Major Danish Bank Failure sets the Stage for the next European Gold Uptick Tuesday, Feb 8 2011 

http://seekingalpha.com/article/251465-major-danish-bank-failure-sets-the-stage-for-the-next-european-gold-uptick

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Trichet and the ECB, Finalizing a Legacy Tuesday, Jan 18 2011 

On October 31, 2011 the tenure of ECB President Trichet will come do an end. In the coming months we will likely hear an increasing drumbeat of noise concerning who will replace Trichet and what policies the new leader of the ECB will embrace. In the meantime, it is likely that Trichet will use the remaining months to tie up loose ends regarding the PIIGS and set a potential course for his successor.

On January 13th, the ECB released its latest statement sending a hawkish tone to the markets and warning that if commodity prices continue to rise the ECB may have to step in a begin raising interest rates in an attempt to stay ahead of the inflationary curve.

During the press conference Trichet reminded the markets that in July of 2008 the ECB was faced with a difficult decision in the face of rising oil prices and not afraid to raise interest rates to maintain price stability..

As Trichet’s tenure as head of the ECB draws to a close we are likely to see him begin to tie up some loose ends so as not to burden the new President and allow him to start with a fresh plate.

This explains the recent push by Europe to get Portugal and Spain to accept bailouts. As noted in a fall speech Trichet warned the PIIGS that they cannot wait to get their respective houses in order and that it must be done quickly or else they risk being left behind.

By getting Spain and Portugal out of the way early in 2011, Trichet can turn his full attention to a very pressing matter, rising inflationary pressures.

Italy will become a wildcard if Burlusconi cannot hold onto power. If the Italian government falls then there will likely be pressure by the ECB and the market to accept reforms or a bailout.

December 2010 ECB inflation came in at 2.2%, slightly higher than the 2% upper band. Recent pressures in the agricultural and commodities sectors indicate that inflation may be stubborn and stay above the 2% level for most of 2011. In that case, Trichet may choose to end his term with a rate hike in order to get ahead of the inflation curve and set the course for hi successor.

During the press conference Trichet noted a clear difference between the building inflationary pressures and problems at the sovereign level by remarking that both areas are separate and distinct risks.

Rising commodity prices fuel inflation risk as consumers purchasing power is eroded through higher prices which in turn translates into rising wages.

The problems at the sovereign level fuel sovereign risk as governments are forced to pay higher rates in order to finance new debt and refinance existing debt.

The question yet to be asked is who will replace Trichet as head of the ECB?

The French are concerned as Trichet is the only French member of the council and his departure represents a loss of decision making power over interest rates.

Right now the ECB council is composed of representatives from France (Trichet), Italy, Spain, Germany, Austria, and Portugal. We may see an olive branch extended to France for support of a hawkish candidate by offering them the position currently held by Gertrude Tumpel-Gugerell, the representative from Austria, when she retires in May of 2011.

Late last year the French began to court the head of the Italian Central Bank as a possible successor in contrast to the head of the German Bundesbank who is a leading candidate.

One needs to ask themselves what favors the Germans asked for in return for their bailing out of Ireland and if the recent large purchases of debt by Japan and China were a negotiating ploy.

Whomever takes the reigns of the ECB following Trichet will be watched closely by the market as a hawk would indicate a continuation of the policies and the potential for interest rate increases. A dove would indicate a break with the policies of Trichet and an indication that interest rates are likely to remain low for some time into the future.

Disclaimer
Communications are intended solely for informational purposes. Statements made should not be construed as an endorsement, either expressed or implied. This article and the author is not responsible for typographic errors or other inaccuracies in the content. This article may not be reproduced without credit or permission from the author. We believe the information contained herein to be accurate and reliable. However, errors may occasionally occur. Therefore, all information and materials are provided “AS IS” without any warranty of any kind. Past results are not indicative of future results.
PAST RESULTS ARE NOT INDICATIVE OF FUTURE RESULTS. THERE IS RISK OF LOSS AS WELL AS THE OPPORTUNITY FOR GAIN WHEN INVESTING IN THE STOCK, BOND, AND DERIVATIVE MARKETS. WHEN CONSIDERING ANY TYPE OF INVESTMENT, INCLUDING HEDGE FUNDS, YOU SHOULD CONSIDER VARIOUS RISKS INCLUDING THE FACT THAT SOME PRODUCTS: OFTEN ENGAGE IN LEVERAGING AND OTHER SPECULATIVE INVESTMENT PRACTICES THAT MAY INCREASE THE RISK OF INVESTMENT LOSS, CAN BE ILLIQUID, ARE NOT REQUIRED TO PROVIDE PERIODIC PRICING OR VALUATION INFORMATION TO INVESTORS, MAY INVOLVE COMPLEX TAX STRUCTURES AND DELAYS IN DISTRIBUTING IMPORTANT TAX INFORMATION, ARE NOT SUBJECT TO THE SAME REGULATORY REQUIREMENTS AS MUTUAL FUNDS, OFTEN CHARGE HIGH FEES, AND IN MANY CASES THE UNDERLYING INVESTMENTS ARE NOT TRANSPARENT AND ARE KNOWN ONLY TO THE INVESTMENT MANAGER.
Before making any type of investment, one should consult with an investment professional to consider whether the investment is appropriate for the individuals risk profile. This is not intended to be investment advice or a solicitation to purchase any of the securities listed here. I will not be held liable or responsible for any losses or damages, monetary or otherwise that result from the content of this article.

