $233 million of Oracle shares sold by insiders, the ratio of selling to buying would remain a hefty 656-to-one – or nearly identical to the prior week’s ratio of 650-to-one.

Interestingly, finance company executives are conspicuously frequent members of the “Insider Selling” list. More than one year has passed since an insider purchased a single share of Citigroup or J.P. Morgan in the open market. More than 18 months have passed since an insider purchased a single share of Wells Fargo or Goldman Sachs in the open market. Meanwhile, dozens of insiders at these firms have sold shares during the last 18 months – raising billions of dollars in the process.

These remarkably large and lopsided insider transactions suggest that the Great Unwinding of the credit bubble may still have some unwinding left to do. Notwithstanding yesterday’s hoopla on Capitol Hill that Treasury’s Troubled Asset Relief Program (TARP) would lose “only” $30 billion – and the knock-on inference that the credit crisis has ended – the insiders at most of the largest TARP recipients are selling their stocks, not buying them.

The TARP owes its “success” to a flukey combination of dumb luck and large-scale market manipulation. That’s the “why” of the story. But the “what” of the story is that the TARP bought low and sold high. The insiders at most of the largest TARP-recipient firms have done, and are doing, the exact same thing.

Maybe these insiders are raising a little cash to pay their country club dues…or maybe they’re raising cash because the Troubled Asset Relief Program is winding down…even though the troubled assets are still hanging around.

“Deleveraging [remains] the fashion du jour,” says Gross, and meager stock market returns remain the likely outcome.

“Stocks are staring straight into new normal real growth rates of 2% or less,” Gross warns. “There is no 8% there for pension funds. There are no stocks for the long run at 12% returns. And the most likely consequence of stimulative government policies that strain to get us there will be a declining dollar and a lower standard of living. Stan Druckenmiller is leaving, and with good reason. A future of low investment returns, and a heap of trouble for those expecting more, is what lies ahead.”

Bill Gross said it; we merely thought it.

Eric Fry
for The Daily Reckoning

Investing in the World of the New Normal 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:
Investing in the World of the New Normal




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.

Real Estate, Uncategorized

Quick Charting the EURUSD Daily Measured Move Price Target

October 6th, 2010

One of the main themes recently in the FOREX market is the weakening of the Dollar relative to other currencies.

Let’s that a quick chart-peak at the 2010 move in the EUR-USD FOREX Pair and note key resistance levels broken and a potential “Measured Move” price projection target that is due to hit soon… and pay attention to whether this resistance level holds, or shatters to reveal further upside targets for the Euro.

Let’s take it one step at a time.

The main idea I’m showing is the “Measured Move” or more commonly known “Bull Flag” price pattern projection as shown with the angled rising blue lines.

The theory goes that if price makes a “measured move” like a bull flag, you can project the distance from the first “pole” or move of the flag when added to the bottom of the flag (the 1.26000 level in this case) to arrive at a potential overhead price target to play for.

If so, that would make the target roughly 1.40000 which is almost where the pair is trading now.

So, if that price pattern is dominant, then we could see a pausing of the recent upward move in the Euro.

Of course, there’s bigger factors going on than the charts – as in broad-based currency devaluation, particularly in the United States (Dollar) and Japan (Yen), so that reality may very well trump price pattern ‘idealism.’

If we see a move above 1.40000, then it will clue us in to the Measured Move price pattern failure and suggest that even higher price targets are yet to come – including the potential for a retest of the 2010 high at 1.44000.

Beyond the price pattern, I wanted to make a couple of quick comments from a chart purism standpoint:

Bullish:  The Euro/US Dollar pair is cleanly above the 200 day SMA (red line) and the EMAs are about to cross into the most bullish orientation possible (20 over the 50 over the 200).  That’s a big deal.

Bearish:  There’s a short-term negative momentum divergence that has developed – similar to stocks – on this recent rise.  The last time we had a negative divergence resulted in the August pullback (more of an ‘ABC’ move than anything serious).

Bullish:  The pair crossed above two prior price peaks from March and April, so the breaking of those resistance levels recently adds to the bullish camp.

For now, keep focused on what happens at 1.40000 for clues to whether to expect at least a temporary pause… or a continued higher Euro relative to the Dollar.

