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Thursday, February 18, 2010

February 17, 2010

In Today's Issue: Why We Need a Cheaper Dollar... The Safest Play Going Forward... Keep an Eye on Your Chinese Holdings... Markets Still Deeply Vulnerable

** Why We Need a Cheaper Dollar
-- by Michael Lombardi, CFP, MBA

I've written before about how the value of the U.S. dollar against other world currencies affects the price of commodities and the stock market. We saw a perfect example of this earlier this month when the value of the U.S. dollar strengthened and the prices of stocks, precious metals and commodities fell sharply.

Let's face it...

The financial markets love a cheaper valued U.S. dollar. A cheaper greenback is a positive on so many fronts: the profits of large multi-national corporations are greater when our dollar is cheaper (so the stock market rises); the price of crude oil goes up when the dollar falls, because it takes more dollars to buy that barrel of oil; and the price of gold bullion goes up when the value of our dollar falls, because gold itself becomes a store of wealth.

The "Greece Financial Crisis" of late January and February sent the U.S. dollar soaring against other world currencies, as investors feared other European countries would not come to the rescue of Greece and that the small country might go bankrupt. So the flight to the U.S. dollar began.

But a "strange" thing happened while the crisis over Greece was going on: investors figured out that the U.S. could not pay its obligations either if it was called on to do so.

The U.S. is just as bankrupt as Greece!

I call it a "strange" thing (the realization that the financial debt crisis in Greece is a lot smaller than the debt crisis here in America) because that realization is only common sense and often during times of crisis, common sense evades the market.

The more our dollar falls in value against other world currencies, the cheaper our foreign debt becomes. Not so fair to the foreign investors who bought our debt, but a good deal for America! In fact, we need a cheaper U.S. dollar.

So here we are again...back to more of the same.

With the worry focus off Greece and back on American, the greenback is falling in value again. The stock market is rising; precious metal and commodity prices are rising, too. The price of gold fell from $1,115 per ounce to $1,060 in only three days early in February. My phone was ringing with worried gold investors. Today, gold is back up to where it started February.

My dear reader, for the year ahead, there will be ups and downs on the way, but gold will rise in price with other commodities and the U.S. dollar will continue its decline in value against other world currencies...the latter being something that is in our best interest.

Michael's Personal Notes:

I spent some time in south Florida this weekend talking to small business owners and real estate people. Many businesses and individuals in Florida are financially hanging on by a thread. The
real estate market is still pathetic, with the commercial property market following the route of the residential market in terms of declining prices.

I was in the lobby of a residential building when a process server came in to serve papers to a condominium owner whose bank was putting him in foreclosure. It looks like the only business booming in Florida is that of the process servers.

But something that really struck me on this trip was the lack of ingenuity on the part of the small business owners I met with. They are too depressed to come up with ideas on how they can get their businesses going again. It's almost as if they have given up.

Where the Market Stands:

The stock market is getting close to breakeven for 2010. As I write this morning, the Dow Jones Industrial Average is down 1.5% for the year. So much for all those investors who jumped ship in late January and early February, as it looked like the rally from March 2009 was over -- worse for the speculators who jumped in to short the market.

I have continued with my conviction that the bear market rally that started last March has more leg left to it and that opinion remains unchanged.

What He Said:

"If the U.S. housing market continues to fall apart, like I predict it will, the stock prices of major American banks that lend money to consumers to buy homes will come under pressure -- these are the bank stocks I wouldn't own." Michael Lombardi, PROFIT CONFIDENTIAL May 2, 2007. From May 2007 to November 2008, the Dow Jones U.S. Bank Index of the world's largest bank stocks was down 65%.

** The Safest Play Going Forward
-- Ahead of the Street Column, by Mitchell Clark, B. Comm.

Sentiment is everything nowadays. You could own the greatest company in the world, but the stock could be doing terrible because sentiment in the broader market is so lackluster. In fact, it's more than that -- investor sentiment in this market is just plain volatile. Everyone is trading on the news of the day, without much in the way of any conviction.

Finally, the market is beginning to attribute some positive reaction to the solid earnings being generated by large-cap companies. A lot of big, brand-name companies are doing quite well and have reported better-than-expected earnings so far. Earlier, the stock market brushed off those numbers, but they're finally starting to have some effect on sentiment.

What's needed in this market if you want stock prices to go up is a new catalyst -- a reason for institutional investors to be buyers of stock. What that catalyst could be is very unclear. There just isn't much in the way of defined information to develop a strong market view. No one really knows where this market is headed because nobody knows how the economy is going to unfold.