2011 Investment Commentary – Part 2 of 3 Friday, Jan 7 2011 

EQUITY MARKETS

After two strong years equity markets are sitting in a slightly overbought status. Technical indicators are flashing ‘pause’ and sentiment indicators are in areas which usually precede a correction. Looking back over some historical indicators there is reason to be bullish for 2011.

We are currently within the sweet spot of the four year Presidential cycle for the equity markets as the 4th Quarter of Year 2 and the first 2 quarters of Year 3 have the best returns. This means that the current rally should last into April at the very least at which time investors should look to book some profits and take money off the table.

Overlaid on the Presidential cycle is the decennial cycle in which Years ending in 1 are mostly negative.

What may cause the current rally to run out of steam? The end of Bernanke’s QE2 in the second quarter of 2011.

Valuation metrics, while on the high side are still attractive. Global multinational firms are showing strong profits on the back of a weaker dollar and increased sales penetration in the BRIC countries. Both factors should continue to drive profit growth in 2011.

Every 3rd year of the Presidential Cycle since 1939 has been positive which makes it likely that 2011 is an up year as well.

CURRENCY

The US Dollar Index is currently in a trading range with 89 being the top and 70 being the bottom. More than likely the US Dollar Index will end the year higher and closer to the 89 level although a test of the 70 level is not out of the question.

Europe will need a weaker Euro in order to help the PIIGS and refinance debt in 2011. That means a stronger US Dollar since the Euro makes up more than 50% of the US Dollar Index.

The problem with a weaker Euro is that it feeds the German export engine which pushes up German economic growth numbers which will increase calls for removing excess stimulus.

Germany has been experiencing an export boom and strong growth relative to the rest of Europe in 2010. France is experiencing strong consumer led growth as well on the backs of low interest rates. If the Euro were to begin depreciating economic growth in Germany would rise and when combined with the consumption led growth in France would begin to fan the inflationary flames across Europe.

The Dollar will continue to depreciate against most Asian and other EMEA countries. Since these countries are not part of the US Dollar Index the depreciation is invisible to those not watching the individual countries.

China will continue to encourage domestic firms to write overseas contracts in the Yuan instead of Dollars. This is a trend that started about 5 years ago and has been picking up speed. It is mostly off the radar but is important in that global firms, not just Chinese firms, are feeling more and more comfortable dealing in currencies other than the US Dollar.

HARD COMMODITIES

As we enter 2011 precious metals demand will continue to increase driven by the buildout of EMEA economies.

The easy money, however, has already been made in this cycle and investors would be well served to play the substitution effect as high commodity prices for precious metals such as Gold, Copper, Tin, and Platinum will force industrial users to switch to alternative and cheaper metals.

One particular example is Copper whose primary use in electrical wires and residential piping is well known. At $9,000 it becomes more effective for industrial users to substitute Aluminum in electrical wiring and PVC piping in residential pipes. Given the high inventories and lagging price for Aluminum versus Copper there is a good chance the Aluminum outperforms Copper in 2011.

This story should play out across the commodity spectrum as the year goes on.

It is a bit worrisome that so many investors are on one side of a trade, especially with respect to certain hard commodities. When this happens demand destruction and substitution begins to take effect causing a ripple effect across the commodity spectrum.

Gold and Silver should continue to see a flight from investors worldwide seeking a security marking another year of strong gains after a small correction in January.

Oil will continue to climb, moderately, on the back of a strengthening global economy.

Natural gas prices will be constrained my weather and strong production issues. While there may be a strong rally to start the year prices should fall back over the summer months.