Corey Rosenbloom, CMT
Afraid to Trade.com

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

Read more here:
Quick Charting the EURUSD Daily Measured Move Price Target

Uncategorized

Quick Charting the EURUSD Daily Measured Move Price Target

October 6th, 2010

One of the main themes recently in the FOREX market is the weakening of the Dollar relative to other currencies.

Let’s that a quick chart-peak at the 2010 move in the EUR-USD FOREX Pair and note key resistance levels broken and a potential “Measured Move” price projection target that is due to hit soon… and pay attention to whether this resistance level holds, or shatters to reveal further upside targets for the Euro.

Let’s take it one step at a time.

The main idea I’m showing is the “Measured Move” or more commonly known “Bull Flag” price pattern projection as shown with the angled rising blue lines.

The theory goes that if price makes a “measured move” like a bull flag, you can project the distance from the first “pole” or move of the flag when added to the bottom of the flag (the 1.26000 level in this case) to arrive at a potential overhead price target to play for.

If so, that would make the target roughly 1.40000 which is almost where the pair is trading now.

So, if that price pattern is dominant, then we could see a pausing of the recent upward move in the Euro.

Of course, there’s bigger factors going on than the charts – as in broad-based currency devaluation, particularly in the United States (Dollar) and Japan (Yen), so that reality may very well trump price pattern ‘idealism.’

If we see a move above 1.40000, then it will clue us in to the Measured Move price pattern failure and suggest that even higher price targets are yet to come – including the potential for a retest of the 2010 high at 1.44000.

Beyond the price pattern, I wanted to make a couple of quick comments from a chart purism standpoint:

Bullish:  The Euro/US Dollar pair is cleanly above the 200 day SMA (red line) and the EMAs are about to cross into the most bullish orientation possible (20 over the 50 over the 200).  That’s a big deal.

Bearish:  There’s a short-term negative momentum divergence that has developed – similar to stocks – on this recent rise.  The last time we had a negative divergence resulted in the August pullback (more of an ‘ABC’ move than anything serious).

Bullish:  The pair crossed above two prior price peaks from March and April, so the breaking of those resistance levels recently adds to the bullish camp.

For now, keep focused on what happens at 1.40000 for clues to whether to expect at least a temporary pause… or a continued higher Euro relative to the Dollar.

Corey Rosenbloom, CMT
Afraid to Trade.com

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

Read more here:
Quick Charting the EURUSD Daily Measured Move Price Target

Uncategorized

Miners And Base Metals About To Break Out

October 6th, 2010

We have all heard the saying “buy low-sell high” as the mantra of making money in the market.  To apply this cliche is much easier said than done.  Adhering to this rule is not an easy task and without the use of technical tools to determine buy points and targets, an investor can get caught up with the hysteria of a parabolic move.  Now gold and silver is making huge advances as it continues the trend into new record territory.  I wrote an article that discussed the original buy on gold as it came to long term support and also wrote articles discussing the coming break out in gold and silver from the cup and handle pattern.  Since these moves gold and silver have made historic and powerful moves.

As prices rise in precious metals so does confidence.  All over the news I am hearing how the world banks are printing money and that gold and silver could move exponentially higher.  Positive news for hard assets including yesterdays massive quantitative easing by Japan and the United States commitment to keep on flooding the markets with cheap dollars is making gold and silver investors very comfortable.  Whenever confidence increases like this it is time to prepare for profit taking.  Risk is being increased and “Johnny Come Lately” analysts are advising to jump on the bandwagon.  I refuse to follow this mad crowd at this time.  A successful speculator knows when to enter a trade when at the time the investment is unpopular.  Don’t follow the crowd and be prepared for exit signals as we are reaching technical targets.

Unfortunately the majority of investors tend to follow the crowd and do not have technical targets that will take profits after a reasonable move.  Just like in popular culture there are fads that come and go, so too in asset classes.  Be careful of the hype that is accompanying the trade now.

As gold and silver reach overbought territory, I am providing detailed targets to my readers on where to take profits from our buy points at the end of July.  I have recently been focused on some miners which have pulled back and ready to outperform even if gold and silver have a pullback.  These miners will be extremely profitable at significantly lower gold and silver prices.  Miners are just beginning their break outs and many have not caught up with the bullion price yet.