Chinese stocks look like they are headed for a breakout. The Shanghai Composite Index just looks like it's ready to go in a new direction after consolidating over the last six months. Again, that market needs a new catalyst as well and it's unclear what that catalyst might be. Changes to China's currency regime would certainly be a large catalyst for the markets. Learned Street analysts are chattering more about this possibility.

I still come back to gold and other precious metals as the most attractive asset class this decade. An investor can easily estimate and discount the flow of cash from an existing producer of gold. It's much more difficult to anticipate what a central banker will do in a world awash in debt. There remains a sense of fragility to global capital markets and it all has to do with confidence in repaying debt. There is so much personal and government debt in the global marketplace, I wouldn't be surprised at all if we experience another crisis of confidence in capital markets. Right now, we're in an economic landscape where anything could happen. Elimination of debt and accumulation of gold is the safest play.

** Keep an Eye on Your Chinese Holdings
-- Calling the Trend Column, by George Leong, B. Comm.

The benchmark Shanghai Composite Index (SCI) is managing to attract some support at just below 3,000, yet it is still down about eight percent this year. The recent correction was driven by concerns of a real estate and credit bubble forming in China and the decision of the Chinese government to halt lending by banks. The action is feared to hurt economic growth in China, but, at the same time, it may be the right move to avoid a financial collapse in the country. We feel that the fact the SCI is holding at 3,000 reflects the support for the move.

On the chart, the SCI is currently at a critical point, just below its 20-day moving average (MA) of 3,034 and its 50-day MA of 3,145. The index is hovering at its 200-day MA of 3,018, so watch to see if it can hold. Watch, as the trend since November 2009 when the SCI traded at 3,361 has been negative. The next level of support the SCI will need to hold at is 2,890. A drop below this could drive the SCI down to 2,712, last encountered in September 2009.

So far in 2010, China has underperformed U.S. indices. The SCI is down 7.91% as of February 12, worse than the 3.6% decline in the S&P 500. Our Chinese stocks, while losing some ground, continue to show some strong gains. We remain long-term bullish on China, but watch for short-term volatility.

On a positive note subject to the tighter bank lending orders, the People's Bank of China suggested that it would "gradually guide monetary conditions back to normal levels from the counter-crisis mode" in its quarterly monetary policy report, according to Bloomberg. In January, bank lending in China surged to $203.5 billion, up from $55.6 billion in December, although the pace of lending did slow sharply towards the end of the month.

While there are concerns of a bubble brewing in China, the International Monetary Fund feels that there is no serious risk of asset bubbles and that China could see GDP growth of 10% in 2010, according to "The Wall Street Journal."

So, where are we now? I continue to consider China as the land of opportunity for investors looking for added growth and a boost to their overall portfolio returns. The returns can often be spectacular, as we saw in 2009, but also keep in mind that investing in Chinese stocks listed on U.S. and Canadian exchanges can add high risk. So, while this is the case, the opportunity for above-average gains more than compensates for the added risk.

The key to investing in China and other emerging markets is maintaining diversification in your portfolio across domestic and foreign stocks, and across sectors and market caps.

** Markets Still Deeply Vulnerable
-- The Financial World According to Inya Column, by Inya Ivkovic,

Last week demonstrated just how deeply vulnerable markets still are. First, the market reacted violently to the crisis in Greece, clearly demonstrating that every player on the global stage can cause the falling domino effect. Further exacerbating things are the stressed out investors, who seem to have the energy and inclination only to expect more bad news.

Then came China and its latest efforts to cool off its overheated credit market and, by extension, the country's entire economy. Notably, Chinese banks received their marching orders to increase
required reserves for the second time in the last 45 days or so. Of course, this is only a modest measure and it does not qualify as a measure to slow down an economy. China's economy is expected to grow approximately 10% this year, partly because there is still billions of dollars sloshing around China's financial systems. Regardless, North American investors looked for the smallest excuse for bad news and China's latest policy decision, albeit very moderate, must have qualified.

All this nervousness could mean that the market is heading for a major correction in the short term, which may or may not develop into something more serious, such as another collapse just short of an actual crash. A collapse versus a full-out crash may seem like making a distinction without a difference. Apparently, the difference exists; that is, while a market crash happens abruptly, spawns panicky selloffs and reaches very deep, a collapse develops more slowly, and it is less steep and less upsetting to investors, because it gives everyone time to unwind their non-performing positions.

Investors must feel it in their bones that current market conditions could lead to a collapse, and potentially even to a crash. After the influx of government money into the financial systems around the world, excess liquidity has spilled over into the securities markets. The stocks started performing extremely well, staging a noteworthy comeback in 2009. Not surprisingly, many investors started feeling as if the worst was over. Helping the euphoria of sorts were corporate earnings, most of which soared in 2009 after companies cut their costs down to the bare bones.