FIXED INCOME

The fixed income bubble is continuing with the markets moving from consumer debt, whose debt bubble popped in 2008, to sovereign debt and eventually to corporate debt which will lead to a corporate recession preceded by a mergers and acquisition boom in which corporations lever up their balance sheets and put the enormous amounts of cash to work.

We are likely to see a move upward in fixed income yields as long as QE2 is in effect. Once QE2 ends however, traders will move back into the fixed income space creating a solid rally.

SOFT COMMODITIES

Agriculture will do the best amongst commodities. By agriculture I mean companies that actually grow and harvest their own crops.

The strong La Nina is still in effect and should remain so throughout the year. It will begin easing up shortly but return towards the end of the year.

This means a wetter than expected rust belt and drier than expected southeast and southwest in the United States.

In Asia this will likely mean a dryer than normal northern China and a wetter than normal Southeast Asia and Australia.

The Mount Merapi eruption will not have a major effect on Asian agriculture as the ash that was thrown up into the atmosphere was of a low sulfur content.

Green energy begins to heat up once again as the oil price moves higher.

Disclaimer
Communications are intended solely for informational purposes. Statements made should not be construed as an endorsement, either expressed or implied. This article and the author is not responsible for typographic errors or other inaccuracies in the content. This article may not be reproduced without credit or permission from the author. We believe the information contained herein to be accurate and reliable. However, errors may occasionally occur. Therefore, all information and materials are provided “AS IS” without any warranty of any kind. Past results are not indicative of future results.
PAST RESULTS ARE NOT INDICATIVE OF FUTURE RESULTS. THERE IS RISK OF LOSS AS WELL AS THE OPPORTUNITY FOR GAIN WHEN INVESTING IN THE STOCK, BOND, AND DERIVATIVE MARKETS. WHEN CONSIDERING ANY TYPE OF INVESTMENT, INCLUDING HEDGE FUNDS, YOU SHOULD CONSIDER VARIOUS RISKS INCLUDING THE FACT THAT SOME PRODUCTS: OFTEN ENGAGE IN LEVERAGING AND OTHER SPECULATIVE INVESTMENT PRACTICES THAT MAY INCREASE THE RISK OF INVESTMENT LOSS, CAN BE ILLIQUID, ARE NOT REQUIRED TO PROVIDE PERIODIC PRICING OR VALUATION INFORMATION TO INVESTORS, MAY INVOLVE COMPLEX TAX STRUCTURES AND DELAYS IN DISTRIBUTING IMPORTANT TAX INFORMATION, ARE NOT SUBJECT TO THE SAME REGULATORY REQUIREMENTS AS MUTUAL FUNDS, OFTEN CHARGE HIGH FEES, AND IN MANY CASES THE UNDERLYING INVESTMENTS ARE NOT TRANSPARENT AND ARE KNOWN ONLY TO THE INVESTMENT MANAGER.
Before making any type of investment, one should consult with an investment professional to consider whether the investment is appropriate for the individuals risk profile. This is not intended to be investment advice or a solicitation to purchase any of the securities listed here. I will not be held liable or responsible for any losses or damages, monetary or otherwise that result from the content of this article.

The Week in Review, October 15, 2010 Saturday, Oct 23 2010 

Another slow start to the week as investors waited patiently on 3rd quarter earnings and additional information concerning the foreclosure problems in the banking industry.

China shocked global markets by raising their one year lending rate from 5.31% to 5.56% and the deposit rate from 2.25% to 2.5% just a week after raising reserve requirements at the largest banks. This sent global markets tumbling but the PBOC may be successful in letting the air out of a property bubble by taking a proverbial shot across the bow.

China now joins a litany of central banks across Asia who have begun a rate raising cycle aimed at shutting down the easy credit which has been prevalent over the past two years.

Strong earnings from IBM and Apple buoyed the tech sector and the markets rallied on Wednesday.

The Bank of Canada chose to hold steady with interest rates as they wait to see how the slowdown in the US plays out.

Economic statistics out of Germany indicate a stronger than expected economy. The stronger Euro does not seem to be affecting exports.

England is looking to cut approximately 8% of the public sector jobs in order to implement austerity measures.

Next Week

This weekend – G20 finance ministers and central bankers meet in Korea.