The movement in gold and silver bullion is getting extremely emotional.  Yesterday’s gap up after a significant move signals we may be close to the coming pullback in gold and silver bullion.  Make sure to check out my free newsletter at http://goldstocktrades.com to find out key technical signals.  Don’t get comfortable now if you have considerable profits and be alert for any reversals.

Even though gold and silver have broken into new 52 week highs platinum, copper and other base metals have not broken into new territory.  If one is looking into dollar diversification at the moment I would look into other hard assets that have not moved as  parabolically as silver and gold has.  Platinum and copper are showing strength signaling that the massive printing will encourage the global economy to gather steam.   Although gold and silver are en vogue now from a technical standpoint other commodities which should also benefit from quantitative easing should be considered as they should catch up with gold and silver.  Platinum and copper are about to make the golden cross, which is the 50 day crossing the 200 day moving average to the upside.  These two metals may break out and catch up to the other hard assets in performance.  As gold and silver reach parabolic levels other hard assets which are not overextended may provide a better risk to reward investment.

Read more here:
Miners And Base Metals About To Break Out

Commodities

Miners And Base Metals About To Break Out

October 6th, 2010

We have all heard the saying “buy low-sell high” as the mantra of making money in the market.  To apply this cliche is much easier said than done.  Adhering to this rule is not an easy task and without the use of technical tools to determine buy points and targets, an investor can get caught up with the hysteria of a parabolic move.  Now gold and silver is making huge advances as it continues the trend into new record territory.  I wrote an article that discussed the original buy on gold as it came to long term support and also wrote articles discussing the coming break out in gold and silver from the cup and handle pattern.  Since these moves gold and silver have made historic and powerful moves.

As prices rise in precious metals so does confidence.  All over the news I am hearing how the world banks are printing money and that gold and silver could move exponentially higher.  Positive news for hard assets including yesterdays massive quantitative easing by Japan and the United States commitment to keep on flooding the markets with cheap dollars is making gold and silver investors very comfortable.  Whenever confidence increases like this it is time to prepare for profit taking.  Risk is being increased and “Johnny Come Lately” analysts are advising to jump on the bandwagon.  I refuse to follow this mad crowd at this time.  A successful speculator knows when to enter a trade when at the time the investment is unpopular.  Don’t follow the crowd and be prepared for exit signals as we are reaching technical targets.

Unfortunately the majority of investors tend to follow the crowd and do not have technical targets that will take profits after a reasonable move.  Just like in popular culture there are fads that come and go, so too in asset classes.  Be careful of the hype that is accompanying the trade now.

As gold and silver reach overbought territory, I am providing detailed targets to my readers on where to take profits from our buy points at the end of July.  I have recently been focused on some miners which have pulled back and ready to outperform even if gold and silver have a pullback.  These miners will be extremely profitable at significantly lower gold and silver prices.  Miners are just beginning their break outs and many have not caught up with the bullion price yet.

The movement in gold and silver bullion is getting extremely emotional.  Yesterday’s gap up after a significant move signals we may be close to the coming pullback in gold and silver bullion.  Make sure to check out my free newsletter at http://goldstocktrades.com to find out key technical signals.  Don’t get comfortable now if you have considerable profits and be alert for any reversals.

Even though gold and silver have broken into new 52 week highs platinum, copper and other base metals have not broken into new territory.  If one is looking into dollar diversification at the moment I would look into other hard assets that have not moved as  parabolically as silver and gold has.  Platinum and copper are showing strength signaling that the massive printing will encourage the global economy to gather steam.   Although gold and silver are en vogue now from a technical standpoint other commodities which should also benefit from quantitative easing should be considered as they should catch up with gold and silver.  Platinum and copper are about to make the golden cross, which is the 50 day crossing the 200 day moving average to the upside.  These two metals may break out and catch up to the other hard assets in performance.  As gold and silver reach parabolic levels other hard assets which are not overextended may provide a better risk to reward investment.

Read more here:
Miners And Base Metals About To Break Out

Commodities

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