Almost a year later, the market seems to be at a major crossroad en route to recovery. One scenario sees the economy picking up the pace and absorbing the excess credit that the central bank was so obliging to pump into it last year. In turn, this is likely to lead to higher interest rates and the slowdown of investment in speculative markets. The alternative scenario could see the recovery stall, the flow of credit remain fixed in liquid markets, and the realization of perma-bears' grim prediction of the dreaded W-shaped recovery, or going through a double-dip.

In any event, if this slow grind continues and if commercial banks do not start lending more aggressively, current signs of the correction could metamorphose into something much worse. Considering how jittery investors are now, imagine what might happen if really bad news resurfaces and investors become paralyzed and crazy with panic yet again. We could be talking about the insanely volatile markets that we had experienced in the fourth quarter of 2008 and early in 2009, crashing one day and soaring the next, making us all dizzy and nauseous from the horrific rollercoaster ride.

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Thursday, February 11, 2010

By Steve Hargreaves, Staff writerFebruary 11, 2010: 4:02 AM ET Source

NEW YORK ( -- A desire to bring Iran to the bargaining table over its nuclear program could keep oil prices low worldwide for the next several months.

The country is the world's fourth-largest oil exporter, getting most of its revenue from oil sales, and needs prices near $100 a barrel to adequately sustain its government spending.

With oil prices near $70 a barrel and with its political instability, it may be more willing to enter discussions about its nuclear program which many say is designed to get nuclear weapons.

Some analysts believe oil prices will remain in the $70 range for perhaps the rest of 2010 partly due to Saudi Arabia, which has taken millions of barrels a day off world oil markets in response to falling demand.
Iraqi oil may rival Saudi Arabia

And with signs of a nascent global economic rebound emerging some think the Saudis will simply open the tap should crude prices begin to rise too much.

The Saudi's don't want high oil prices to hurt any global economic rebound. But they also don't want Iran, a rival in the region that has a nuclear program many say is designed to make weapons, to get the bomb.

"They are seeking to maintain financial pressure on Iran as the U.S. seeks to build support for additional sanctions over the nuclear issue," Greg Priddy, a global energy analyst at the Eurasia group, a political risk consultancy, said in a recent research note.

Lower oil prices could certainly hurt Iran.

Crude in the $70 range is thought to be enough to sustain Saudi Arabia's government spending, but not high enough for Iran.

Some say lower oil prices are already having an effect.

"These guys have to shoot their own kids," said Fariborc Ghadar, a senior advisor at the Center for Strategic and International Studies and a professor of global business strategy at Penn State about the recent political upheaval in the country. "Women in the cities are angry. The economy is in terrible shape. The place is a mess."

Of course it's not just lower oil prices that's driving the turmoil in Iran, but they are helping. Also helping are more targeted sanctions against investments in the country's oil infrastructure and decisions by U.S. allies to go after Iran's oil export market, said Ghadar.
For example, a new refinery in China is being built by the Chinese state oil company, Exxon Mobil, and Saudi Aramco. By enlisting the Saudi's cooperation on the project, it ensures the refinery will be supplied with Saudi oil, not Iranian. The Iranians then have to go out and find someone else to buy their oil.

"Third country markets may not be as economically attractive," said Ghadar. "It's causing a major burden on them."

Now, whether these problems would be enough to convince the Iranian regime to give up its nuclear program is another matter.

"That's a very complicated decision tree for the Iranian government," said Sharon Squassoni, a colleague of Ghadar's at CSIS and an experts on proliferation issues. "It might put on some pressure, but is it pressure enough? My guess is no."

Although Squassoni acknowledged what's been tried to date hasn't really worked either. "In seven years, we haven't figured out what the right amount of pressure is."
Saudi will power

The real question is, when oil prices do begin to go up, will the Saudi's long term interests and strategic concerns outweigh the immediate gains that could be made in their pocketbook?

One analyst who has connections inside OPEC thinks not.

"Saudi Arabia would like to make as much money as it can on oil, this is the most important thing to the Kingdom," said the analyst, who asked not to be identified. "Their love of money will supercede their interest in security."

Analysts that specialize in oil prices are generally split when it comes to the direction of crude prices in 2010.

But those that think they're going up, like Merrill Lynch's Francisco Blanch, also don't believe Saudi Arabia will open the taps anytime soon.

"We've already seen oil prices at $83," said Blanch, "and there wasn't much of a reaction from the Saudis"

Friday, February 5, 2010

Some Australian dude totally got caught checking out sexy pictures of Miranda Kerr at work. Dont bother to look at the anchor man, just pay attention to some guy at the back (sitting down)

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