Monday – Bernanke, Dudley, and Bullard all speak

Tuesday – Riksbank meeting

Wednesday – US durable goods, Reserve Bank of New Zealand meeting, Bank of Japan target rate released

Thursday –

Friday – Japan CPI, US 3rd Q GDP, Canada 3rd Q GDP, US Chicago PMI

Disclaimer
Communications are intended solely for informational purposes. Statements made should not be construed as an endorsement, either expressed or implied. This article and the author is not responsible for typographic errors or other inaccuracies in the content. This article may not be reproduced without credit or permission from the author. We believe the information contained herein to be accurate and reliable. However, errors may occasionally occur. Therefore, all information and materials are provided “AS IS” without any warranty of any kind. Past results are not indicative of future results.
PAST RESULTS ARE NOT INDICATIVE OF FUTURE RESULTS. THERE IS RISK OF LOSS AS WELL AS THE OPPORTUNITY FOR GAIN WHEN INVESTING IN THE STOCK, BOND, AND DERIVATIVE MARKETS. WHEN CONSIDERING ANY TYPE OF INVESTMENT, INCLUDING HEDGE FUNDS, YOU SHOULD CONSIDER VARIOUS RISKS INCLUDING THE FACT THAT SOME PRODUCTS: OFTEN ENGAGE IN LEVERAGING AND OTHER SPECULATIVE INVESTMENT PRACTICES THAT MAY INCREASE THE RISK OF INVESTMENT LOSS, CAN BE ILLIQUID, ARE NOT REQUIRED TO PROVIDE PERIODIC PRICING OR VALUATION INFORMATION TO INVESTORS, MAY INVOLVE COMPLEX TAX STRUCTURES AND DELAYS IN DISTRIBUTING IMPORTANT TAX INFORMATION, ARE NOT SUBJECT TO THE SAME REGULATORY REQUIREMENTS AS MUTUAL FUNDS, OFTEN CHARGE HIGH FEES, AND IN MANY CASES THE UNDERLYING INVESTMENTS ARE NOT TRANSPARENT AND ARE KNOWN ONLY TO THE INVESTMENT MANAGER.
Before making any type of investment, one should consult with an investment professional to consider whether the investment is appropriate for the individuals risk profile. This is not intended to be investment advice or a solicitation to purchase any of the securities listed here. I will not be held liable or responsible for any losses or damages, monetary or otherwise that result from the content of this article.

The Week in Review, October 15, 2010 Friday, Oct 15 2010 

The week started slow enough with the Columbus Day holiday and picked up steam on the backs of solid earnings reports from Intel, Google, and JP Morgan.

Thursday brought some consternation as the 30-year bond auction came in with a yield of 3.852% well above estimates as foreign buyers apparently stayed home.

Overseas, the Yen fell to fresh lows and Thailand established some curbs to assist exporters and try to stem the flow of hot money into the country without damaging FDI.

China raised the reserve requirement by 50 basis points to try to cool down lending and better manage economic growth.

China’s foreign reserves also soared to 2.648 billion in the 3rd Quarter.

The Bank of Korea held interest rates steady at 2.25% amidst an 8% surge in the Won against the dollar in the past three months amidst faltering exports and inflation.

Policy makers in India stated that they are considering different options aimed at defending the rapidly appreciating Rupee.

Markets sold off on Friday as Ben Bernanke confirmed everyone’s rumors that the Federal Reserve is looking to purchase more US Treasury bonds but is unsure at this time as to the size of the program.

Next Week

Monday – Industrial Production and Capacity Utilization in the US

Tuesday – Reserve Bank of Australia minutes, ECOFIN meeting, Bank of Canada rate announcement

Wednesday – Bank of England minutes

Thursday – China 3rd Quarter GDP,

Friday – Hoenig speaks (noteworthy in that he has been against keeping rates low)

Disclaimer
Communications are intended solely for informational purposes. Statements made should not be construed as an endorsement, either expressed or implied. This article and the author is not responsible for typographic errors or other inaccuracies in the content. This article may not be reproduced without credit or permission from the author. We believe the information contained herein to be accurate and reliable. However, errors may occasionally occur. Therefore, all information and materials are provided “AS IS” without any warranty of any kind. Past results are not indicative of future results.
PAST RESULTS ARE NOT INDICATIVE OF FUTURE RESULTS. THERE IS RISK OF LOSS AS WELL AS THE OPPORTUNITY FOR GAIN WHEN INVESTING IN THE STOCK, BOND, AND DERIVATIVE MARKETS. WHEN CONSIDERING ANY TYPE OF INVESTMENT, INCLUDING HEDGE FUNDS, YOU SHOULD CONSIDER VARIOUS RISKS INCLUDING THE FACT THAT SOME PRODUCTS: OFTEN ENGAGE IN LEVERAGING AND OTHER SPECULATIVE INVESTMENT PRACTICES THAT MAY INCREASE THE RISK OF INVESTMENT LOSS, CAN BE ILLIQUID, ARE NOT REQUIRED TO PROVIDE PERIODIC PRICING OR VALUATION INFORMATION TO INVESTORS, MAY INVOLVE COMPLEX TAX STRUCTURES AND DELAYS IN DISTRIBUTING IMPORTANT TAX INFORMATION, ARE NOT SUBJECT TO THE SAME REGULATORY REQUIREMENTS AS MUTUAL FUNDS, OFTEN CHARGE HIGH FEES, AND IN MANY CASES THE UNDERLYING INVESTMENTS ARE NOT TRANSPARENT AND ARE KNOWN ONLY TO THE INVESTMENT MANAGER.
Before making any type of investment, one should consult with an investment professional to consider whether the investment is appropriate for the individuals risk profile. This is not intended to be investment advice or a solicitation to purchase any of the securities listed here. I will not be held liable or responsible for any losses or damages, monetary or otherwise that result from the content of this article.

Technical Commentary (Europe) – September 7th Tuesday, Sep 7 2010 

Greece (Athens) General Share – After the crisis this spring ran its course the ATG put in a nice double bottom in early June and July, which also confirmed the early 2009 bottom, and has moved up through the 50 day moving average. The short-term charts are mildly bullish with this week being key to see if the rally can continue and/or the 50 day moving average begins to provide support for the market. If so, there is a nice rally here up to the 1850 area.

The longer-term charts, while ugly, show a triple bottom around the 1500 level which provided a nice base in 2003, 2009, and 2010.

The Greek market looks to be a very nice contrarian play if the government continues to accept the bitter medicine it was prescribed this spring.

Unfortunately, there is no Greek ETF for small investors to play this rally.

Germany (DAX) – The short-term charts are bullish for Germany as it appears we are moving back to the top of the channel. Strong German economic performance is driving the DAX and we may see a breakout to new yearly highs later this year. The interesting part of the short-term charts are the higher lows on each selloff even if the high on the subsequent rally does not make a higher high.

The longer-term charts continue to rattle around between the 50 and 200 week moving averages making a strong base. An interesting note is the 50 month and 200 week moving averages are in the 6189 area providing serious resistance. A solid move above these levels on strong volume would likely see a move back up to the 8000 level.

US Commentary – We had a nice rally last week which was long overdue. This week will be slow due to the Labor Day holiday and Rosh Hashanah so trading volume is likely to be lighter than expected.

One thing that worries me about last week’s rally is how everyone seems to be tripping over themselves trying to call a bottom. That is typically not a good sign despite the bullish signals.

Disclaimer
Communications are intended solely for informational purposes. Statements made should not be construed as an endorsement, either expressed or implied. This article and the author is not responsible for typographic errors or other inaccuracies in the content. This article may not be reproduced without credit or permission from the author. We believe the information contained herein to be accurate and reliable. However, errors may occasionally occur. Therefore, all information and materials are provided “AS IS” without any warranty of any kind. Past results are not indicative of future results.
PAST RESULTS ARE NOT INDICATIVE OF FUTURE RESULTS. THERE IS RISK OF LOSS AS WELL AS THE OPPORTUNITY FOR GAIN WHEN INVESTING IN THE STOCK, BOND, AND DERIVATIVE MARKETS. WHEN CONSIDERING ANY TYPE OF INVESTMENT, INCLUDING HEDGE FUNDS, YOU SHOULD CONSIDER VARIOUS RISKS INCLUDING THE FACT THAT SOME PRODUCTS: OFTEN ENGAGE IN LEVERAGING AND OTHER SPECULATIVE INVESTMENT PRACTICES THAT MAY INCREASE THE RISK OF INVESTMENT LOSS, CAN BE ILLIQUID, ARE NOT REQUIRED TO PROVIDE PERIODIC PRICING OR VALUATION INFORMATION TO INVESTORS, MAY INVOLVE COMPLEX TAX STRUCTURES AND DELAYS IN DISTRIBUTING IMPORTANT TAX INFORMATION, ARE NOT SUBJECT TO THE SAME REGULATORY REQUIREMENTS AS MUTUAL FUNDS, OFTEN CHARGE HIGH FEES, AND IN MANY CASES THE UNDERLYING INVESTMENTS ARE NOT TRANSPARENT AND ARE KNOWN ONLY TO THE INVESTMENT MANAGER.
Before making any type of investment, one should consult with an investment professional to consider whether the investment is appropriate for the individuals risk profile. This is not intended to be investment advice or a solicitation to purchase any of the securities listed here. I will not be held liable or responsible for any losses or damages, monetary or otherwise that result from the content of this article.

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